Outsourcing to Russia

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COMPETITIVE POSITIONING OF RUSSIA

Criteria

Russia

China

India

Culture

  • Vast talent pool from top Russian military conglomerates with solid experience (av. 5-15 years) in sophisticated environments
  • Low labor costs
  • Largest, mostly untapped pool of IT talent in the world
  • Lowest labor costs, but major ethics questions
  • Large pool of IT talent
  • Competition for talent increased significantly and will only intensify
  • Presently low labor costs

Talent

  • Russian work ethic and culture are European and very similar to that of US
  • Significant differences between Asian (and specifically Chinese) culture and business environment and business culture of US/Europe
  • Cultural environment differs significantly from US/Europe

Infrastructure

  • Communication cost: * 8,000-12,000 $/month
  • Stable power grid based on multiple technologies. Practically unlimited supply of oil.
  • Communication cost: ~$10,000-15,000$/month
  • Modernized power grid in major cities only
  • Primitive economic infrastructure
  • Communication costs $15,000 -20,000/month
  • Very frequent power outages and other infrastructure problems

Geopolitical factors

  • Democratic government with political stability
  • No outside enemies
  • Direct flight to Moscow from most US cities: 8-10 hours
  • Precarious business environment due to communist government, particularly in regard to IT sector
  • International tensions due to relationships with Taiwan, Tibet, 'rogue states' and internal human rights situation
  • No direct flights from East coast USA. Flights from West and Midwest take 12-14 hours
  • Stability of political system varies, but is weakened by internal religious divisions and nuclear conflict over Kashmir
  • Active conflict with Pakistan over Kashmir with mutual threats of nuclear war; 'live' exchanges of cross-border fire commonplace
  • No direct flight from the US; 22 hours flight time

Business incentives

  • Income tax applies
  • Total customs duty exemption
  • No VAT for IT services export
  • No import duty on IT equipment
  • Software policy 2000 offered some limited tax and VAT exemptions
  • 15% customs duty on technology imports
  • Very limited exemption
  • Income tax holiday till 2010
  • Customs duty exemption
  • No VAT for foreign entities
  • No import duty on IT equipment

Source: Russian Digital Alliance analysis; EngiNext analysis.

Russian Outsourcing Industry:

OFFSHORING DESTINATIONS WORLDWIDE

BENEFITS OF OFFSHORE OUTSOURCING

COMPETITIVE POSITIONING OF RUSSIA

THE RUSSIAN EDUCATIONAL SYSTEM

QUALITY OF RUSSIAN TALENT

OFFSHORE OUTSOURCING TO RUSSIA

CHALLENGES AND STRENGTHS OF OFFSHORE OUTSOURCING

WHICH PROCESSES ARE MIGRATING OFFSHORE?

OUTSOURCING & OFFSHORING SAVINGS POTENTIAL VARIES BY INDUSTRY

A LONG LIST OF CHALLENGES FACES CEOS WHEN MAKING OUTSOURCING DECISIONS