Global Operations Management
The paper elaborates on the recent outsourcing and Offshoring trend in the IT industry. Two countries i. e. Russia and China will be analyzed in this regard. Both countries present different opportunities for the IT corporations. Russia: A Vast Offshoring Frontier: Russia is now the most popular country for offshore software development. For years India had been the best offshore destination but now organizations are looking for better and cost effective alternatives. Giant corporations such as Boeing, Deutsche Bank, Dell, and Siemens are few of the 250 global companies which are active in Russia-based offshore software development.
Research suggests that the Russian IT software market is growing at 25 percent per year which presents a great deal of opportunity for many firms. Many European and American firms have selected Russia as their offshore site because of availability of excellent hi-tech and engineering talent. The local IT industry is also thriving and a lot government support is present. It is cost effective and is closer to European and American markets (Loschinin, 2006). Russia has tremendous talent pool. Its workforce is highly skilled, experienced and educated.
It is ranked third by UNESCO in the number of scientists and engineers per capita worldwide. Russia has
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Nowadays they are sourcing much complex and technical work related to Oracle, Microsoft and Java Programming (Loschinin, 2006). With almost 300 software companies, Russia’s IT market is around a $2. 5 industry. The best factor is that even the government is supporting the industry and that’s why the overall exports have also increased. The Russian IT sector is not only increasing by volume but the quality control has also become strict and according to the global standards such as CMM and CMMI (Loschinin, 2006). Russia has cultural and geographical proximity with European and American organizations.
For Europe the time differences are negligible and for America around 5-6 hours difference is there which is bearable. Other than this the cultural practices of Russia, America and Europe are similar which makes it easier to communicate (Loschinin, 2006). The most significant advantage is the lower labor costs. In America an average engineer’s salary in America will exceed $60,000 per year whereas in Russia the same task can be done with around $14,000- $18,000 per year. Through outsourcing a lot of time and other resources can be saved as well.
Non-core task such as product development, maintenance and other cumbersome task can be outsourced while the core product task can be handled by European and American employees. In this the product reaches the market faster (Loschinin, 2006). IT Outsourcing in China: China’s presence in the IT outsourcing scene truly impacts everything in the marketplace. It means more choices for the consumers and even more price point choices for the corporate buyers. For China itself this trend is positive as it has raised the standard of living and also builds China’s reputation as very popular outsource destination.
There are five key drivers for China’s IT market growth. The most important driver is the zero duty factors. It actually acts both as a threat and an opportunity for the global corporations. Threat because it will increase competition and many new comers will enter the market. It is an opportunity because firms can lower their costs and maximize their profits (Chan, n. d. ). China has developed high standards in the IT industry. Olympics in 2008 and the recent trade fair in Shanghai have further developed the standards. Even the domestic IT standards are becoming more and more intensive and competitive.
China’s large domestic market, low-cost IT services sectors and centralized government provides competitive edge over other countries (Chan, n. d. ). There are also tougher penalties for intellectual property rights in China. In this way China boosts enforcement in rising international pressure, globalization and competition. It has also put huge penalties on dissemination of pirated goods and software over the internet (Chan, n. d. ). It is said that China will become outsourcing superpower but it has taken a very unique route in becoming one.
Chinese have acquired well known brands to grow and expand them. They operate like super capitalists by combining government support and entrepreneurial capabilities. In this way they can benefit from both the parties (Chan, n. d. ). The last important driving factor is just like Russia’s. China has an immensely growing IT talent pool. It has very talented and hi-tech workforce which are experts in engineering and the IT industry. Research suggests that there are around 2 million software developers in China and the number is growing (Chan). Conclusion:
Thus we can see that IT outsourcing in China and Russia have become very popular. This outsourcing will in turn benefit the consumers, the corporations and these both countries too. Corporations can lower their costs and thus can pass the benefit to consumers. In this highly competitive world, its imperative that organization try and minimize their costs as much as possible. References: Chan, S. S. (n. d. ). IT Outsourcing in China: How China’s Five Emerging Drivers Are Changing. The Outsourcing Institute . Loschinin, D. (2006). Offshore Outsourcing: Why Russia? Best Practices: Offshoring & Outsourcing .