The Star Ledger - July 28, 2002
Jersey computer companies find cheaper programmers overseas, especially in Russia
Ten years ago, Arkadiy Dobkin was a recent Russian immigrant, working as a $35,000-a-year computer programmer in Newark.
Today his Princeton company, EPAM, has revenues of $12 million in revenue and is one of the state's fastest-growing technology companies.
In many ways, Dobkin finds himself in the right place at the right time. What Dobkin's company does is to send programming work abroad - to Russia.
While the amount of information technology leaving the United States continues to grow, corporations are increasingly interested in spreading the risk, and one of the places getting more attention is Russia.
In New Jersey, the impact is felt in several ways: Outsourcing firms are locating here to be close to the New Jersey-New York metro area, but at the same time many programmers employed here are losing their jobs to foreign counterparts.
Because labor costs are far lower for such services as software development, testing, and maintenance and support, Russia, India and China offer software services for 30 percent to 65 percent less compared to the United States, said Stephen Lane, a consultant with Aberdeen Group, an IT market analysis firm in Boston.
Last year, a typical American programmer earned $63,000, compared with $7,500 in Russia, $5,850 in India and $4,750 in China, according to Aberdeen.
Fortune 500 companies have followed the money. Over the past decade, programming work done for them overseas has tripled - to 30 percent.
For years, start-ups such as Dobkin's toiled in the shadow of its Indian competitors. Well-organized and government-sponsored, India's software industry still dominates the $7 billion global field, reporting $6.2 billion in sales. Companies that send work to Russia earned $200 million.
But challenges to India's dominance are brewing in countries such as China, Russia and Ireland.
Russia's prospects in particular have gotten a lift from this year's world events, including tensions between India and Pakistan, instability in the Middle East and the rising profile of Russia as a U.S. ally following Sept. 11.
"If India is the dominant player in the world, and people are reading about Kashmir, then by implication Russia becomes an island of stability in this screwed-up world," Lane said.
"It's very funny right now that Russia is the most stable situation," Dobkin said in heavily accented English.
That perception of stableness seems to be boosting the profile of companies such as PWI, a Red Bank software developer with about 40 employees in Moscow that sells sophisticated security systems for Internet services.
Promoting Russia as a "diamond in the rough," the firm encouraged potential clients to "spread their geopolitical risk" beyond just one or two physical locations. Just as investors should diversify their portfolio of assets to avoid putting all their eggs in one basket, companies should not keep all their electronic records and data keeping in the same place, argued PWI chairman Gregory J. Salvato.
PWI's report on the subject has been downloaded 5,000 times from its Web site and helped boost an increasing number of inquiries and requests for proposals, Salvato said. Since 1997, the company's average sales growth has been 70 percent, he said.
The global trend toward offshore outsourcing is especially evident in New Jersey, where large pharmaceutical and telecommunications industries have provided a natural market for the services. The state's sizable Indian community provided links to programmers working in high-tech hubs such as Bangalore. As the federal government granted more temporary worker visas during the 1990s, many were Indian programmers living in New Jersey.
But following a growth spurt of computer and data processors in the late 1990s - from 47,000 in 1994 to 91,000 by the end of 2000 - the pool of such jobs shrank for the first time in New Jersey last year, dipping to 86,800, according to the Department of Labor.
"If this goes on for another 10 years, the U.S. is going to be out of the software business," said John Miano, a Summit-based programmer who founded an international guild to push for better conditions for U.S.-based programmers.
Joseph King, vice president of MindTree Consulting in Summit, which employs 500 people in India, said he has mixed feelings about his company's impact on the local economy. Born and raised in New Jersey, King, 34, said, "If all things were equal, I'd favor a New Jersey native."
But all things aren't equal.
King contends that if moving IT work overseas saves a company, the end result is worth it. "We may be bad for IT workers, but we're good for all the other employment candidates in the States."
Dobkin, who became an American citizen earlier this month, said his company's mission was no reflection of his patriotism.
"It's just business," he said. "I think a lot of people are trying to protect themselves, saying it's patriotic to keep jobs in the United States rather than trying to compete better."
In his view, outsourcing can help the local economy and American companies.
"They're benefiting from this and they're cutting their costs and they're competing in the global economy. It's a way for huge American companies to compete," he said.
Still, some executives may never turn to offshore firms for their needs. A recent Aberdeen survey found that companies without offshore software experience were more reluctant to begin outsourcing in the wake of this year's events.
Security concerns may be part of the fear. But many in the industry believe software companies abroad are just as safe as domestic ones.
"There are no different security ramifications about having outsourced service in Bangladesh or in Mexico as here," said consultant Howard Lubert of SafeHatch in Wayne, Pa.
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