Collison path of Eastern European outsourcing

Odessa_Gallery_005Several weeks ago I posted an article about issues of Indian outsourcing. As soon as that blog was posted I received a  number of questions and comments. Some were public and many were sent privately. Some accused me of unfairly painting the picture, while others agreed with me. A number of those that contacted me asked about my opinion about Eastern European outsourcing.

Below is my take on major issues that are faced by IT companies located in Russia, Ukraine, Belarus, Baltic countries, Romania, Poland, and others in the region commonly known as Eastern Europe. The hardest part was to write it in a way where this is not a comparison between two world zones or cultures. While I’ve had better experience working with outsources in Eastern Europe and South America I don’t want to paint a picture that companies in Easter Europe are problem free. In fact I believe that if the trend in Easter Europe continues without a significant adjustment the outscoring industry will self-destruct. This is especially true for Ukraine, Russia, and others in the post Soviet space.

Here are few points of where the Easter European outsourcing needs to focus if they want to have a chance at survival

Learn to follow directions

While Easter European developers are known for their ability to think outside of a box and make decisions it comes at a price. They are absolutely not able to follow directions. Managing a team of developers there is a challenge because you always struggle to keep them on the right path. Running an enterprise requires a combination of new invention and mundane support of legacy code. An engineering team that is not able and willing to do both will not be successful.

You are not always the smartest one in the room

They are smart. That’s a good thing. They know it. That’s not so good. Many Eastern European developers can be too full of themselves. They may have little respect for others and if they do that respect is earned through some hard labor.

Mature

IT market in Eastern Europe is still too new. Twenty years ago it didn’t exist at all. As the result the vast majority of high tech workers are very young. It creates a tremendous opportunity as this workforce gets more experience and grows. At the same the current employees are not as mature and there is a void of qualified mentors to take them to the next level.

Control your salary growth

IT industry being so new still doesn’t have established salary rates. With new employees growing rapidly their compensation expectations growth accordingly. The result salary growth is out of control. If this trend continues the Eastern European community will price themselves out of the market. Even today there is vertically no financial advantage of building a team in Russian capital Moscow. Prices are simply too expensive.

While Eastern Europe outsourcing positions its differentiator as quality it’s a tough sell. Quality is a theoretical gain that still needs to be proven; while cost is a hard number that executive management pays a lot of attention to.

Find a way to live within the existing system

Russia and Ukraine are still developing countries. Despite what you may read or hear their banking systems, infrastructure, and even legal systems are not well developed yet. While this creates a great savings opportunity for us as customers it also creates an environment where money and power are still not distributed. Without a well established legal system and law enforcement contract enforcement is difficult. Without an enforced taxation system companies are forced to participate in creative games instead of focusing on growing their business.

Become security conscious.
Hacker culture is alive and well. Starting with using licensed software to more advanced concepts like not going around company’s firewall it’s all a foreign concept to an average developer in Eastern Europe. People need to start respecting rules and live by them. This creates fear in an average American company and keeps work away from shores of Europe.
Learn to keep a consistent pace

Eastern European developers have a very high level of dedication when it comes to getting things done. Under a hard deadline they will work 24/7 to get it finished. Unfortunately on a flip side they are slow to show any progress when projects proceed at a normal speed. Management is dependent on receiving constant results and this attitude is viewed as an absence of progress.

HR & Hiring
Culture of looking for a job, interviewing, and changing companies is not developed yet. Potential candidates act with an attitude that they are doing a favor when they come for an interview. People need to understand that having a job is a privilege. Being hired is the highest professional compliment one may receive. Today the job market is hot but it will change over time, as growth is cyclical. Employees need to start building relationships today to be hirable tomorrow.
Eastern Europe and specifically Ukraine & Russia have a tremendous potential of becoming IT outsourcing leaders of the world. Abundance of excellent technical talent, higher education, and tremendous work ethics make it for nearly a perfect combination. Unfortunately without addressing all the issues above this region greatly limits itself and will not grow past of where it is today.
Eastern Europe outsourcing is not on the path to ruin itself. It’s at the gates.

8 Responses to “Collison path of Eastern European outsourcing”

Read below or add a comment...

  1. paul says:

    Good reads, both on India and Eastern Europe as I am curious what is next on your list:)? Maybe Latin America?

    Even is the sentences are black or white I think you manage to describe the general feeling and perception in the market so the question would be: where is outsourcing heading as both major destinations seem to have their issues? Or maybe we should (re)define what outsourcing means – in general terms.

    What are the decision drivers when going outsourcing: cost optimization, flexibility, scalability, around the clock delivery. Or, simply saying, have you got a STRATEGY? are you taking in serious the diligence process?
    For every type of provider you might look there are plenty on the market to choose from but only one (maybe a few)
    are compatible with your needs (actual and future) so pay the necessary time and effort before getting into this adventure.

    p.s.: do not forget to get INVOLVED, nothing happened by itself

  2. Alex says:

    Probably my experience is not representative, since I was born and worked for about 10 years in a small East European country, but it does not help that most of the outsourced projects are boring to death. They are either high labour low intelligence jobs, or end-of-the-line projects that need a few maintenance engineers to keep afloat. In either case, these are projects that do not require a lot of skill and are thus outsourced to the cheapest supplier.

    I’ve been happily employed in Australia for a few years, and find that the jobs here are either more paid or more interesting, often both. And that is funny, Australia being somehwat of a backwater country in IT terms.

    My advice to fellow young and enthusiastic Eastern European IT buddies: emigrate. If you are into technology because it is fun, it may take too long for the good jobs to arrive to your country, and if they ever do, it might be too late for you to care.

  3. Taras Demkovych says:

    Being a part of the other side it was exiting to read your article. However I would like to disagree with some of your statements:
    1. Problem with following directions has some place, but directions is something that comes from client side. Therefore client must be absolutely sure that his directions (requirements, demands etc) are clear for his partners and precise. The truth is that big part of these directions are not of that sort.

    2. Learn to keep a consistent pace. That is definitely a project management problem. And it definitely involves both client and development team. System of reports and good communication, which both are parts of project management, will ensure that you will not encounter this problem. Unfortunately, in most cases client leaves it to supplier’s discretion and cares only about the end result. The truth is that there cannot be end result, if client is not involved in the process.

  4. Leszek says:

    Zenhya, maybe turn West and take a look at Central Europe? There are many companies focused on IT Outsourcing that sucessfully works on advanced projects. They’re mature enough to compare with software houses from USA. Having same competencies, skills and sharing same culture and habits they are still more cost-effensive than the Western ones.

    • RK Sharma says:

      please provide few examples, so that I can research

      • Martin Vahi says:

        I do not know about the “Eastern-Europe” as a region. As I pointed out in one of my comments next to this blog post, even the Baltics is culturally not a “single region”, but the fact that many American firms sometimes, I think, too often, classify whole Europe to the same region with Africa, may be distinguishing UK, seems to reflect the typical American view of the world pretty well, not to mention the occasions, when an e-shop of a major American global business does not have Estonia, a region within the European Union, listed as one of the states on planet Earth.

        However, what I do know about outsourcing in Estonia is that a Russian outsourcing company, Acronis, is expanding to Estonia, not Russia.

  5. Martin Vahi says:

    As an Estonian (Estonia is the nort-most Baltic region), id est as an Eastern-European, I say that it might be a good thing that the classical, dumb, “outsourcing” dies in Eastern-Europe and Russia. The statement that software development can have a “steady pace”, something that the management can “follow”, is, according to my subjective opinion, TECHNICALLY INVALID, because:

    X_1) Software development is equivalent to walking in the unknown and it is really not possible to know, how much distance needs to be walked to achieve the goal.

    X_2) If I do not know the distance between 2 stars, then the absolute distance that I have traveled from my launch position, can be precise, written down, measured, reported, logged, but the number is totally meaningless, because even, if the whole journey were passable in a constant speed, at a straight line, the traveled distance will not offer any hints about the Estimated Time of Arrival;

    X_3) While walking in the unknown, the “last 20%” can actually turn out to be the “last 80%” and the only way to tell, if the job is complete, is to pass all tests and requirements.

    That is to say, wanting to measure any kind of a “pace of research” is PLAIN STUPID!!!! Of course, it is possible to keep a log of activities, like write a few sentences at the end of each day, what was the problem being worked on and what solutions I tried, but clearly that serves only psychological purposes and says nothing to the person, who actually does not know the field. Otherwise the stupid management might want to read about steps that a surgeon takes at a hospital, despite the fact that the management does not even understand the meaning of the medical terms in the report. Of course the smarter end of the spectrum of managers does not look for “pace of research”, but rather, what new problems have been found, what side discoveries have been found, what potentially lucrative side-branches have been taken. I self evaluate my “pace” not by “speed”, but by “acceleration”. I look, what problems that I had to solve manually, have I automated away, architected out, etc.

    What regards to respect, then, indeed, in Estonia and Finland there are at least 2 levels of respect. One is elemental politeness that is offered to everyone on the street. In the world of fine specialists and in the hacker culture anything other than that MUST BE EARNED!!! Yes, earned through doing smart and hard work and demonstrating general smartness, ability to respect others, ability to be delicate, ability to stand against bullies, ability to tell the truth. Position in corporate hierarchy is a formality that is actually being laughed at. In Estonia the FORMAL custom is that university professors, doctors, with an exception of medical doctors, do not use the academic prefixes in front of their names, except only on business cards, may be cabinet door signs, other marketing materials. Medical doctors use the word “Doktor” almost always. The “Doctor” is almost in the context of a name of the profession, like “accountant”, “teacher”, “driver”, “sales representative”. The Estonian language uses the same 2 formal polite forms for the word “You” as the German and Finnish languages do and choosing of the right form, when talking to strangers on the street, addressing professors and teachers, is paramount. The rules for choosing the form of “You” are general and have nothing to do with corporate positions or academic titles.

    I think that it is worth pointing out that Russians, including Estonian Russians, differ substantially from Estonians and Finns. Russians accept hierarchy far more easily than Estonians and Finns do. Russians can actually accept corporate hierarchy, but in the case of Estonians and Finns any respect other than the previously described, ordinary, street-politeness must be EARNED!!! As an Estonian, I think that it is a good thing that corporate hierarchy and all stupid rules are not respected. What regards to the cliche about Americans not taking their time to get acquainted with world history then, indeed, it would help, if the Americans and Brits tried to get more acquainted with world history. Historically Estonia is not a place, where it would have been possible to survive, if the hierarchy of all the occupiers had been respected. In Estonia it made/makes a big difference, if someone has/had an ability to actually do the work oneself.

    I classify modern (2015) Estonians to 2 groups: about 80% of Estonians, regardless of occupation, are slackers, and the rest of them, the 20%, really thrive for excellence in what they do.

    Thank You for reading my comment. 🙂

    • Martin Vahi says:

      I’d like to add that Latvians differ from Estonians, culturally, but are are far more similar to Estonians than they are to Lithuanians. The Lithuanians are practically Slavic people, Latvians, Estonians, Finns, Swedes are not. Lithuanian culture is more similar to Polish culture than it is to Latvian. That is to say, the Baltic is not a culturally single entity, but contains at least 2 branches: Estonians and Latvians in one branch and Lithuanians in the other.

      To complicate things further, Latvia consists of roughly 50% Latvian Russians and Estonia consists of roughly 25% of Estonian Russians. Estonian Russians have a different culture than Estonians do, but, at the same time, Estonian Russians also differ from Russian Russians and I do not mean only the ones that speak fluent Estonian and have successfully integrated to Estonian society. I do not know, how much the Latvian Russians differ from “Russian Russians”, but it is commonly known that within Russia the Petersburg Russians have one culture and the Russians in Moscow have another culture. Therefore, probably the Latvian Russians form their own sub-culture.

Leave A Comment...

*

Verify you are a human: *