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7/28/02 - Biggest export
for tech firms: Their workload
Jersey computer companies find
cheaper programmers overseas, especially in Russia
BY REBECCA GOLDSMITH
Star-Ledger Staff
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 far less
in countries such as India, China and Russia than in the United
States, multinational companies can obtain software services
overseas for 30 percent to 65 percent less than doing it themselves,
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.
Rebecca Goldsmith covers global economics and may be reached
at rgoldsmith@starledger.com or (973) 392-5706.
Copyright 2002 The Star-Ledger.
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