Hot market poses Russia outsourcer staffing need

Hot market poses Russia outsourcer staffing need

MOSCOW (09/12/2003) - Faced with an increasingly competitive Moscow labor market, Russia's leading offshore outsourcing firm is drawing talent from outlying cities and even former Soviet republics in a bid to keep costs down and fight staff attrition.

Luxoft is the first Russian software developer to set up its own recruitment division, opening offices in the Russian cities of Omsk, Nizhny Novgorod and Dubna as well as in Kiev, Ukraine and Yerevan, Armenia.

"For our business to succeed, we need to have access to a wide pool of resources, to be able to find people quickly and to hold on them," Luxoft Chief Executive Officer Dmitry Loschinin said. "That allows us to compete with companies in India, China and other countries."

Industry experts say they expect other Russian companies will soon follow suit as Moscow's hot high-tech market continues to surge, giving IT professionals more chances to jump ship in search of higher salaries or rapid advancement. The Russian IT market has been growing by more than 10 percent a year over the last four years, according to Russoft, the national software developers association. [See, "IT, services growth fuels Russia brain gain, salaries," July 23.]

"Moscow is the center of the IT industry in Russia and in these boom times people are trying to advance as much as possible," said Jason Smolek, senior consultant at J'son & Partners, a Moscow-based high-tech consultancy.

"The average Moscow IT professional is often not staying in one position for more than six months."

International recruitment agency Kelly Services released a study this summer showing that with robust demand, salaries for many Russian IT professionals have risen by more than 50 percent in the last year.

With the country's IT industry concentrated in Moscow and St. Petersburg, it's becoming increasingly difficult for companies in these

cities to meet their staffing needs.

Moscow-based Luxoft, whose clients include IBM Corp., Dell Computer, Boeing Co. and CitiBank NA, has been growing at a rate of 40 percent to 50 percent a year since it was founded in 2000 as the outsourcing arm of IBS, Russia's largest IT holding company.

Luxoft is constantly in need of new employees, hiring an average of 25 people a month. So the competitiveness of the Moscow labor market has become an acute problem for the company, driving it further afield in search of new talent.

Georgy Georgiev, Luxoft's vice president for business development, said that until recently the vast majority of the company's hires were made in Moscow. Now, he said, about a third of its employees are coming from other parts of Russia and the former Soviet Union.

Georgiev said the benefits of hiring outside Moscow are two-fold.

First, it costs less. Georgiev said Luxoft saves about 5 percent on the salary of an employee hired from outside Moscow because the company doesn't have to pay the premium it would to lure someone away from another Moscow firm. By setting up its own recruitment division, the company also saves on recruitment costs.

Second, and most importantly, by bringing in staff from outside Moscow Luxoft is enhancing employee loyalty, Georgiev said.

With less knowledge of the Moscow labor market, fewer connections in the local industry and the pressures of adapting to life in one of the world's largest cities, non-Muscovites are far more likely to stay with the company.

Oleg Zolotykh, a 28-year-old software developer, joined Luxoft earlier this year after being hired from his hometown of Tula, 150 miles (240 kilometers) south of Moscow.

Zolotykh said he had been working in IT at the Central Bank of Russia's Tula branch and saw little room for advancement.

"Places like Tula are not so interesting," he said. "It's very difficult to find work there for a bigger company, to have a more important position and to work with new technologies."

Luxoft acknowledges there are some disadvantages to its new hiring strategy, however.

Loschinin said IT professionals from outside Moscow generally have poorer language skills and less exposure to Western standards. But he said Luxoft often trains new employees from outside the city to make up for these shortfalls.

Smolek said he sees another disadvantage in bringing employees to Moscow. It makes sense in the short-term, he said, but instead of bringing staff to Moscow companies like Luxoft should be looking at moving more of their operations outside of the capital.

"In the long run, this would be more advantageous," he said. "It would give them a local footprint throughout Russia and the former Soviet Union, develop the industry in the rest of the region and be great PR."

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