As the United States, Britain, and other Western nations evacuated diplomats and their families from India and Pakistan this past June, Arkadiy Dobkin couldn't help but ponder the seemingly intricate link between world history and his nine-year-old offshore software consultancy.
One decade ago, Dobkin arrived in the U.S., ready to build a consultancy he proclaimed would be unlike any that existed before. His business model was simple: Build relationships with technology executives in multinational corporations, and convince them to perform their applications development offshore using high-quality, low-cost, Russian programmers. It was a model similar to one a number of India-based software consultancies were already successful in deploying, allowing them to take the early lead in a competitive arena that would later become known as offshore software development (OSD).
At the time, Dobkin remembers envying the freedom with which Indian programmers were able to commute between their U.S. clients and their start-up consultancies inside India. In the late 1980s and early 1990s, the Soviet government's attitude toward such comings and goings — despite the liberating climate of perestroika — remained tempered by the cold war dictum "If you leave, don't come back," says Dobkin.
It was late 1991, after the collapse of the Soviet Union, when Dobkin decided he could wait no longer. The then-31-year-old programmer emigrated to the U.S., with plans to link American clients to a 25-employee consultancy he had started up in Minsk.
From the start, Dobkin's ambition was to build a global consultancy that could help close the gap between Russia and its Indian offshore rivals. For its part, the Indian software industry at that time was estimated to be exporting annually only about $100 million worth of software and services.
For multiple reasons, Dobkin believed that Russia could shortly become India's most daunting offshore rival. First, there was Russia's proximity to the European continent. Moscow is a mere three-hour plane ride from Frankfurt — compared to India, which is nine hours away.
Next, and more significantly, there was the liberation of Russia's highly educated talent pool. Only months before Dobkin's arrival, President George H.W. Bush signed a Strategic Arms Reduction Treaty (START 1) with Mikhail Gorbachev to reduce the number of U.S. and Soviet long-range nuclear warheads nearly by half — a move that would prod Russia's student population to begin searching for opportunities outside Russia's vast military establishment.
Besides excess warheads, Russia's Cold War legacy was of a vast pool of technical talent that had been schooled and trained under massive, government-sponsored scientific initiatives. Today, the World Bank estimates that Russia has more than one million technically trained personnel, more than the U.S. or China, and three times as many as India.
However, back in 1992 Dobkin's plan to have U.S. clients tap into Russia's "Cold War legacy" proved to be ahead of its time. While the Russian government's attitude toward its citizens' "comings and goings" would begin to ease only in the mid-1990s, the U.S. economic environment itself was proving challenging for the consulting entrepreneur.
"In 1991, even good programmers couldn't find work in the U.S., and I could not yet speak English, so it was pretty scary — back then, two months seemed like 20 years," says Dobkin.
Unable to feed client opportunities to his programmers back in Russia, Dobkin's fledgling consulting business quickly fell victim to Russia's early-'90s economic crash. "I know of several Russian software consultancies that started up at that time, but I know of none that survived," explains Dobkin, who says that he was soon joined by scores of Russian programmers who fled to find work in the West.
"For those of us who did emigrate in the early '90s, the challenge became day-to-day survival," says Dobkin, who claims that the stagnant economy of the early 1990s led him to temporarily shelve his dream of building a consultancy and accept a job offer from Prudential Insurance to work as an independent contractor.
Missing the First Wave
Among those software consultancies that tapped into the '90s' demand for offshore programmers, none were better positioned than those located in India. With its established learning institutions, large English-speaking population, and a government proactive in encouraging the free flow of talent to and from the United States, India became ripe for foreign investment and trade.
Moreover, a number of Indian economic reforms, initiated in 1991, established a new sense of corporate governance within India. In the decade that followed, such Indian companies as Infosys, Wipro, Satyam, HCL Technologies, and Tata Consultancy Services would grow to dominate the burgeoning offshore software marketplace.
Throughout the 1990s, as more clients urged their software vendors to help curtail the costs of software development and customization, Indian software consultancies would steadily capture the lion's share of offshore opportunities and watch their stake in the offshore market grow from about $100 million in 1992 to $5 billion annually by the decade's end.
"We were driven to offshore programmers primarily because our clients were asking us to take advantage of these parties in offshore engagements," says Michael Sinneck, Microsoft Corp.'s corporate vice president of worldwide services. Like most clients, Microsoft's were interested in lowering their labor costs, and offshore programmers could often be enlisted at one-fifth the expense of their U.S.-based rivals. Thus, a programmer who makes $100,000 annually in the U.S. would make only about $20,000 in India.
Throughout the remainder of the 1990s, such compelling economics allowed offshore consultancies to make steady inroads into Fortune 500 accounts. And as they grew, the offshore upstarts routinely upgraded their skills.
"Over the years the, offshore vendors have really stepped up the quality of their game. Now, they are a world-class operation," explains Sinneck,
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