Dozens of new mobile-phone handsets from various producers appear every year on the Russian market.

The software for these telephones is developed in Russia itself. It is cheaper for phone manufacturers to hire local programmers to develop the russified software for the phones than to maintain a department of their own working on it. This creates opportunities for companies to develop many new applications for modern mobile phones and various applied programs.

Mobile phones are now an integral part of Russians’ lives. The telephone-penetration level in the Moscow licensing zone has now reached 56 percent. It is 56 percent in St. Petersburg and 18.6 percent in the country overall.

The outsourcing market for software is developing fast in Russia, helped along by the relatively inexpensive and well-qualified programmers the country has at its disposal. Russian programmers can be 60 percent cheaper than programmers in the West.

Andrei Nadein, director of the electronic-business and client-ordered-developments department at TopS Business Integrator, says that it is hard to give a precise estimate of the market. "But I think the market is developing quite rapidly, with growth of at least 25-30 percent a year," he said.

"Compared to in-house development work, outsourcing is always a more transparent and more professional process. It’s economically more advantageous for periodic or one-off projects than using in-house development. Professional software-development projects require analysts, architects, programmers, testers, writers, project managers. Just try finding all these specialists in an in-house team. If they’re not there, then there’s no fully guaranteeing the quality of the finished product. The signs are all there for the outsourcing market to develop, and big and medium-sized companies realize this and are making more use of these possibilities in their work."

The market began to develop in the early 1990s, when Russian companies started to work on software applications for pagers. The first projects emerged in 1992, one of which was the Motorola Advisor pager-interface localizer. One of the most successful projects was MemoJazz, the smallest alphabet-digital pager in the world, which was a sales hit. Another, more recent, success is the T900 used in two-way paging.

The main customers in the outsourcing sector are Motorola, Microsoft, Unication and Microcell. Other producers that enter the Russian market also look for local companies to provide programming solutions for their telephones and telecommunications equipment. This trend has become particularly clear since 1999, when demand became stable for software and programs for mobile phones.

But Russian companies are also involved in projects that go beyond just providing Russian versions of mobile-phone software. Telma, for example, wrote all sorts of applications for the Motorola A009, including the operational system, e-mail program and programs for working with SIM cards, a digital camera and multimedia applications. The company also developed color-screen support and various screensavers.

This market, estimated to be worth $5 million-$7 million a year, has its recognized leaders and also a large number of small companies that compete with the big firms for customers. Individual programmers working on the side also offer their services at bargain rates.

Many client companies looking to cut costs turn to these freelance programmers for their projects. Nikolai Petrov, chairman of Internet company Nogti.com, said that these private specialists are usually employees of companies already working in the mobile-phone-applications area.

"They are a lot cheaper – the difference in price can be up to 80 percent – and the quality is just as good, "said Petrov. "This way of developing applications has its advantages. First, it’s project work, so you don’t need to organize the material and financial base for an employee or group of programmers. Second, the work is paid by the result, so we don’t need to pay a regular wage, which works out more economically for one-off projects. Third, we have the choice of people to work on the projects and can break off relations with them at any point if they don’t meet deadlines or quality standards."

But this system also has its problems. Most competent programmers have so much work to do in their main jobs that the companies they work for on the side run the risk of ending up with programs that do not work and no specialists to support them.

High demand for mobile-phone and pocket-computer software and limited supply makes the outsourcing sector very attractive for software-development companies. This has many large companies thinking about opening their own software-development departments specifically for this sector.

"The mobile-terminal and pocket-computer market is very dynamic and promising and so is the market for software for these devices," said Konstantin Konin, marketing manager at E-style Software House. E-style Software is still a young company and has not begun moving into this niche yet, "but we obviously will enter it," Konin said.

"In my last job, at a company developing linguistic programs, we successfully developed dictionaries for pocket computers (together with Paragon Software SHDD), and the amount of sales was considerable, up to 30 percent of dictionaries for computers sold on the retail market," he added.

But, despite its attractiveness, this market also causes problems for companies involved in outsourcing. Working with large mobile-phone-supplier companies involves sizeable investments for the companies developing software. The suppliers are not willing to invest in testing russified programs on the Russian market, leaving it up to the software-development companies. It can happen that the investment in development only pays itself off a year or two later. Konin said that Russian software-development companies would be able to enter the market for developing programs for mobile phones much faster if the telephone-vendor companies showed more initiative.

"For the moment, they just provide the developers with funds to create, test and distribute software, and they leave it up to the developers to commercialize the programs. That is how Nokia, for example, works through its developers’ forum, www.forum.nokia.com. They don’t actually place orders themselves, and, so, taking part in their programs involves investment expenses," Konin said.

Outsourcing orders are usually in four areas. There is the user interface – that is, all the applications and the nucleus of the operating system. There are Java machines and Java applications for mobile phones and for personal computers. There are also 3G developments being worked on with an eye to the future, as, for now, 3G networks are developing slowly because of the high costs for equipment and communications services (voice and traffic transmission). Then, there are developments making use additional applications for mobile phones, whether for corporate clients or as built-in programs for service centers.

Nadein says that demand is also concentrated in applied software. "Companies generally come to us for a full cycle of work from business analysis and systems design to their creation, implementation and follow up. This approach means the responsibilities are clearly divided between the client and the company performing the work, and the project is a lot more likely to be successfully completed than if there were three, four or more companies working on it."

Gradually, then, the market is beginning to take on definite contours, and the companies working on it are creating new departments to keep up with the requirements of the times.

Valery Kalachev, director of Telma, said that, in the future, the large outsourcing companies will transform into developers of both programs ordered from them and of their own technology.

"There are plans on the market to increase the amount of science-intensive research, innovative projects and capacity to work on complex, large orders," Kalachev said.

"Overall, the software-development industry will also continue to grow and the producing companies will merge and consolidate. We can also expect to see the emergence of new Russian technologies that will find demand from foreign manufacturers."

Alexei Sukharev, the president of Auriga, also says that he thinks that, if Russian companies want to become full members of the world outsourcing market, they will have to consolidate. "At the moment there are no companies in Russia with even 500-1,000 employees, and there would be only a couple of companies that are organized enough and able to work on big projects on the international market. Major companies just don’t trust us enough when it comes to outsourcing to entrust us with developing vital functions for them. They ask, ‘How many people could you spare for work on this project? 100?’," he said.

"I, for example, can’t say to them, ‘Oh, yes, Russia is full of talented people, we’ll find them right away.’ That’s not a serious approach. There are a lot of projects that require teams of 100 people or more, but I can’t compete for them. There just aren’t the big companies here yet, though they have every reason to start to emerge. There has to be a process of mergers." - he says.