Any discussion on product development cooperation in offshore context has to take into consideration locational specifics. Thus, the potential for cooperation between Finnish and Russian organisations is rooted in the Russian innovation system and business environment.
Publication #4, “The key success factors in product development co-operation – Case Russia”, proposes that for product development cooperation to be successful, both organisational and cultural factors need to be acknowledged and managed.
The paper discusses the key success factors for cooperation in new product development with foreign partners. First, the paper provides a theoretical synthesis of critical success factors for distributed product development in cross-country settings. The success factors are elaborated further in the context of the Russian innovation system to illustrate challenges and opportunities in international cooperation. So far, the main interest of academic examination on Russia has dealt with access to market, productional cooperation and subcontracting. We argue that the potential of product development cooperation in innovative fields could be better exploited with acknowledging the critical success factors.
Distributed product development offers lucrative benefits, such as cost efficiency, sharing of financial risk of development, and access to specific know-how. It provides flexibility by extending the resource base for the firm’s activities. In addition, international cooperation can offer strategic opportunities by enabling access to market-specific knowledge that can be used in search for new technological solutions or as route to new market entry. Nevertheless, there is strong debate over the strategic implications of distributed product development, including for example the risk of losing valuable knowledge to a partner and absence of learning in product development work. Although distributed product development offers tempting opportunities, implementation of the concept has been scarce, as it creates many managerial challenges. Changing markets are likely to force organisations to utilise joint development increasingly, but such endeavours should be carefully planned and executed to avoid potential risks.
The evaluation of the potential for product development cooperation between Western firms and the Russian high technology sector is based on an overview of the Russian innovation system, business environment and characteristics of Russian high-technology firms. The Russian national innovation system holds a lot of untapped potential for foreign firms, because of its strong science and technology base. On the firm level, the picture is less clear because of gross regional and firm-by-firm differences in regulation, customs, knowledge,
resources and willingness to cooperate. Russian firms’ capability for long-term cooperation in product development is hard to evaluate. Because of limited internal finances and difficulties in getting external financing, the focus of management is mostly on day-to-day operations. Thus, it can be questioned if they are able to commit sufficiently to longer cooperative efforts. The cooperative arrangement should be designed in such a manner that there are also short-term returns, which enhance commitment and motivation. These peculiarities need not be obstacles for international cooperation, but they must be acknowledged and taken into consideration when planning distribution of product development. Nonetheless, there are great opportunities in product development cooperation despite the challenges in implementation. Especially the post-Soviet, technology-driven SMEs appear to be promising cooperation partners for Western companies.
The paper concludes that in the context of international cooperation, both organisational and cultural factors need to be acknowledged and managed, as they dictate the rules of cooperation and determine the success of distributed product development. Furthermore, the paper contributes by discussing the possibilities for cooperation in the field of technology and product development as opposed to the more common discussion of subcontracting in the manufacturing context.
5.5 Russian offshore networks as external resource pool for software development in Finnish IT companies
Publications #2 and #3 provide more details on Russian offshore software development industry. The main empirical focus is on the resources and capabilities that Russian companies are able to offer to their customers in the context of offshore software development. The extent and potential complementarity of offshore resources are topical issues that bring a valuable insight into software firms’ product development process. Based on the industry data and the empirical studies reported in the publications, it appears that the Russian software industry has a good pool of resources and competences, combined with an attractive price-quality level.
Publication #2, entitled “Offshore networks in software development – Potential of Russian IT”, bases its argumentation on the resource-based view of the firm and the network approach. Networking, in the context of the paper, refers to obtaining external resources for product development and engaging in relationships with other actors. The specific emphasis of the empirical part of the paper is on software product development cooperation between Finnish and Russian companies. The paper presents case studies of four Finnish software development organisations. It provides a description of the case companies’ utilisation of external resources and cooperation practices with Russian companies. Furthermore, the paper reviews the general state of the Russian software industry. It analyses the resources available in the Russian software development industry and their potential for use in offshore sourcing.
The potential is evaluated by comparing the resources and qualification for cooperation of the Russian software industry to the needs of product development in the Finnish case companies. The expectations that Western companies have about a high level of mathematical and scientific resources in Russia appear to be justifiable. For the four companies presented in the empirical study, this was one of the main reasons for subcontracting to Russia or cooperating with Russian individuals. Other reasons included better availability of resources, lower level of costs and need for temporary increase in the
work force. Engaging external resources, instead of hiring own staff, was also a way of minimising risks related to changing economic trends and turbulence of the industry. The quality of the outcome was of high importance. Considering that the jointly developed software product is to be sold further to the firm’s customer and will affect its sales and reputation, this inclination is rather natural. It is concluded in the paper that the Russian software industry has a good pool of resources and competences, combined with an attractive price-quality level. From the point of view of Finnish companies, a clear advantage of Russian sourcing firms is their near location and cultural proximity, despite some negative attitudes due to the past misfortunes. When the Russian companies gain more references, it will become easier for them to prove their trustworthiness and ability to work according to Western practices.
Publication #3 is entitled “Software emporium – Russian IT resources in offshore software development”. The theoretical review consists of the aspects of international sourcing and the relationship between internal capabilities and external resources. The potential of the Russian industry is illustrated through a description of the business practices and models of four Russian offshore software companies. The needs of foreign companies are presented from the perspective of Finnish software development organisations, based on the results of an empirical study. Through the provided examples, the paper aims to gain a deeper understanding of the resources available in the Russian offshore software industry and their potential for use in offshore sourcing.
The determinants of choice for an offshore location have traditionally emphasised economic factors, such as salary level and purchase power parity. This approach may be well suited for describing the rationale behind shifting manufacturing activities to countries of lower costs, but it does not reflect all the diversity of decision-making regarding the distribution of knowledge-intensive activities to other countries. As illustrated in both the Finnish and Russian case studies, the decisions are based on combined incentives of resource availability, quality, specialised capabilities, efficiency, and cost.
Based on the empirical study, as well as the industry description, the main advantages of the Russian offshore software development industry are the availability of qualified technical personnel and experience in complicated projects. The reasons for cooperating with Russian firms included access to talented (scientific and mathematical) resources, the quality of work, and low costs. As compared to other potential outsourcing destinations, Russia may not be the cheapest, but it has an extensive pool of human resources with technical inclination. The capabilities in mathematical modelling are also high. Hence, there are good preconditions for cooperation in the development of high-end, complex software. However, prejudices concerning Russian firms are still a major obstacle for cooperation. The companies have traditionally been technology-oriented and only recently awoken to the need to market their services. This approach has not been particularly efficient in improving the image of the industry in the West.
The paper evaluates the compatibility of Russian offshore software development providers with the needs of their foreign customers. The main contribution of the paper is the presented illustration that the Russian offshore software development industry lives up to its reputation in terms of availability of qualified technical personnel and experience in complicated projects, whereas marketing and specialisation would require additional efforts to make the offering more appealing for foreign customers. Finnish software firms have for some time expressed interest in international sourcing, and Russia has often been nominated as a highly viable offshore location. However, despite the potential of the Russian offshore software
industry and the need for resources in Finnish firms, there appears to be a mismatch that originates partly in the perception of risk rather than actual experiences.