- The Washington Times - Monday, March 19, 2001

A Vienna-based software developer got around the shortage of computer engineers in the Washington area by putting computer specialists in Ukraine to work where they live.

CavaSoft joins a growing number of companies that are not letting geography separate them from the talent they need.

The company, which set up shop in 1998, initially tried to obtain temporary guest worker visas for Ukrainian programmers. But CavaSoft's chief technology officer, Michael Volynski, grew frustrated with having to wait six months for the paperwork to go through.

To save time, CavaSoft a Java-based developer that takes its name from the Ukrainian word for coffee began training its engineers before they left Kiev and other cities in the former Soviet Union to speed their integration into an American company.

"It gave us the idea that we might use people without actually bringing them here," says Mr. Volynski, who is Ukrainian born.

Thus was born CavaSoft's current strategy, which executes a digital end-run around immigration authorities by using engineers overseas without ever bringing them to Northern Virginia. They simply log into CavaSoft's server and get to work.

Stephen Kurtz, CavaSoft's chief executive officer, was bowled over by the response the company got when it advertised 18 months ago for Ukrainian programmers, who he says do excellent work, quickly, on short notice and for limited periods of time.

"When we put out the word in Ukraine, we got literally thousands of resumes," Mr. Kurtz says.

It didn't hurt, either, that they worked at a fraction of the cost of American engineers, he notes.

Engineers and software programmers residing overseas have become a crucial safety valve for U.S. technology companies with an insatiable appetite for hard-to-find technicians.

"By the latter part of the 1990s, cost was less of an issue," says Marty McCaffrey, the executive director of Salinas, Calif.-based Software Outsourcing Research. "It's about the talent."

Mr. McCaffrey says the United States lacks between 500,000 and 1 million information technology professionals, a shortfall that the H-1B visa program, a special category of temporary immigration permits for skilled workers, can never make up.

The technology industry successfully persuaded Congress to raise limits on the program last year.

The trend toward moving work overseas is strong enough that even the Institute of Electrical and Electronic Engineers-USA, a group critical of the H-1B program, has found little to complain about.

"Companies always have the option of locating facilities where they want to," says George McClure, a spokesman for the group. "And they do."

AOL Time-Warner announced last month that it would invest $100 million over the next five years in Bangalore, an Indian technology hub, where it will hire dozens of engineers. The money will flow through iPlanet E-Commerce, a joint venture between AOL's Netscape and Sun Microsystems.

Corporate titans, such as Motorola and Oracle, who have solid overseas contacts and deep pockets, have been doing it for years.

Now, the globalization of human resources is also a reality small-and medium-sized enterprises such as CavaSoft face. The trend has also spawned opportunities for companies to find talent overseas.

"Smalltime American companies are doing a lot of this these days," Mr. McCaffrey says.

Though the trend is often referred to as the "outsourcing" of software development, that label obscures the essential point that U.S. technology companies are looking for ways to access talent however they can. Some firms have set up brick-and-mortar facilities with actual employees overseas, while others have actually outsourced work to independent contractors.

Chantilly-based Icode, a developer of e-business software, has worked in India since it opened for business in 1994. It initially began by contracting with firms in India to handle programming tasks, but quickly became dissatisfied with keeping the overseas work at arm's length, says Vice President Ali Jani.

"We found we didn't have enough control over what we were doing in India," says Mr. Jani, who founded the firm with two friends from Virginia Tech, Chief Executive Officer Bijal Mehta and Sanjay Shah, now the director of operations in India.

Jumping in

So, Icode jumped into India with both feet. Despite its focus on the U.S. market, the Northern Virginia company now has 250 of its 320 employees at a research and development facility in Bangalore.

Mr. Mehta and Mr. Shah, both Indian by birth but educated in the United States, provided much of the savvy Icode needed, a common pattern among businesses run by Indian-Americans.

"We were lucky enough to have people who knew India and its business climate," Mr. Jani says.

For starters, Icode needed electricity. The electric grid in Bangalore was unreliable and prone to surges, potentially disastrous for Icode's equipment. The company now has its own generators.

Then it had to wrestle with the bureaucrats to obtain a special certification as an "export-oriented unit," giving it a highly favorable tax status in India.

Finally, Icode needed to obtain special government permission to hardwire its Indian outpost to its headquarters in Virginia in order to coordinate work between its executives and the bulk of its developers.

"It required a lot of political massage to get that done," Mr. Jani says.

Once the facility was up and running, Mr. Jani says Icode still found it had work to do before it could tap its newfound Indian talent. Indian engineers, whatever their technical skills, often had little knowledge of the U.S. market, making training by Icode all the more important.

But the payoff has been solid, giving Icode, which anticipates revenues of $20 million this year, access to first-rate engineers at a fraction of their cost in the United States, assuming they could even be found here. An Indian engineer typically earns about $500 per month, one-twentieth of what an American software developer makes, Mr. Jani says.

That savings in turn drives down the price of Icode's products. Mr. Jani estimates that the price of its standard software package, currently a bargain at $15,000, would skyrocket to $100,000 if it were developed exclusively in the United States.

Icode plans to boost its presence in India within the next 18 months until it has 10 Indian employees for every one in the United States, Mr. Jani says.

India, which developed vibrant technology centers following crucial economic reforms in the early 1990s, remains the top destination for U.S. companies' overseas software work, with a commanding 85 percent to 90 percent of the work, Mr. McCaffrey says. A handful of other countries with strong academic traditions such as Russia, Ukraine and other former Soviet republics have also made inroads into this market.

But English remains a major advantage.

"Language differences are critical," says Wendell Jones with Grayhare Partners, a Gaithersburg consulting firm. "Communicating among Americans is difficult enough."

The Philippines, for example, has a strong talent pool that was largely taught and trained in English, a fact not lost on McLean-based Deltek when it found itself with a talent shortage.

"We had a product deadline we had to meet and we were having real problems finding people," says Dennis Reilly, a Deltek project manager who helped set up its operations in the Philippines.

An increasingly international information technology industry took root during the 1990s in Philippines, especially on the territory of Clark Air Base and Subic Bay Naval Station, now-defunct American military strongholds.

Deltek, a manufacturer of back-office software systems, opened shop in the Makati business district, a suburb of Manila, in January 1999. But it needed the help of a consultant, a former Filipino diplomat in the United States, to do it.

The consultant scouted out options for Deltek in the Philippines, and put the company in touch with a law firm in Manila that could take care of the legal legwork while Deltek searched for employees who could get to work fast, Mr. Reilly says.

"Without them we could never have done it," he adds.

The success of the team in the Philippines, which comprised 24 of Deltek's roughly 700 employees, drew the interest of other parts of the company interested in the overseas office. What could have been temporary became permanent as Deltek sent other projects to Makati.

Another solution

But many companies cannot afford an investment overseas that would give them access to able programmers, even though the savings are appealing. The solution, as in the case of CavaSoft, which has only 10 permanent employees in Vienna, has been to use engineers overseas on a contract basis.

Mr. Volynski's Ukrainian heritage gave the company what Mr. Kurtz terms "a natural recruiting base," and allows it to ramp up quickly for big projects for clients that include Marriott International.

"We can act like a company that is much larger than 10 people," Mr. Kurtz says.

For entrepreneurs who lack roots in the right country, consulting firms are springing up that will find the engineers an American firm needs. Ashburn-based Bitco Enterprises peddles the services of 1,200 engineers in China and Taiwan.

"The good news is that it's cheaper," says Joe Murphy, the company's vice president of sales. "The bad news is that there is a serious language barrier."

Bitco began work in Asia as a software developer for banks, and has done translation and localization work for IBM since Bitco was founded in 1982. Two years ago, it pursued a different tack, setting up engineering companies through a subsidiary, Bitco Information Technology Solutions and Services, Mr. Murphy says.

But the Chinese market, he points out, has obstacles that go beyond language. China is a haven to piracy of intellectual property, a problem Bitco takes pains to work around since clients must entrust their source code to Bitco, Mr. Murphy says.

Since the engineers that would work on a client's software are actually employed by Bitco, the company believes programmers feel a degree of loyalty that would prevent theft. The company also "segments" the source code so that no one engineer has access to a client's entire software program.

As American companies' demand for programmers has escalated over the past five years, overseas entrepreneurs have also taken notice. Taras Kytsmej founded Softserve in Lviv, a city in western Ukraine 40 miles from the Polish border, seven years ago.

Mr. Kytsmej, 35, already does business with U.S. clients in New York, California and Florida. Next month he will travel to Washington at the invitation of the Northern Virginia Technology Council with a message he hopes will resonate with area companies.

"Due to our own economic crisis, there are not a lot of jobs [in Ukraine]," Mr. Kytsmej says. "But we produce a lot of engineers."

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