InformationWeek

Why Bulgaria? "Few realize that Bulgaria was actually the Silicon Valley of the former Soviet Union," says Rila CEO Christopher Hansen. Bulgaria was used by the Russians as a space-development center, he notes. In addition, IBM mainframes had been brought to Sofia, Bulgaria's capital, stripped down, and cloned for use behind the Iron Curtain.

In Bulgaria and other Eastern European countries, the university system was one of the few institutions to survive the fall of the Soviet Union. Almost every country in the region has a large network of colleges that produce far more IT graduates than are needed locally. That's why the Czech Republic, Hungary, Lithuania, Poland, Romania, and Ukraine, are starting to show up more on the offshore IT radar screen.

This availability of people trained in new technologies is one reason offshore services firms are being contracted to develop sophisticated new systems, in sharp contrast to the legacy systems maintenance associated with offshore programming in the past. "Low-cost 'body shop' work is declining rapidly," says Wipro CEO Vivek Paul. "With at least 30,000 highly trained software engineers in India and such a shortage in the States, it's no wonder we inherit so many mission-critical Internet and mobile technology-based projects."

U.S. businesses contracting with foreign IT-services companies cite the quality and availability of IT staff at least as often as the cost savings. "It's a well-kept secret that there are a lot of highly trained people, ready to work, in Russia," says Boeing's Alberg. "Certainly cost is important, but the sheer volume of IT resources is a competitive advantage."

Dick Jirsa, CIO at J.M. Smucker Co. in Orrville, Ohio, agrees. "Oracle programming is costing me a quarter of what it would here," he says. "But more important than that is the consistency and availability of resources, as well as responsiveness to our needs." Until recently, Smucker-a producer of jams, jellies, and preserves-relied exclusively on American companies to satisfy its IT outsourcing needs. Three years ago, it used as many as 20 outside contractors at its headquarters. Today only two remain, replaced offshore by India's Mascot Systems.

Jirsa complains of a heavy turnover in local consulting staff that sometimes halted progress due to retraining or delays in hiring replacements. He also cites rudeness and indifference to user concerns. "The Indians tend to be younger, more up-to-date technically, more energetic, and more customer-oriented than their U.S. counterparts," Jirsa says. "I've also found that younger American programmers tend to operate like drifters, skipping from company to company."

Jirsa isn't the only one to complain about homegrown talent. Stories abound of the arrogance of Silicon Valley hotshots who demand high salaries, stock options, and sign-on fees.

Another often-cited justification for offshore migration is quality. Indian companies such as Cognizant, Infosys, Mascot, Satyam, and Wipro go to great lengths to validate their work. Many of these large developers boast of having attained levels four or five of the Capability Maturity Model designed by the Software Engineering Institute, a U.S. government-funded organization. "When it comes to offshore quality, India, Ireland, and Israel are probably the best," says Gartner Group's Terdiman. "I recommend to clients that they only deal with Indian companies who are CMM Level 3 at least."

The institute's standard, developed to ensure quality in military software engineering, doesn't reflect well on the U.S. software industry. A March report by the institute concluded that offshore organizations achieve a higher maturity profile than U.S. firms. "There's a beta-testing mentality in America, with the result that software quality doesn't receive the emphasis it deserves," says Deb Mukherjee, chief technology officer at Farmer's Insurance Group in Los Angeles.