Mirantis--formerly ClearLogic Software and a spin-off from London Bridge Group nearly four years ago--has operated "offshore" technology development centers in Moscow and St. Petersburg for two-and-a-half years. The company manages the facilities and infrastructure, deals with local government regulations and suppliers, and hires permanently assigned technologists for clients, which now include Cadence, Agilent, MIPS Technologies, and an unidentified major U.S. semiconductor company, according to officials.

The privately-held company is now planning to start new offshore development centers in China and Eastern Europe over the next 18 months. Mirantis is also aiming to increase its work with semiconductor-related companies, and today (Feb. 6), the Foster City company is hosting an hour Web cast on R&D in Russia (see company's site for access).

"We are setting up permanent teams that extend core development efforts offshore with technologists, who have science-based skills that are in short supply worldwide," said Frank Patchel, president of Mirantis. "We choose our development center locations where we can find those skills and where we can get them very cost effectively, offering clients a permanent competitive advantage or specialized skills at a reduced price."

Mirantis contracts are usually for two years, with extensions tacked on. The company maintains a database of 2,500-to-3,000 candidates for hiring in its two Russian development centers. More than half of those technologists have skills suitable for semiconductor R&D. The company works closely with clients to identify and hire technologists, which become Mirantis employees in Russia but are permanently assigned full time to the R&D programs of clients.

"Our turnover is lower than 5%, and that allows knowledge to build in a company's R&D organization," Patchel said. The average size of a client's staff in the Mirantis centers has been about 20 workers, but one company has built a team of 50 technologists, said managers.

R&D matchmaking

"We hone down this database of technologist candidates to what the client needs to be successful--such as mathematics, C++ and Java programming, or ASIC design skills," explained Gary A. Fowler, senior vice president of global business development and marketing at Mirantis. Once the hiring begins, "it is instant 'on' and no ramp up," he added, referring to how quickly R&D programs have been started inside the Mirantis centers.

Mirantis has been working with Cadence Design Systems Inc. for a little more than a year to provide development in its Moscow center. The electronics design automation supplier now has about 30 Russian technologists in the development center, working on a range of projects including software, software support and advanced development on algorithm acceleration.

"Russia is still opening up to industry expansion but it is not so straight forward in how to run a business there," observed Lavi Lev, senior vice president and general manager of Cadence's IC Solutions Business in San Jose. "We really wanted to have access to the talent, but we didn't care much for the overhead," added Lev, who began working with Mirantis while he was with MIPS Technologies Inc.

Mirantis has signed a contract with Agilent Technologies Inc., but the company has not yet begun work in the development centers, Fowler said. "We are also now working with one of the top three semiconductor companies, in terms of growth," added the Mitantis vice president. "This company does not want to be identified yet because they believe it gives them a key advantage."

In particular, Mirantis officials believe the offshore development centers and the company's model are paving the way for the next wave of outsourced functions in electronics, semiconductors and other technology companies. Core development activities inside companies have been largely protected or they have been contracted out to consultants or third-party project teams on a spot basis, Patchel said.

"Only about 5% of R&D budgets in major corporations are outsourced," he said. "We represent the next wave past 'project outsourcing.' We are taking core development offshore, which has not been done that much and limited to major corporations with their own technology development centers."

Mirantis officials said they are taking a much different approach to Russia and R&D outsourcing. The company primarily focuses on managing the surroundings for development work and it acts as matchmaker between Russian technologists and Western clients looking for long-term relationships. The client is directly involved in the final hiring of technologists, who are full-time Mirantis employees paid locally but assigned to a company's R&D programs. Clients directly oversee those programs, assignments, and the work inside Mirantis centers.

The cost savings

The operational costs for R&D teams in Mirantis' centers is about half the cost of a development center operated by individual companies in the West, according to Fowler. One analysis shows technologists paid about $6,000 per month in the Mirantis center, compared to $10,666 in operations at U.S. companies. Mirantis charges an implementation fee of about $120,000 for a staff of 30 in the development center. Without facility costs for company-owned centers, the savings would roughly be about $2.2 million, Fowler said.

But the costs savings are often not the major issue when trying to set up R&D in a foreign location and certainly inside the former Soviet Union.

"There are so many people in Russia that are willing to take your wallet and deliver nothing," warned analysts Malcolm Penn of Future Horizons in England, who has tracked chip industry developments in Eastern Europe and Russia for more than 10 years.

"Doing development in Russia for most Western companies is way beyond their reach," Penn said. Upon an initial review of Mirantis' centers and its outsourcing model, Penn said he believes this kind of concept could help to change the rules of R&D in Russia. The development center concept--with local human resource management--also helps ease concerns among Russian technologists. "The serious Russian engineer wants to be successful, and they want to make sure their Western partners are not going to walk away," Penn added.