Exporting Russian Software

Andrey ANNENKOV

«Izvestiya», Moscow # 135/26692, 28.07.2004

The Chairman of the Government and his Cabinet mentioned last week that Russian export is mainly raw materials, technology-intensive product making only several percent. Its share could be larger if Russian developers could easily export their product.
Software is a perfect example of a technology-intensive product. Software development does not require any pipelines, cracking processes, roll mills, and is ecology friendly. It is an industry with outstanding potential. For example, India plans to increase its total software export to $50 billion per year by 2010 — it is only some 15% less than Russia's oil export today.

Three-In-One

Russian software developers fall into three categories. Shareware developers that form the first category, distribute the limited versions of their software product for free. If a customer decides to enjoy the full functionality, he or she can pay for it with a credit card or through any electronic payment system, and upgrade the free demo version. Most of shareware developers are small companies and freelance programmers. This is an international business; taxes are paid to customer home countries, and it is not a pure case of Russian export.
Offshore developers working for foreign clients represent the second category. We stand far from the leading position at the world market; out yearly export is just $500 million (compared to $5 billion exported by India). Nevertheless, this sector has become much more interesting for everyone, especially for the state.
The third category is Russian software developers, the tip of the industrial iceberg, each having a yearly turnover exceeding total offshore programming turnover. There are a few Russian companies at the global market: «1C» producing business process automation software and computer games; ABBYY, world’s leading electronic dictionaries and OCR developer; «Kaspersky Laboratory» and «Dialog-Science», antivirus software manufacturers; CBOSS Association producing software for telecom operators. Russian ERP developers («Galaktika», «Parus», CBOSS Association and «1C») are forced to compete at the global level even for the local market, as their competitors are world?s leading developers — Microsoft, SAP AG, ORACLE etc.

All-Round Support

Foreign businesses in Russia enjoy efficient support by their governments. A good example is a letter of the American ambassador to Russian Federation Alexander Wershbow to the Russian Prime Minister. The letter contained a list of companies producing pirated software, and a request to pay more attention to the problem. That is how the USA protect the rights of Microsoft in Russia and, besides, Russian developers that also suffer from piracy.
«Russian developers have a strange reputation in Western countries. No one believes we are able to produce quality software. Indian developers implement evident bugs in their software, and then charge customers for debugging. Yet, their software is on demand. It is very difficult for us to fight our way to the market. I wish the state attached to us as much attention as to offshore developers!», said an unnamed source of «Izvestiya» in a large Russian IT company.
«Russian software manufacturers face a lot of difficulties exporting their product. The greatest issue is to inform the foreign customers of the Russian product and to assure them of its high quality and reliability. That’s when the government can be of much help. Only by means of targeted campaigns coordinated by the government we can improve the image of the country as a producer of intelligent solutions. It can be done by investing into representation at IT exhibitions, by initiating international conferences and round tables dedicated to cooperation in the IT sector. These are the means to help our software exporters. In this case Russia will have a chance to grow from an oil exporter to a high-tech developer», — says Anastasia Savina, ABBYY Software PR Director.

One In, Ten Out

Russian software export takes much time and effort. If a software developer intends to legally export its product (for example, a computer game), it has to go through the following simplified bureaucratic scheme: first, submit eight documents including the main one — the resolution of Federal Agency for Legal Protection of Intellectual Activity Results; then, undergo five stages of customs clearing. At its best, the process takes two weeks. Besides, VAT rebates set by the law become impossible. No wonder foreign customers prefer to buy from competitors.
«Domestic developers are forced either to move production abroad cutting employment opportunities and inflow of foreign currency to the Russian economy, or to switch to e-commerce. Only few patriots are still doing businesses the way they used to, despite all encumbrances»,- says Denis Zenkin, Head of «Kaspersky Laboratory» Information Service.
The government that considers itself to be the master of the situation by setting unjustified limitations for software exporters is mistaken: Russian companies prefer to avoid the obstacles and move production abroad. That’s how «1C» reacted to the situation by moving software production to the Ukraine.

Are Russian Developers Interested?

In his interview to RBC Vladimir Demin, President of Columbus IT Partner (the Russian branch of an international company, a Microsoft integrator at Russian enterprises), said: «Why should Russian companies develop any software? Do you believe it will have better functionality and lower price than product of foreign competitors? … Every year Microsoft invests $200 million into development of ERP solutions (Enterprise Resource Planning- „Izvestiya“). Development of a software product able to compete at the global market will cost Russian companies even more, and you can’t be sure it will be much better. What I say is each country should produce what it can produce best compared to others». According to Mr.Demin, Russian developers should produce computer games, and «concentrate on specialized proprietary solutions». Meanwhile, Alexey Shlikov, CEO SAP AG Russia, recognizes Russian software manufacturers as their major competitors on the market of small and medium enterprise automation solutions.