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Time to Grow for Russian IT
In 2007 the Russian IT market increased by
STANDARD, Issue 2(61), February 2008
At the press conference announcing the results of the year 2007, the Minister of Information Technologies and Communications of the Russian Federation, Leonid Reiman, reported that the Russian IT market had grown
In spite of the dynamic market growth, only a few Russian software developers can claim to be successful in the international market. Today, there are no Russian companies among the Top 10 software exporters. The more or less successful competition with foreign rivals can be observed only in the low-end markets of the CIS that are currently not really interesting for the representatives of the developed markets.
At the same time, the Ministry of Information Technologies and Communications forecasts the growth of Russian IT export up to $10 billion by 2010. However, as Mr.Reiman said, this will require favorable conditions for Russian developers. “Today, Russian companies successfully compete with foreign manufacturers in the international market of IT products and services. The Russian software industry is on the rise. Despite tough competition from large foreign corporations, Russian software is in high demand both on the domestic market and abroad”, said Leonid Reiman.
The Ministry of Communications and Information Technologies declares that it is trying to create favorable conditions by pressing for tax exemptions for IT exporters, creating a venture investment fund, and establishing technoparks. These measures are aimed at supporting and fostering the competitiveness of the domestic information technologies. However, the challenges - faced by the Russian manufacturers going international – demonstrate the insufficiency of the government efforts.
Where to go
“The most favorable environment for a Russian developer is here in Russia”, comments Yuri Koryukin, Corporate Sales Director at one of the most successful software exporters ABBYY Russia. According to his opinion, the Russian market is booming, while Russian customers are not afraid to implement innovative solutions.
Today, the size of the Russian IT industry is generally comparable to that of the foreign markets. However, the rapid economic growth has once again played a nasty trick on domestic developers. Russian consumers turned out to be far from patriotic in their choice of the products. Moreover, according to Andrey Morozov, President of CBOSS Corporation, the Russian market of large corporate customers has been strongly politicized - i.e., the price/quality ratio does not play a critical role here any more - which narrowed the Russian market for smaller independent developers. In this environment, the international market becomes even more attractive for Russian software companies. However, even in the CIS, in spite of long-term historical and cultural connections with Russia, Russian vendors are not welcomed with open arms. Today, these independent states have their own political and economic climate. Maksim Chernykh, Deputy Commercial Director in charge of business development at EastWind, part of Sitronics Telecommunication Solutions, told the Standard magazine about the challenges the company faced while marketing their product in Tajikistan, Kirghizia, Ukraine, and some other CIS countries.
“When we were entering the CIS markets, the most difficult problems were encountered not with business or marketing (promoting brands, winning a market share, etc.), but rather with the specifics of customs procedures and local legislation. Many procedures were different from those used in Russia, and we needed additional preparations,” said Mr. Chernykh.
However, the situation with the CIS is more or less clear. After all, its members were parts of one country for many years. But what are the chances of Russian software companies in the non-CIS markets? Until now only a few developers have announced their international achievements. These are Kaspersky Lab, ABBYY, Sitronics, CBOSS and a few others. One might also remember LETA-IT that promised to enter the Indian market a year ago, but failed to implement the plans in full up to now.
Amdocs Vice President Isaac Mostov points out that the most successful Russian exporters are working on the PC users’ market. First, it is a low-marginal market. Second, it is highly competitive and, third, it is not stable in its preferences. According to Isaac Mostov, none of the Russian software vendors are capable of competing with major international corporations in the B2B market today.
We have to admit that Isaac Mostov is right, not many of the Russian vendors can rival Amdocs. There certainly is a number of development companies in Russia that export software within the so-called offshore programming. It is mainly these companies for which the Ministry of Information Technologies and Communications seeks tax exemptions (after all, exemptions are granted after state accreditation). Yet, a great part of such software vendors is outside the domestic economy. In other words, their products are contributing to the image of foreign companies. Moreover, offshore programmers pay minimum taxes that are extremely difficult to monitor.
Political Subtext
As the experts say, there are no easy markets for Russian programmers. Vladimir Khort remarks that Asian markets with their large population and high development potential are very attractive to Russian manufacturers. However, it is really difficult to localize software for these markets. In addition, their representatives have a radically different mentality as well as different traditions for conducting business and promoting products. The competitive advantage of Russian companies in more developed markets can be a high level of competence, non-standard thinking, and a gift for the development and implementation of unconventional solutions, which is typical of Russian programmers. In other respects, developed markets are closed for Russian products.
According to Andrey Morozov, Russian software developers are quite ready to promote their products in international markets on their own. Mr. Morozov points out that the main difficulty faced by Russian vendors is the imbalance of prices in the production and sales points. The level of a Russian specialist’s salary has greatly increased. The politicized nature of the most successful markets hinders the business. Besides, as Andrey Morozov believes, the level of confidence in Russian software on the international market is low.
Amdocs Vice President Isaac Mostov remarks that, in fact, the software market has enough space for all and it is merely necessary to learn to work on this market. According to Mr. Mostov, Russian vendors are still not good at working with system integrators. Without such a skill, as Amdocs Vice President believes, one can hardly count on international success. “All ‘brains’ are in solutions, therefore the most promising market for Russian developers is the market of end-to-end solutions. To become successful, Russian companies should start working with international system integrators or teach Russian integrators how to enter foreign markets,” Isaac Mostov suggests.
Yuri Koryukin acknowledges that partner relationships are useful in foreign markets. “Having partners, both foreign and local, is one of the main priorities, at least for our company. The partner network is the most valuable thing for us,” Mr. Koryukin maintains. Besides, the more complex solutions the vendor supplies to the international market, the more it needs a local partner.
National officials are eager to provide tax remissions to software exporters in Russia, at the same time they forget that the price/quality criterion does not always work in international markets. A large number of markets are highly politicized. Andrey Morozov recalls cases from CBOSS’ practice when, for example, in one of the countries in the Mediterranean region the representatives of the US authorities lobbying the interests of US companies were seeking cancellation of the results of tender won by Russian developers. We can hardly expect the same from our officials so far.
God Helps Those…
One would think that Russia’s entry to the WTO should help Russian manufacturers in their export activities. Yet, Andrey Morozov is highly skeptical about this. “Russian software vendors will gain absolutely nothing from our entry to the WTO. Moreover, it is likely to finally ruin small domestic manufacturers,’ Andrey Morozov believes.
The international IT market is growing fast. The global players – Microsoft, IBM, Oracle, etc., – are taking over small vendors. The Chinese giant Huawei has announced its entry to the international market of software solutions. European and North American vendors, believing that they have already conquered developed markets, turned their attention to the developing markets of Africa, Asia, and South America. Evidently, the competition in the international market of software products and solutions is increasing year by year.
Russia has not yet won the proper influence in the international arena and Russian officials are slow to protect the interests of Russian IT companies so far. Can Russian vendors really achieve international success in the toughest competition and without the state’s support? What do Russian software exporters rely on? “Abroad, a Russian software vendor can rely on nothing but its own intellect and God’s help, – remarks Andrey Morozov skeptically, but then he is happy to add: “But, thank God, we do have intellect.”
