The Russian IT market: Current trends
Andrey N. Terekhov,
Doctor of Mathematics, Professor of Software Engineering,
Saint-Petersburg State University,
Russia
Stanislav L. Tkachenko,
Doctor of Economics, Professor of European Studies,
Saint-Petersburg State University,
Russia
The Russian IT market has been developing dynamically since its beginning at late 1980s. It became a separate sector of the Russian economy that was integrated into the global market to a greater degree than any other industry or service sector. During past three decades, the market structure has been naturally evolving and a circle of key players was formed. The state represented by the legislative and executive power institutions acquired the necessary skills to regulate the market.
Still, the structure of the Russian IT market is different from most other developed countries. For example, in Russia, more than 55 percent of the IT market volume is hardware sales, and the majority of that is foreign technology. This dominance of foreign hardware sales leaves little opportunities for domestic companies to develop software for this equipment. Software outsourcing contracts by foreign customers is the exception. However, in these cases, Russian programmers are creating foreign technologies because all IP rights belong to a foreign customer.
Although the Russian ruble has been recently devalued twice against the US dollar and Euro, the average price level in the country, as well as the level of wages in IT industry, has risen significantly less. Exchange rates dramatically affect the assessment of the size of the market (for example, software and services are sold in Russia for rubles while the market size is estimated in US dollars), and it makes export-oriented business in Russia extremely profitable («earn dollars — spend rubles»).
Current dominance of hardware sales in the structure of the Russian IT market leads to the fact that the share of IT services in Russian GDP is only 0.16%. On the one hand, this figure demonstrates the underdevelopment of the Russian IT market. It is indicates on large growth potential notwithstanding the background of the slow growth of the Russian economy.
The real assessment of the volume and competitiveness of the Russian IT industry is still approximate. In 2019 there were about 3,000 software companies in Russia, of which more than half have revenues from foreign sales. There are about 500,000 professionals in the Russian IT industry who are connected with the development and operation of software in one way or another (compare to about 4 million in the USA). 200,000 of them (40%!) are developing their own software. The rest are engineers or consultants who are engaged in software maintenance for various companies and factories, maintain networks and other infrastructure, or provide information security. Curiously, the data about the share of pure software development in the software segment perfectly correlates with the figures on the low share of IT services. According to experts, the volume of orders for software development in India and Russia is the same. But companies in India make money by selling IT services (BPO, maintenance, etc.), which Russian players still cannot do.
There is some data available characterizing the Russian segment of Internet (Runet) and its economy in 2018:
- The audience of Russian Internet users is 90.1 million people (75.4 percent of the adult population of the country);
- The volume of advertising and marketing in Runet exceeded $ 3,2 billion;
- E-commerce has reached $27,3 billion;
- Mobile traffic in Russia is one of the fastest and cheapest in the world. Mobile access to the network in Russia is ten times cheaper than in the USA and three times cheaper than in Germany;
- Russia is the fifth country in the world in the number of downloaded applications; Russian users spend about $ 500 million a year to buy mobile apps;
- The volume of the Russian market of the economy of joint consumption is $8,1 billion;
- The volume of the digital content market in Russia is $1,2 billion.
- The Internet of Things is one of the fastest growing segments of the Runet.
The problem of import substitution is acute for many developing countries today. Players in the Russian IT market are aware of the technological threats of import substitution policies. Among its consequences are significant backlog of products manufactured in the “import-substituting” country from modern technologies that conquer the markets of global economic leaders. In 2014 Russian Government proclaimed import substitution as a national security issue, and since that time the country’s budget and government-controlled state corporations are spending billions of rubles annually on achieving the import substitution goals. The Russian IT business has joined this game and sees participation in it as reasonably attractive.
It should be noted that in many developing countries the exclusion from the market of foreign information products and services (import substitution) is understood as a replacement for Western (primarily American) software for Russian, Indian or Chinese, due to the relative weakness of their own software developers. There are already known cases when Egypt, Iran and other countries turned to Russian companies with a request to develop equipment and software to replace well-known world brands because of total distrust and fear of “bugs” in currently used Western software.
Russian strategy of import substitution, which has become the center of the state industrial policy at present, has been developed in the IT sphere since the 1998 crisis and the fourfold devaluation of the Russian ruble. The economic sanctions of the USA and EU against Russia, which were imposed in 2014, have only intensified Russia’s policy of import substitution. Growing share of domestic IT solutions in Russia in the 2010s went on a forward path regardless of the decisions of government officials. Nowadays, the main driver of import substitution is the motive of creating and improving Russian solutions compatible with unique features of expanding national market and convenience of domestic users.
Recently Andrey Terekhov and Stanislav Tkachenko have published monograph: Terekhov A., and S. Tkachenko. 2019. Political economy of ICT: Russia’s place at global market. Moscow: Higher School of Economics.
Email: andrey.terekhov@lanit-tercom.com
Email: stanislavltkachenko@gmail.com
Expert article 2678