A delegation of leaders from high-profile American technology and social media companies including eBay, Twitter, Cisco Systems, Howcast, EDventure, the Social Gaming Network and Mozilla visited Russia between February 17th and 23rd.

The delegation traveled to Moscow and Novosibirsk, where they met with senior government officials, leading technology, software development and telecommunications companies, entrepreneurs, cultural and educational leaders, students and NGO representatives. They discussed how social media and other innovative technologies can be used to strengthen and broaden ties between the United States and Russia, and how these technologies can be used to develop knowledge-based societies and economies in both countries.

“Russia is a country with a vibrant technology industry in and of itself. The Russians have a huge startup capability, a huge technology industry and huge innovative capacity,” said Jared Cohen of the Secretary of State Hillary Clinton’s policy-planning staff, describing his impressions of the visit. This trip formed part of the broad dialogue launched by the Bilateral Presidential Commission created by Presidents Obama and Medvedev in July 2009.

The head of Russia’s Ministry for IT and Communications Igor Schegolev and Red Hat’s Director of European Operations Werner Knoblich met this week to discuss Red Hat’s progress in developing the market for open source software within Russia. It follows a meeting between the two men in February last year, where open source software market development and the use of open source software with existing systems were discussed, and the Ministry agreed to support Red Hat’s initiatives.

Study modules in open source software have since been approved at a number of Russian universities, and an innovations centre, the Solomatin Bureau of Worldwide Practices in Open Information and Communication Technologies, has been founded to bring together knowledge of global leaders in open source technologies.

An agreement on technological collaboration signed between Red Hat and the Solomatin Bureau has played a key role in advancing the progress of open source software in Russia, enabling the organisation of a new software certification system for open code. Certified product updates can now reach the end user with minimal delay following the release of updates by international providers. The certification level allows the use of open software by Russian state organs and is also a basis for key elements of new e-government programmes.

An IDC study entitled 'Russia IT Services Competitive Analysis' has named Reksoft parent company, Technoserv, among the top 3 largest IT services providers in Russia.   Company revenues rose by 28% in 2008, reaching nearly $1.5bn and 6.2% market share. Technoserv's main area of activity is system integration, while the company's outsourcing and consulting offerings earned over $225m last year.

Reksoft joined Technoserv in 2008 in a deal that secures the company's future plans for expansion, both in Russia and overseas, as well as the capability to further consolidate and develop its technological and industry expertise.

The analytical agency IDC published its report on Russian IT market. According to IDC data, the Russian IT services market expanded 18.7% year on year in U.S. dollar terms in 2008 to reach a value of $5,226.28 million.

Measured in local currency, the market grew 15.4% compared with the previous year. The slowdown in the Russian economy in the second half of 2008 resulted in a drop in IT spending, leading to modest in comparison with the year 2007 IT services market growth. The largest market segments in 2008 were system integrations (31,9%) and custom application development (28,6%).

The largest vertical markets in Russia in 2008 were combined government, combined finance, telecommunications, and utilities, which also showed the most noticeable growth alongside with education market. (By Cnews.ru)

RBCDaily reports, Russia is to invest $5bn over the next two years to finance the ongoing strategic development of its national information society, according to presidential adviser Leonid Reiman. The project has been welcomed by the domestic market and is expected to benefit both the state and the country’s fast-growing IT sector.

In a presentation at the Tver Economic Forum, Mr. Reiman stated that the objective was the establishment of a single portal for State and municipal services that would allow free online access to all federal, regional and municipal services. The project is designed to improve people’s quality of life, guarantee Russia’s competitive ability, and develop the country’s economic, sociopolitical and cultural spheres, based on the use of information and telecommunication technologies.

This is undoubtedly positive news for the IT market and major telecommunications companies, system integrators and software developers are expected to benefit from this programme.

A new issue of Russian IT Quarterly newsletter saw the light today. It focuses its attention to the major trends which are visible on the market and were noted at the latest outsourcing events such as Gartner IT and Outsourcing Summit.

Looking for outsourcing alternatives

Outsourcing optimisation has become the main theme for all outsourcing events including the Gartner IT and Outsourcing Summit, held in London last month.

Already, a series of events taking place between 2008 and 2009, as well as the economic slowdown, has lead to a surge of interest in readjusting companies’ outsourcing strategy. Leveraging current outsourcing contracts, minimising the risks of new provider engagements, and new delivery models such as software as a service and cloud computing are being discussed in every corner.

The world is looking for outsourcing alternatives - not just cost-cutting but enriched services. The speed, professional expertise and reliability of the outsourcing partner appear to be no less important than the price.

Customers are increasingly turning to nearshoring with its cultural proximity and lower indirect costs. Right now, Eastern European countries close to Western business capitals may seize another chance to further develop their outsourcing services. A shared business culture, accessibility via 2- or 3-hour flights and flexible business models are making this region more and more attractive while its prices are dropping mildly along with local currencies.

According to the Russian outsourcing providers association “Russoft”, prospects are looking good. At the Gartner roundtable event, Russoft reported that combined revenues of IT services export from Russia, Ukraine and Belarus reached $3.4 bn last year, a figure second only to India. In recent years, American clients have formed the bulk of orders, but European demand is expected to increase as the region shifts from offshoring to nearshoring. As a matter of fact, when short-term planning becomes a must, offloading projects to neighbouring countries can turn out to be much more convenient. The speakers underlined agile methodologies used by the local teams and a creative approach that makes local IT companies indispensible in sophisticated projects with complex customer requirements or medium-sized contracts requiring close attention.

So, have Eastern European providers found their niche? Can their tailor-made services complement or even successfully overtake the traditional concept of large-scale, off-the-rack outsourcing?

Well, let’s wait – and see!

Alexander Egorov, Reksoft CEO and recently-elected Chairman of Russian outsourcing servicers providers association Russoft, spoke about the future of the Russian IT market in an interview with the Dutch agency Marketing Facts during its Media and Innovation business trip to Russia. 

Marketing Facts: - You're very much involved in the IT industry. Can you tell us what role the Russians will play and what kind of services they will provide for Europe?

Alexander Egorov: - We deliver a lot of intellectual property to European and American customers....

MF: - I understand Java was developed in St. Petersburg...

AE: - [laughs] Well, you know, that's confidential information... But yes, a lot of software products and systems that are well known in Western markets were developed here in Russia, Ukraine, and other countries of the former Soviet Union where the educational system, language and other aspects have been retained by the universities. Now, we are trying to find our own niche on the world IT market, which is growing fast and dominated by companies from India. China also is growing very fast. But we are closer to our customer base, and we believe that is a huge advantage. We speak the same languages, we're from the same cultural area - we've just been separated for a couple of decades [laughs]. First of all, research and development is quite broad and there are different subservices within that. We believe our strength is in intensive research and development. We help many international companies develop winning products and I think this is a good way to get rid of Russia's dependency on oil and gas and natural resources.

MF: - So you're close to Europe, you say you have the brains, you have the structure - how is the IT industry developing inside Russia?

AE: - Actually that's one of the drivers for growth. We believe one of the areas we have to work on is international exports. Another is the domestic model. IT is a service business. We have to serve our growing companies in other sectors and this is a challenging task because the rates are tremendous and companies are confronted with many, many problems in European customer relationships and so on. So there's a lot of interesting work for professionals to cope with these challenges.

MF: - Last question. The market was $25bn last year but the crisis came and everybody stopped investing and predictions are for $15bn this year, 40% down. How do Russian IT companies deal with a demand reduction like that?

AE: - I think that depends on the type of company. First of all, this forecast is the worst case scenario, and we don't believe it will be realized, but certainly there will be a drop and my estimation is that it will be about 20% or 25% this year. How to cope with that? Well, there were layoffs, of course, in many companies, but not too severe. Most of the volumes are generated come from sales of hardware and network equipment, so I believe that the remaining volumes and margins will be enough to hold the core structure of these companies. They will need to contract and wait until the bad times are gone, then continue growing from around 2011.

Despite the recent fall in oil prices, Russia remains on course to become one of the largest IT markets in Europe, declares Business Monitor International in its Russia Information Technology Report Q1 2009. Urgent demand for higher computer penetration, stable incomes and immense potential for IT spending by traditional industries all provide a strong foundation for optimism in Russia’s IT market.

Over the next five years, Russian IT spending per capita is expected to triple from around US$100 to US$300. Government initiatives like the ‘computer for every home’ programme and an increasing emphasis on IT as an instrument of reform in various economic sectors will support this trend. The Electronic Russia informatisation programme alone should generate around US$2.4bn in spending by 2010.

Companies that have invested in previous years enjoyed rapid revenue growth in FY 2008. Microsoft, for example, reported that Russia was its highest-growth market among Central and Eastern European countries, recording growth of above 45%. Long-term barriers to growth are constantly being reduced.

Russia’s software piracy rate is set to fall closer to average Eastern European levels amid government efforts to strengthen intellectual property (IP) protection to secure entry to the World Trade Organization.

The recent AMI Partners research forecasts that small to medium businesses in Russia and Poland are to spend approximately $10 billion on ICT products in 2008, which represents 15 per cent growth from the past year’s volume.

About 40 per cent of Russia's one million SMBs are equipped with personal computers and generate the highest ICT spending in the region. In addition to that, the report points out that Russia has experienced significant growth as a provider of IT outsourcing and software development. These factors make Russia one of the largest Eastern European markets by GDP and among the highest spenders on ICT in the region.

Although the Russian ICT market has still been dominated by hardware sales, the share of IT services has been steadily growing over the past three months.

Software Development Summit, the annual flagship event of Russoft IT Services association, held in St.Petersburg on the first days of June, brought new industry figures to the light. Russoft presented the highlights of the yearly survey of the software outsourcing industry in Russia, stating that the outsourcing market from Russia grew to surpass 2.2 bln. USD with 45% year-on-year growth rate.

Both the leading Russian IT outsourcing companies and software development start-ups came to the Summit to discuss best practices in technology development and outsourcing market strategy. Venture investors had a chance to meet with the potential targets, the analyst could found the fresh data from the Russian IT market.

The full version of Russoft report on the software outsourcing from Russia will be available free of charge in September, 2008.