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.

Software right violation in Russia reduced greatly, says the new report of Business Software Alliance, the global organization dedicated to promoting a safe and legal digital world.

BSA presented its annual report on the levels of software piracy in the world. The research found that Russia led the way with a one-year drop of seven points to 73%, and a five-year drop of 14 points. Russia’s piracy rate is decreasing at a fast pace as a result of legalization programs, government engagement and enforcement, user education, and an improved economy.

Of the 108 countries included in the study, PC software piracy dropped in sixty-seven countries and rose in only eight. Among nations studied, Russia’s piracy rate dropped a remarkable seven percentage points to 73% from 2006 to 2007. This reduction is the result of legalization programs by IT vendors, enforcement and education by the Russian government, and, an overall improvement in the country’s economy that helped drive a 22% surge in personal disposable income in 2007.

“Russia had a phenomenal year, with the piracy rate dropping seven points in 2007. Ongoing legalization programs on the part of vendors and the government had an impact and also lowered piracy in the installed base. In addition, Russian police authorities increased the criminal enforcement against resellers and commercial users of illegal software while some of the distribution networks that sold pirated software have switched to legitimate software distribution. Rapid economic growth and the rise in disposable income are prompting consumers to re-evaluate the trade off between the risk of using pirated software and the cost of legitimate software. Were it not for an increase in software deployments to the installed base of older PCs compared to last year, the Russia rate might have been even lower. The legitimate PC software market grew more than 100% in 2007.”

From “Global Piracy Study 2007” by Business Software Alliance

Thanks to the growing penetration of information technologies in the country, Russia scores highest in the Connectivity Scorecard 2008, developed by London Business School and LEGG consulting firm.

The Connectivity Scorecard is a pioneering global information and communications technology index that measures the extent to which governments, businesses and consumers make use of connectivity technologies to enhance social and economic prosperity. Unlike other research available, the Connectivity Scorecard measures usage and skills such as literacy, the use of enterprise software and the accessibility of women to ICT. It also articulates the benefits of connectivity explicitly in terms of economic and social contributions taking into account varying needs in different countries.

Russia placed first among the nine nations that are classified in the study as resource or efficiency driven economies. The country's high literacy rate, along with solid scores on several measures of usage and infrastructure, especially mobile usage, resulted in a rating of 6.11.

…Russia scores well in literacy, gender equality in Internet access, and also in usage of technologies such as mobile by business users. The Scorecard captures the fact that Russia has a relatively strong human capital endowment that may serve it well in making the transition to being an Innovation driven economy.

From "Report: The Connectivity Scorecard" by Professor Leonard Waverman, London Business School Kalyan Dasgupta, LECG, Justin Tonkin, LECG

Russia's IT market has enjoyed the annual growth rate of about 20% for the past few years and the Ministry of IT and Communications estimated the market volume to reach 17 bln USD in 2007.

The Baltic Engineering Contest held in St.Petersburg aims at identifying the best young engineering minds of Russia and helps them get necessary support for further development.

The contest organized by the Math department of St.Petersburg State University offers high school students from all over Russia an opportunity to present their projects in Computer Science, Math, Physics and other engineering disciplines for review. The best projects receive awards from international organizations such as American Meteorogical Society, ASM Materials Education Foundations, Herbert Hoover Presidential Library Associations, Intel Excellence in Computer Science, Yale Science and Engineering Association as well as from St.Petersburg divisions of technology giants Intel, Microsoft, Motorola.

Executives from Reksoft Technology Lab also joined the expert committee, which evaluated the projects. Reksoft has been investing into development of next generation IT power of St.Petersburg. Developing practical IT skills among students for years, Reksoft has been striving to contribute to the education of technology talent of tomorrow. Running dedicated programs from the year 2001, Reksoft has built a good relationship with the city’s university communities.

The close attention towards the contest both from the St.Petersburg IT business community and the city’s Administration demonstrates an importance of St.Petersburg development as a major high-tech hub of Russia.

St. Petersburg government has always regarded the city as one of the major high tech and information technology hubs of Russia. City authorities have been bringing new tax payers from technology area – Foxconn and Flextronics agreed to build up their plants in the city. In addition to that, a few months ago St.Petersburg Governor Valentina Matvienko signed cooperation agreements with Oracle and Microsoft corporations.

In the beginning of January 2008, the City Administration launched the Innovation Program which ten billion rubles will fund the development of the technology enterprises in North-Western region of Russia in the coming four years. The primary spending will however be geared towards funding of infrastructure projects, such as special economic zones, IT park, Science City in St.Petersburg suburb of Peterhof.

The new Russian IT Quarterly Issue focuses on discussing why Europe is set to be the perfect choice to sell software outsourcing services to, from Russia.

Nearshore outsourcing location

The first and the most obvious "pro" item for choosing European markets over US and Asia. It is based on the fact that Russia is a nearshore location for European companies. This offers an array of attractions for prospective clients. Short traveling time allows for time savings. Close time zones mean smooth project management with easy communication. Cultural proximity - although impalpable and therefore immeasurable - is often mentioned in customer satisfaction surveys by European clients.

Cost Advantage

For a European company, cooperation with a Russian provider presents an alluring cost advantage when compared to expenses incurred in cooperation with nearshore providers from new EU member-states. On the other hand, enormous engineering labour pool in Russia undoubtedly beats that of alternative locations, both in EU and in lower-cost CIS countries.

Excellent Track Record

The other good news for Russian software development providers is their excellent track record in Europe: Deutsche Bank, Nokia, TietoEnator, T-Mobile, T-Systems, and other respected clients, willingly speak about the success of their joint projects with Russian vendors. This positive past experience serves as a solid base for Russians, strengthening their positioning on European markets: hiring professional PR agencies, showcasing the services at Europe-wide events, etc.

Strong Outsourcing Demand in Europe

Sizeable compound outsourcing market in Europe (UK included) brings the promise of a wealth of revenue for Russian ESPs. According to TPI advisory firm, the demand in Europe jumped by 25 per cent in the first three quarters of 2007 to make it the strongest outsourcing geography. The Gartner Group analysts add that although spending on offshore services is three times higher in North America than in Western Europe, the gap is closing. The fact that the majority of the largest outsourcing deals in 2007 happened to be in Europe is a good sign of that there is an enormous opportunity for growth.

You can access the full Russian IT Quarterly newsletter on Reksoft corporate website

In the beginning of November the Ministry of IT and Communications of the Russian Federation has finally founded a Federal Agency which will be charged with the accreditation of Russian IT companies.

The accreditation, stated in the state law in July 2006, is required for IT organizations, which would like to benefit from the decrease in the Unified Social Tax. The law however did not come into force since a governmental body, responsible for the official procedures of the accreditation, had not been formed. The Federal IT Agency acting within the Ministry of IT and Communications will now make this legislative initiative valid for all software development companies in Russia.

At the moment social taxes account for more than 50% of expenses in software companies.

SAP reported strong sales growth in the third quarter of 2007 in Russia and CIS, only yielding to the revenues in USA and Germany. According to SAP CIS Executive Director, Boris Volpe, more than half of the sales were done in Russia thus confirming the ever growing interest of technology vendors to the Russian market.

The Russian IT market has been growing at about 20% rate for the last few years whereas US and European market only show about 4% growth rate. The analysts from IDC projected that the IT services spending in Russia will increase at a CAGR of 21.3% over the five-year period, reaching $7,8 million in 2011.

TietoEnator followed its customers to Russia and opened a new service center. The service centre will offer infrastructure and hosting services, project and application management services, and expertise in digital customer service development.

Russia has a long tradition of excellent technical education, and the country has decided to compete with India on outsourcing. We want to have local presence in Russia to be able to provide high-quality, cost-effect services for our customers," stated TietoEnator President and CEO Pentti Heikkinen.

Reksoft is proud to have had TietoEnator in the customer portfolio for the last two years.

TietoEnator takes great care in identifying and selecting partners, and we must admit that partnering with Reksoft has provided us with an efficient, flexible, and cost-effective solution fully meeting our expectations, commented Heimo Kontula, Director, TietoEnator Forest & Energy Oy, on this successful cooperation.

Keynoting at the Central and Eastern European Outsourcing Summit in Kiev on September 12-13^th, IDC and Forrester Research analysts underlined the growing interest to CEE as the offshore/nearshore location of choice.

Pascal Matzke of Forrester Research contemplated in his presentation if CEE is a viable alternative to India. He emphasized that this region offers an excellent university education in computer science and other engineering majors, highly educated workforce with good abstract thinking and problem solving skills, and good English language skills.

IDC's Robert Farish agreed on a number of benefits that IT outsourcing companies from CEE could offer to prospective customers. In particular, he mentioned vendors' location and proximity, cultural familiarities, minimal time differences, lower travel costs, language skills, quicker delivery times and, above all, good quality levels. In his opinion, Russia as an outsourcing destination scores good in resource skill, infrastructure, business and regional as well as in financial factors.

Among CEE countries, Russia stands out with the largest resource pool and the dynamic and mature vendor landscape. The country ranked third in the volume of outsourcing contracts globally in the outsourcing market volume (1.6 bln. USD in 2006) and is well positioned to grow at 30 % rate in the next few years.