The Russian software developers association (Russoft) revealed the results of the latest Russian IT market research.

In 2008, the total Russian export of software development and services was worth $2.65bn, second only to India. Russian companies continued to explore the high-technology development niche, which demands in-depth knowledge in mathematics and related sciences. Combined revenue for all Russian software companies from the sale of software products, software development services, system integration and IT support services reached approximately $5.5bn.

2008 saw a reduction in the growth rate for exporting software and services, with total exports only growing by 21%. This is the lowest increase for any researched year so far, although it remains one of the highest export growth rates in the world. The compound annual growth rate (CAGR) from 2002 to 2007 was 44.3%. For 2009, a still lower growth rate is expected - between 8% and 13% - after which export rates are expected to start climbing again, to between 18% and 20% in 2010.

Export structure has continued to evolve, especially relating to the increased rate in sales of programming products and turnkey solutions. According to figures for 2008, sales growth reached 26%, and the export of products and turnkey solutions was worth $800m. The export of software development services as a whole rose by 16%, to $1.45bn.

The downturn has diminished acute personnel problems. According to results from spring 2008 to spring 2009, the average industry wage for software specialists has decreased by about 20%.

Personnel attrition rates will remain low at 9%, according to 2008 statistics. The low rate of employee turnover is one of Russia's main competitive advantages on the global IT services market.

As expected, 2008 saw the significance of Russia's export market for software development and services continue to grow. The portion of respondents mentioning the completion of projects in Russia as a main industry trend grew still more than in previous years - from 55% to 87%. The significance for respondents of CIS countries' markets also increased.

The saturation of the Russian IT market is prompting Russian software companies to focus on new markets. The most important overseas markets for Russian companies remain the US and Europe.         

From spring 2008, total declared investments in start-ups and small high-technology companies increased significantly. There was a rise in both public sector investment (through state corporations and venture funds) and private sector investment (by overseas corporations in particular). The next few years should see a whole range of new providers of solutions and programming products that began as start-ups between 2007 and 2008.

Russoft president Valentin Makarov noted that the events of the last year have brought the industry a number of benefits, prompting companies to optimise their structure and reduce costs, especially those relating to office rental space and personnel. The devaluation of the ruble against the dollar also had a positive effect on the competitive ability of Russian exporters.

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A recent study released by full-service strategic advisory firm for Global Outsourcing and Investments Tholons and Global Services announced the Top 50 outsourcing cities of choice in 2008. The research identified the locations that are globally recognized for their “specific” outsourcing services offerings as well as the ones that are establishing themselves as specialized locations for particular sourcing function.

In a way, the choice of the right city has become more important than the choice of the country. It is rather the city (than the country), which represents a more accurate package of attributes that service providers seek.

Source: Top 50 Emerging Global Outsourcing Cities

St. Petersburg was selected as one of the established sourcing locations for engineering services and high-end R&D. With the large pool of talented engineering graduates, robust IT infrastructure and strong quality traditions, St. Petersburg has long been seen as one of the key outsourcing destination in Eastern Europe.

Another Russian city mentioned in the report is Moscow which scored as an established location for product development and R&D and an emerging city for engineering services but lost seven points to St. Petersburg in the overall rating.

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.

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

The Russian outsourcing industry is forecasted to grow rapidly in the coming years.

As the " Russia IT and Outsourcing Industry Forecast to 2011" report has revealed, Russia is likely to become one of the IT outsourcing hubs, offering low cost, qualified personnel and a huge investment potential.

The key findings of the research are:

• Russian software exports grew by 38.84% from 2002 to 2006 and are further estimated to grow at a CAGR of 79.02% till 2010.
• Low cost outsourcing services and highly qualified talent pool is driving the outsourcing industry.
• The IT spending in SMB sector in Russia is expected to exceed US$20 Bln by 2011.
• With CAGR of 20.4%, the IT spending is expected to reach approximately US$37 Bln in 2011 from 2007.

The rising figures of the IT in Russia are confirmed by the financial results of the year, presented by both domestic and international vendors. Recently, Hewlett-Packard has announced that the sales in the Russian IT market are largest in the EMEA region.

Late July has seen Frost and Sullivan press-release their stance on the future of Russian IT outsourcing exports and Russian ICT Industry - The Russian information and communications technology (ICT) is going from strength to strength on the back of robust economic growth, greater political stability, expanding consumer base, and increasing foreign investments.

The forecast reads that the Russian ICT Industry has especially pronounced opportunities in the fields of offshore software development, broadband technologies and equipment, managed network security, IP telephony, packaged software, communication value-added services (VAS), 3G networks, as well as in fixed line telephony. 

Among the ICT-supporting strengths of the country, Frost and Sullivan drew attention to the usual: strong governmental support in the form the E-Government program and special economic zones (SEZs) and techno-parks, Russia's vast pool of human resources and low labor costs, ‘reinforced' by a competent education system, as well as increasing amount of venture capital coming to Russia, and the constantly rising national spending in IT.

To top it all off, Russia continues to be an attractive market for the world and has plans to turn into one of top three global outsourcing destinations by 2010.

A brand new website devoted to all the aspects of doing business in the Northern Capital of Russia was officially launched last week by the St. Petersburg City Hall.

The English language resource is to become the St. Petersburg entry point for all the international enterprises and investors looking to start a business in the city or to cooperate with St. Petersburg companies.

The portal offers plenty of thoughtfully prepared information on the many business aspects in various sectors, including easy-to-follow "10-step" instructions on starting a business in the city, as well as publications on recent business affairs, relevant Internet links, and a number of interactive services.

The ICT and Software Development sectors are featured along with many other significant industries, such as trade, construction, manufacturing, and transport verticals.  St. Petersburg has long become a major point of attraction for both multinational and national enterprises, which look for highly skilled workforce at a moderate price. In the last few years, St. Petersburg has become the home of the development and R&D sites of Alcatel, Google, Motorola, Sun Microsystems, Intel, Hewlett-Packard, EMC, and more.

With this new website, as a welcome of sorts, the government and the authorities of St. Petersburg have clearly indicated their dedication to growing a healthy business atmosphere in the North-Western capital of Russia. 

IDC, the market intelligence agency, together with Russoft, the Russian IT services exporters association, released a white paper "Russia as Offshore Software Development Location: Should You Consider This Your Next Move?". This White Paper is based on in-depth, executive-level interviews with Western European and U.S.-based companies that have used Russian software and services companies for offshore development projects.

IDC's Robert Farish recently shared the major results of the research to the professional audience and press. The report, being a direct translation of the customers' voices, confirmed the existing perceptions of a "Russian developer" brand: a great talent, a good cultural fit, a good time zoning and mature methodologies.

Customers cited strong technical skills, sound methodologies, and high education levels, which allow delivery on high-end, technically complex projects as key strengths of the Russian software and services industry. In addition, softer factors – such as time-zone differences, the closer cultural fit, the similar work ethic, the clear understanding of business issues – were often mentioned as differentiating Russia from other offshore locations. English-language skills do not represent a problem, and are continuing to improve as English fluency is increasingly emphasized in the educational system.

Newsworthy to say that neither company complained on IPR nor infrastructure issues, but many told about the "clear understanding of business issues" by Russian software engineering providers. The last finding corresponds well to the strategic developments in Russia's Top 10 companies, who entered the era of industrial specialization.

The full version of the report is available here at Russoft official website.

The software exports from Russia grew by almost 54% in 2006 and reached $1,5 billion in volume in 2006. This figure was reported by Russoft, Russian IT Services association at the annual Russoft general membership meeting. Russian offshore ITO services market has been growing rapidly by 30-40% for the last five years. Today by market volume Russia is third among offshoring locations, next to India and China.

More than a half of market volume generated by Moscow and St. Petersburg companies. Approximately 30% of providers are headquartered in Moscow, and 25% - in St. Petersburg. The remaining pack is based in other Russian regions, where Novosibirsk, Nizhniy Novgorod and Yekaterinburg are other important centers of software development.

 

With its 150 exhibitors and government support of 8.2 million rubles Russia is the new CeBIT guest star. The Russian Government promoted country’s ICT in Europe to take effect – the ‘Russian idea’ is well supported now by the German Chancellor Angela Merkel.

Germany’s Chancellor Angela Merkel opened the fair on Thursday by visiting the showcase of the Ministry of IT and Communications of Russia. The Chancellor highly praised the country’s efforts to promote IT and high technologies and said she hoped this event would boost collaboration between Russia and Germany in the hi-tech sector.

At the same day the Russian Minister of IT and Communications Leonid Reiman spoke on the industry results of the previous year. Russia’s IT export reached the volume of $1.8 billion and shall grow up to $10 billion by 2010, said Minister Reiman.

Among The CeBIT Russian officials, brought by the Deputy Prime Minister Sergei Naryshkin, were a number of high profile government officials from the ICT Ministry as well as the representatives of the local governments.

European CeBIT is the monstrous trade fair showcasing IT and telecommunications products and solutions, opened in Hannover, Germany, on Thursday, March 15th. As a CeBIT partner 2007, Russia is in a position to promote its ICT industry and greatly help its IT exporting companies.