RUSSOFT press conference

Software development industry – 2019 results evaluation, challenges and prospects for 2020

On February 27, a RUSSOFT press conference was held at TASS news agency, during which the IT industry’s results for the previous year were announced and such important issues as import substitution and digitalization, state support measures for the IT industry and prospects for the industry’s development in connection with the changes in the government were discussed.

The event’s speakers, the heads of Getmobit, EPAM Systems, Kodeks Consortium, Netrika Group, Reksoft, SearchInform, Sibedge and First Line Software, spoke out in favour of extending insurance premium payment privileges, proposed by the RUSSOFT Association, commented on support measures for software export and development services, spoke about the main problems and trends in the industry and offered proposals for the new government.

For the first time the newly established committees of RUSSOFT presented their standpoint on import substitution, the service industry, information security, training and improving the qualifications of personnel, who will further promote the unified standpoint of the IT community at federal and regional levels.

The event was opened by Valentin Makarov, president of RUSSOFT, who expressed his hope for changes in the current situation of the IT industry, due to the government’s addition of executives, who are familiar with the industry and understand the potential of interaction with industry-specific Associations. He noted the presence of contradictions in the organization of state management of the IT industry which is slowing software import substitution, clearly degrading support measures for software export and development services, discouraging IT businesses from participating in skills improvement and personnel re-training both for the industry itself and all sectors of the economy which are undergoing a period of digital transformation. Makarov spoke about the establishment of RUSSOFT committees, mentioning the importance of RUSSOFT’s work in supporting and developing certain companies in cybersecurity.

While commenting on the government’s work, the moderator highlighted the difference between the government creating working groups under the “Digital Economy” program and the state’s work with industry-specific Associations: “When forming working groups on a voluntary basis, it is impossible to unite all representatives of the industry… Associations are themselves a union of companies, where all regions and all business sectors are represented, and where there are procedures for deciding on the best solutions, approved by the community.”

At the end of his speech Valentin noted: “The uniqueness of the present moment lies in the fact that with the new government cabinet, we can have a dialog with the government, change the way we communicate, and this will result in real benefits – both for implementation of the state’s programs on digital transformation and for the industry itself.”

Vitaly Balanda, director of innovations of Reksoft and coordinator of the Committee on import substitution of RUSSOFT, talked about the changes in import substitution policy in Russia. Vitaly gave a brief overview of barriers faced by consumers and manufacturers of Russian software. According to the expert, the main problems arise at the level of supply and demand on the Russian software development market. “Clients are worried about project and product risks related to the transition to alternative software and about additional expenses. There is also a psychological factor: people are used to working with certain programs. Developers, in turn, are finding it difficult to invest in software without an understanding of potential demand, and furthermore, this process is highly capital-intensive. Some developers do not have sufficient financial resources, so we have a never-ending circle.”

Vitaly Balanda announced four main working directions of RUSSOFT’s Committee on import substitution. The first direction is shifting away from selective digital transformation and gradually moving the industry towards the formation of fully compatible solution packages. The second direction is Customer Development that involves engaging clients to establish requirements and license policy for such packages. The next important step, according to Vitaly, is the appearance of a new kind of integration companies that can provide multi-vendor support for packages using the “single window” principle. Lastly, it is the creation of mechanisms for regulators to interact with the community, the development of shared mechanisms for project investment and the creation of mechanisms to insure project risks.

Sergey Tikhomirov, president of Kodeks Consortium, dedicated his speech to the transition of Russian industry to a digital track. Sergey is confident that opportunities for digitalization in Russia are just as good as in China and even the USA. Today, Russian IT developers have something to offer to the domestic industrial market. All that is needed is for companies to start engaging more actively with digital technologies, without being afraid of implementing digital solutions and automating their internal business processes. Even though this process takes time, it will undoubtedly have a great effect on the economy and accelerate the development of the Russian economy.

“We believe that digitalization in the creation and management of standard documentation should be tightly linked with the transition to digital standards. A digital standard is not simply a document in digital form but a complex information system which makes it possible to present this standard in various formats. It could be a simple text for a human to read. It could be digital models, standards corresponding to a document (for example video, etc.) for work within design systems and for transfer into development systems. It could be numerical parameters, which could in the future be used by other automated systems, including without human involvement. For this, a requirements management system is needed (RMS). Without such a system it will be very difficult for our industry to function on a digital track, perhaps even impossible.

“If we are talking about digitalization as a whole, I would like to note the following. Our IT industry is well developed. In our country we have a lot of companies working for Russia, and a lot of companies working for foreign enterprises. Opportunities for digitalization in Russia are just as good as in China and even the USA. Our main task is to implement digital technologies widely enough to ensure the most efficient transition possible to a digital platform for Russian industry. This will, without a doubt, give good results and expedite the development of the Russian economy.”

Lev Matveev, chairman of the board of SearchInform and coordinator of the Committee on informational security of RUSSOFT, shared the results of research into the level of informational security in Russian and CIS companies in 2019. He outlined the main “pain points”: “Today, you can find information about anyone on the DarkNet. You can buy bank statements, medical records, TIN, information on tax payments, property, and so on.”

According to Lev Matveev, informational security is an area where Russia has a good chance to be ahead of the game, since Russian IS solutions are better than imported ones.

Within RUSSOFT’s Committee on informational security, Matveev is planning to offer a proposal to the new government on the creation of a single body for providing informational security within the government – a ministry, federal service or agency. “We have the means to solve the DarkNet problem and leaks at state level within a year or year and a half. SearchInform is ready to share its methods and work to increase awareness together with RUSSOFT. If we can earmark at least 5–7 % of digitalization expenses for informational security, the massive problem of data leaks will simply disappear”, Lev Matveev concludes.

Alexander Kalinin, CEO of Sibedge and coordinator of the Committee on the service industry, dedicated his speech to the development of the service market and related threats and opportunities for Russia’s digital economy. He believes that the structure of the Russian IT market has created unequal conditions for service and product companies. Initially, import substitution was thought of as the creation of Russian software and the active stimulation of product development.

However, “the key tools of digitalization are still development services. Most exports of Russian software are services,” the expert noted. It turns out that the government is setting a goal of growth in the digital economy without creating the market infrastructure for it, and primarily supporting product companies. And only they have the option to not pay VAT on license sales. In fact, these companies have an additional opportunity in terms of self-financing their developments.

As a result, we are seeing that companies which reach the limit of the simplified tax system have to move to other countries, causing an outflow of capital and personnel. Therefore, the new task now to ensure digital transformation is to level conditions between service and product companies, facilitating the creation of infrastructure for future growth inside the country.

Vladimir Litoshenko, senior vice-president of First Line Software, continued to speak on behalf of service companies and spoke about the export potential of Russian developers. “Digitalization is driven by something that has finally become evident to everyone: data is like gold and its price is only going to increase, and the issue about the DarkNet confirms this. Data is becoming a key value; those who work with it gain unique competitive advantages. The FTS (Federal Tax Service) was the first of the government agencies to understand this. The same thing is happening in business. Using the example of retail, they are actively investing in digitalization and digital marketing, and this is what provides impetus.” First Line Software does not use government support in its export operations. “When arriving in new territory, it is best to talk business to business. An important step for companies wanting to begin foreign expansion is to have local representative offices and to know the unique features of doing business,” Vladimir comments.

Artak Oganesyan, deputy general director of EPAM Systems, dedicated his speech to the annual results for the Russian IT services and software development market, digital economy projects and their influence on the development of the IT market. Artak supported the proposals of Valentin Makarov and Alexander Kalinin on the creation of equal taxation conditions for licensed software manufacturers and custom software developers. Currently, under service contracts the development company bears all the costs of creating software for its clients over many months, including for major organizations in the commercial and state sectors, and receives payment only after passing acceptance tests and meeting other requirements.

Artak also noted that over the last two to three years, digital transformation has reached the real sector. “Projects for implementing digital technologies related to the IoT, the use of probes and sensors for monitoring and controlling production processes and the creation of digital twins, are currently in effect at metallurgic, engineering and processing enterprises. Another priority for many Russian companies is working with data. Artificial intelligence, machine learning, advanced analytics and Big/Long Data and Data Virtualization solutions are beginning to change the rules of the game on the market and are creating a new economic reality. Moreover, with the involvement of state companies and regulators, projects are now being implemented to create federal digital ecosystems which are unlike anything else on the global market. However, when collecting and processing large amounts of data, the systems are vulnerable in terms of the safety of citizens, business and the country as a whole. Therefore, cybersecurity remains a critical direction.”

Artak confirmed that there is a personnel problem in the IT industry and explained that EPAM Systems is actively investing in specialist training, creating laboratories in universities and developing children’s programs: “If we do not train these people today, we will not have them tomorrow.”

Maria Rukavishnikova, CEO of Getmobit, assessed the situation and opportunities for small investment businesses based on her own experience. She said that digital transformation covered almost all sectors of the economy and was a good reason to “shake up” the established order on the local market. State and corporate clients demand so much that it is no longer possible to satisfy them using past technologies at past speeds.

It is therefore logical that new players are appearing on the IT market –startups that are ready to offer technologically sophisticated products quickly and with minimal expenses. Maria believes that the new format for cooperation between small product companies and the creation of ecosystems based on complementary technologies is a clear trend. “There are two things driving this type of cooperation; demand from the market for complete solutions of competitive quality, and the desire of startups to reduce their “go-to-market” time,” Maria comments.

Maria spoke of a trend whereby startups cooperate with the platforms of technological leaders to implement joint projects. She gave an example of a joint case with Rostelecom for the Federal Treasury. Maria agrees with the general opinion of experts that insurance premium privileges are needed for all product developers that create intellectual value. For small business this measure is particularly crucial. It is these tax preferences that allow companies to pay competitive salaries to employees on the same market with the IT giants.

Maria also raises the important question of financial discipline in projects involving small companies. “Big companies take liberties when working with small ones. Including measures for additional administrative liability for breaches of obligations to SMEs in the federal law on procurements could really improve the situation and help young players at the start,” concluded the speaker.

Alexey Dvoretsky, head of the training and development division of Netrika Group, raised the familiar question of personnel training for the IT industry during his speech at the press conference.

Digital transformation is aggravating the employment issue. The IT industry needs not just developers, but also people to work with IT solutions on site. The personnel shortage is an issue in all sectors of the economy. Currently, between 540,000 (according to RUSSOFT’s assessment) and 800,000 people (according to BCG’s assessment) are employed in the software development industry. According to BCG, by 2025 we will see a staff shortage of 1 million people; and according to IIDF, 2 million by 2027.

According to Alexey, the key sources of staff replenishment are university graduates, people from other countries and personnel from IT departments of other sectors of the economy.

“IT companies cannot rely entirely on the higher education system. Many are offering their own initiatives. Therefore, it is important to encourage a large number of skilled workers to enter the higher education system, and to provide support measures for teachers which combine teaching and working in high-tech companies. Initiatives by companies which have their own training facilities and train students not only for themselves, should be financially supported,” the expert emphasized.

Alexey specified the following as key work directions for RUSSOFT’s personnel committee in 2020: building bridges between the IT industry and institutions and ministries in charge of personnel training; working with companies which are ready to get involved in project activities and cooperate on internships and job training; and synchronizing activities with other IT associations.