Much time has been lost and Russia has to play catch-up with India. True. And the more is done to acсelerate this process, the better. You may ask what effort is made now in high-tech industry. They say government support is small compared to that in India. However the lack of it can be already removed off the hurdle top-list for Russian IT sector development.
Russia's over-dependence on the raw materials has much been criticized both in the West and locally. After his visit to Bangalore in 2004 inspired by the impressive results of the transformed Indian economy, Vladimir Putin instructed the government to elaborate and enact the measures that would help create favorable conditions for exporting IT services in order to diversify the economy by unlocking the country's significant intellectual potential through entrepreneurship and investment in non-energy-related research and development.
As a result a number of government initiatives and projects have been proposed and planned for implementation in the very near future. For instance, the Ministry of Information Technologies and Communications (ITC) has already started the work to create a dedicated authority - Federal Agency for IT Exports Development. The agency will analyze the exporting potentials, provide marketing support and conduct PR activities.
A dedicated Russian Investment Fund for Technologies and Innovations is being created by the ITC Ministry in compliance with the instruction of President Putin and is expected to become completely private by 2010 with the state's share in the fund making up around 25 percent by the end of 2007. International IT corporations participate as co-investors, and some of the British and American financial institutions representatives who invest in IT and know the Russian market perfectly well are ready to make financial contributions.
Importantly, Russian software exports are exempt from VAT payments, whereas Forrester predicts some problems for Indian companies in the near future: the tax-free status of software firms in India comes to an end in 2009, and there is a powerful political coalition which plans to oppose to the renewal of such regime. It took pretty a while for the Kremlin to grasp the necessity of suchlike amendments, but since January 1, 2007 IT companies enjoy these remission which enabled them to increase investments into business development and push up their production volumes.
Another frequently mentioned trouble of Russian high-tech industry is infrastructure underdevelopment. In absolute figures it looks pessimistic for the post-industrial US and Western Europe. Experts say Russia lacks PCs per capita, roads, broadband is still costly, and so forth. In a recent Gartner’s study entitled “Best Practices in
Offshore Outsourcing” they figured out what level of risks several popular ITO destinations have. Russia’s overall climate was rated “good” with “poor” infrastructure spoiling the bright picture. However it must be noted that telecom is developing rapidly and already now Russia possesses a good quality and reliable telecommunications infrastructure, including physical and power infrastructure. Interestingly, that of India also leaves much to be desired and was rated “fair”.
Are there any measures taken to improve the situation? Sure. Over a dozen of industrial technoparks in the areas of the cities with largely unused human resources and scientific potential are being developed. As a result, 19,000 jobs are to be created by 2008, and 75,000 by 2011. As stated in the program adopted by the government in March 2006, such parks shall be set up in all over Russia – in Moscow, St. Petersburg, Tyumen, Nizhniy Novgorod, Kaluga and Novosibirsk regions, and in Tatarstan. Intensive construction operations are to be launched within the next year, and in two more years time the parks will start to look for investors. At present several technoparks are already being engineered and constructed in St. Petersburg which is set to be one of the most technologically packed zones in Russian IT. In addition, the Novosibirsk region authorities have passed the decision to initiate a large-scale construction of a technopark located in the vicinity of Academgorodok (Academic Town).
Project of the technopark in St.Petersburg (source: CNews)
Russian ITC Minister Reiman said at CeBIT 2007 in Hannover, Germany – the world’s largest IT and Telecom tradeshow – that the annual production output of these techparks may exceed 4 billion dollars. He also pointed out that as far as the Russian industry develops, it may raise 40 billion dollars in revenue by 2010.
Legislation is viewed as another Achilles’ heel of Russia. Intellectual property protection is what Russia is criticized for, but here 2 points should be kept in mind.
First, in terms of legislation much is done to improve intellectual property protection. Russia’s IT Minister Reiman said Russia will step up its fight against IP violations as part of effort to gain admittance to the WTO. Second and most important, leading Russian vendors seek stable relationships with customers and therefore do put special attention to security. The primary areas they try to cover in their IP protection policies are NDAs, additional employee confidentiality contracts, project related IP protection and document control.
Credibility witnessed
What do you know about doing business in Russia?
The media sometimes speculate on this topic and continue to insinuate some distrust flair about the business climate and dealing with the Russians. Recently an analyst from Gartner commenting on Russian ITO trends said that it could take years for Russia to overcome the common perception of being a difficult place to conduct business. However a closer look at the situation makes it clear that experiences and impressions differ and it’s not that risky and insecure to partner with ex-Soviets.
The American Chamber of Commerce in Russia (http://www.amcham.ru/) recently released their special report prepared in cooperation with Ernst & Young and the RUIE Expert Institute for AmCham‘s 8th Annual Investment Conference. It states that “2006 proved one of the most successful for Russia over the last 16 years. The country is steadily developing and exceeds many transition economies in growth rate.” The Russian government demonstrates understanding of still existing economic problems and heads at solving them within a short-term period. In general, the situation in the Russian financial system may be described as stable. It demonstrates growth in aggregate assets and intensification of market trade, says the report. World business leaders like General Motors, Toyota and Ikea understand this very well, and Russia is now enjoying a foreign direct investment upsurge, with $17 billion entering the country in 2006.
These rapid changes in Russian economy, in general, and IT industry, in particular, are witnessed by American companies conducting business there. Russia is a reliable trading and business partner, and a vast market with broad opportunities. According to a recent American Business in Russia Survey by AmCham “92% of U.S. companies in Russia believe that continued commercial engagement with Russia is positive for American business”, and 86% believe that Russia’s upcoming membership in the WTO will bring new opportunities for them. President of the AmCham in Russia Andrew Somers calls Russia ”an engine of growth for American companies”. For instance, Kirill Korniliev, Country General Manager, IBM East Europe/Asia (IBM in Russia & CIS), says: “In 2006 IBM's business in Russia grew by over 20%, and in the most recent quarter (Q4 2006), IBM's growth in Russia exceeded 38% – faster than in China, India or Brazil.”
