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Russia Information Technology Report Q4 2010
Business Monitor International, Sep 2010, Pages: 69
The Russia Information Technology Report provides industry professionals and strategists, corporate analysts, information technology associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Russia's information technology industry.
Market Overview
The Russian market was buffeted by strong economic headwinds throughout last year and BMI estimates that IT spending contracted by 21% in 2009 and will not return to 2008 levels until 2011. In 2010, the Russian IT market is forecast to grow by around 12% to reach US$15.4bn, still short of 2008's total IT spending of US$16.9bn.
In 2010, vendors will look to opportunities in the public sector, which in H110 launched a number of egovernment service pilots in areas ranging from universal identify cards to online fee payment. Meanwhile in both public and private sectors there should be a boost from IT spending delayed from 2009, with H110 seeing new projects in industries from timber to banking.
Russia is showing signs of becoming a market that, through its scale, can influence global industry developments. Growing computer penetration, government information and communication technology (ICT) projects and immense potential for IT spending by Russia's traditional industries could drive an increase in IT spending per capita from around US$110 in 2010 to US$207 by 2014.
Industry Developments
In 2010, the Russian government has proceeded with test projects for a number of e-government initiatives, with the aim of meeting targets for the introduction of information technology. One key pilot concerned the introduction of a universal identity card, which would replace various individual forms of identification such as medical and pension insurance cards and so on. As of July 2010, 62 out of 83 of Russia's regions were providing online services.
In a strongly worded speech in August 2009, President Medvedev said that progress on e-government projects had been 'a disgrace' and threatened to introduce financial penalties for government bodies that failed to meet targets. Medvedev's words echoed similar remarks made by Prime Minister Putin in April 2009.
In December 2009, the Russian government's Expert Council of the Federal Anti-Monopoly Service on Developing Competition in Information Technologies convened a meeting on identifying problems in the IT sector. The council set up a working group to summarise ideas and proposals on the development of the IT sector, which were expected to be presented to the government in early 2010.
Competitive Landscape
In June 2010, IBM announced that Comepay, a leading provider of self-service payment kiosks in Russia and the CIS, had selected an IBM mainframe to run its core business operations. Comepay said that they had chosen the IBM system in part for its performance and virtualisation capabilities.
With the business climate still very cost sensitive, some vendors have spotted a growing opportunity to promote cloud computing solutions such as Software-as-a-Service (SaaS) and Infrastructure-as-a-Service (IaaS). In August 2010, cloud computing company Comax announced that it had invested US$4mn in opening a subsidiary in Russia to sell the company's cloud computing solutions to business customers. Comax said that it would focus initially on Moscow, where it hopes to sign up 20,000 customers within two years.
In November 2009, Microsoft said that it was considering launching its own retail presence in Russia in 2010. The outlets would be opened in Russia's largest cities and would be used more for brand development rather than a new sales channel. Meanwhile, in April 2010, IBM signed its first Russian Application Specific Licensing Agreement with long-term Russian partner I.T.Co.
Hardware
BMI forecasts a return to growth for the Russian computer hardware market in 2010, following a sharp contraction in PC sales in 2009. According to BMI projections, the computer hardware market is forecast to recover to US$8.3bn in 2010, up from 2009's US$7.1bn but still short of 2008 levels. Hardware spending will have support from a number of fundamental drivers including low PC penetration, rising incomes, government IT initiatives and industrial reform in many sectors. PC market compound annual growth rate (CAGR) for the next five years is projected to be in the region of 14%, with PC spending reaching US$12.3bn by 2014.
Software
The domestic software market is projected at around US$3.2bn in 2010. Spending in this sector is forecast to return to positive growth territory, after demand was hit in 2009 by the much sharper decline in PC sales. Going forward, the market is projected to grow at a CAGR of 15% to US$5.8bn by 2014, making Russia potentially one of the most significant global software market opportunities. Although Russia has the fifth highest software piracy rate in the world (at 87%), BMI expects that government efforts to strengthen intellectual property protection will see this fall closer to average Eastern European levels, boosting the market. Unsurprisingly, there are regional disparities, with Moscow some way ahead of its closest rival St Petersburg in terms of enterprise resource planning (ERP) deployments.
Services
BMI projects an IT services market value of US$3.9bn in 2010, which will represent some recovery from 2009 when the market experienced a sharp contraction. The IT services opportunity is forecast to grow to around US$7.9bn by 2014, as the IT market gradually recovers from recent external shocks. The broader use of ICT in government and other sectors will ensure an upward market trajectory in the medium term. Systems integration is the largest IT services component, with as much as one-third of segment revenues and, together with implementation of hardware and software, probably account for about half of all IT services. However, more value-added services such as consulting and applications development are growing fast. Outsourcing is also on the rise, although below the levels in some other Central and Eastern European (CEE) countries.
E-Readiness
The government's ambitious policy is that every locality in Russia should be provided with fixed-line telephony infrastructure, mobile phone coverage and internet by 2015. According to the Ministry of IT and Communications' target, every populated area in the country should be provided with all three elements irrespective of its economic 'weight' and 'population'. IT and Communications Minister Reiman has described the 'digital divide' as a very challenging issue for all CIS countries and one that the Russian government was seeking to overcome.
Internet usage is forecast to see robust growth over the remainder of our forecast period. However, the current tight credit markets are limiting the ease with which broadband operators are able to source muchneeded funds to invest in broadband network proliferation. Coupled with economic uncertainty, this is creating a troublesome environment for operators to plan their investment decisions. That said, growth will still be strong - just not meeting its full potential.
Competition between the incumbent's holdings and alternative operators such as Comstar-UTS, Golden Telecom and Net By Net will continue to drive the sector forward. Continued expansion of networks, both fixed and wireless, should see penetration increasing in the regions, while uptake remains strong in the more urbanised areas. Alternative technologies such as WiMAX and fibre will also play their part in expanding the market, by introducing competition as well as offering services over a wider area.
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