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Russia Information Technology Report Q1 2011
Business Monitor International, Jan 2011, Pages: 70
Business Monitor International's 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 Russian IT spending is expected to record double-digit growth in 2011, continuing its recovery from2009, when the market experienced a sharp contraction across all main IT spending verticals. The IT market is forecast to grow to around US$34.6bn by 2015, surpassing its 2008 level, as the IT market gradually recovers from recent external shocks.
PC sales grew strongly in H110 as the market bounced back. The broader use of ICT in government and other sectors will ensure an upward market trajectory in the medium term, along with major projects in other key sectors such as banking and oil and gas. In 2011, vendors will look to opportunities in the public sector, which in 2010 launched a number of e-government service pilots in areas ranging from universal identity cards to online fee payment.
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$138 in 2011 to US$250 by 2015.
Industry Developments In 2011, the government is expected to press ahead with plans for a national open source software platform. The government has earmarked US$4.9mn to develop a Linux-type national software system.The details were due to be agreed during a December 2010 meeting to be chaired by the Deputy Prime Minister Sergei Ivanov.
In 2010 the Russian government earmarked RUB2bn (SU$64mn) for e-government infrastructure projects through the end of 2010. The government launched test projects in 2010 for a number of e-government initiatives, with the aim of meeting targets for the introduction of information technology to deliver government services.
The government also 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.
Competitive Landscape Government open source initiatives have put pressure on Microsoft to reduce prices to win Russian public sector contracts. Russia is one of Microsoft’s top 10 global markets, and state contracts account for around 10% of the company’s local revenues. However in 2011, Microsoft launched a number of programs designed to strengthen its position in the Russian market.
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.
Hardware BMI forecasts double-digit growth for the the Russian computer hardware market in 2011, consolidating a strong recovery in 2010. According to BMI projections, the computer hardware market is forecast to recover to US$10.9bn in 2011, up from US$9.1bn in 2010, driven by notebooks.In H110, shipments bounced back robustly, with growth driven mainly by notebook sales, which comprised around 60% ofPC shipments.
Computer hardware sales will find 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 15%,with PC spending reaching US$15.3bn by 2015.
Software The addressable domestic software market is projected at around US$3.1bn in 2010. Spending in this sector is forecast to return to positive growth territory, after demand was hit in 2009 by the much sharp decline in PC sales. Going forward, the market is projected to grow at a CAGR of 15% to US$6.6bn by2015, 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$4.9bn in 2011, which will represent a continued recovery from 2009 when the market experienced a sharp contraction across all main IT spending verticals. The IT services opportunity is forecast to grow steadily to around US$9.5bn by 2015,surpassing its pre-crisis level, as the IT market gradually recovers.
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 Europe (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’. Former-IT and Communications Minister Leonid Reiman 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 much needed 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 expanding the market, by introducing competition as well as offering services over a wider area.
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