Valentin Makarov: Proud to be Russian
Interview by Olga Kalashnikova, The St. Petersburg Times
Nov 11, 2013
In late October, Russia’s first representative office of an information and communication technology organization was established outside Russia in The Hague, Netherlands. Known as Russoft, the association is a network of more than 75 companies engaged in software development and includes members from Russia, Belarus and Ukraine. Yet the event, so important for the global IT market, has received little coverage either at home or abroad. As Valentin Makarov, president of Russoft, said, the attitude to Russia in both technology and business is mostly negative. Only during the last two years has the situation changed for the better and the amount of positive coverage increased. As a result, many world-famous IT companies have stepped out of the shadows to reveal their Russian origins.
Valentin Makarov sat down with The St. Petersburg Times at the Russoft headquarters, in the former house of the Eliseev family on Vasilievsky Island, and spoke about the paradox of Russian IT firms, the problems with contemporary IT education, the place of industry in both the local and global markets, his frustration with a government that does not do more to support the industry and the Russian origins of some of Silicon Valley’s most famous companies.
Q: How did the idea to create an association of leading software emerge?
A: The idea surfaced in 1999 when I was working as the deputy head of the Committee for External Relations of St. Petersburg. We organized a visit by a group of companies to California, to Silicon Valley, where we visited various companies such as Oracle, HP and Sun Microsystems. Everywhere we went, we heard the same thing: They knew that Russian engineers were highly qualified (we saw lots of Russian names on the offices of many companies) but that Russian companies were too small and it would be too difficult and risky to cooperate with them. So when we returned to the hotel after these meetings, we immediately drew up the general regulations of a new consortium that was then called Fort Ross. It was named after the former Russian fort on the west coast of North America. Ten companies joined our consortium, which aimed to promote the products and services of St. Petersburg-based companies on the global market. Later, more companies joined us and, in 2001, the Americans officially acknowledged that Russia had a software development industry.
How did Fort Ross become Russoft?
We hold various seminars and forums annually and visit other countries. Everything was based almost entirely on our enthusiasm and paid for with our own money. The [Russian] government offered us barely any help. Gradually, the association developed and companies from Belarus and Ukraine joined us to form a community of Russian-speaking developers. Then we merged with the National Software Development Association and changed the name to Russoft to underline the fact that that the entire Russian-speaking software world is represented by our brand.
What were your relations with the government?
When the industry began to get noticed and become more developed, we understood that we could not do everything on our own, so we needed to cooperate with the government. We explained [to them] that we needed help promoting Russian software on the global market and needed to change the system of education, invest more in basic research and, in this way, provide the country with more tax revenue to create job opportunities. We began to cooperate and succeeded in having the social security payments reduced for software developers focused on export. Then the crisis occurred and all of the industry’s privileges were taken away. We had to fight to regain them for more than a year. We finally succeeded and expanded the tax breaks to include all developers. It was a huge job and it has been a great success.
Why wasn’t the government happy that the industry was developed in the country? Why doesn’t it support the industry?
It is the same process all over the world. The government focuses on traditional industry and other pressing problems that have a large impact on the country's development. Innovative industries are too small and too young and it is unclear if they will be successful or not. We could prove that innovative technologies should be supported by the leaders of the country. The so-called long economic cycle [Kondratiev Waves – the cyclical phenomenon in the modern economy where each wave or cycle ranges from forty to sixty years] demands that money be invested in unknown areas at the beginning of the wave and then, in 30-50 years, this area will show a profit and those who invested in it will become the leaders of the world economy.
Can the Russian IT industry be considered highly developed today?
Nowadays, it is the most developed innovative segment of the economy. We calculate this based on the portion of exports that we have on the global market. The general volume of software and development services export was $4.6 billion last year and this success is built on the achievements and experience of the Soviet Union educational system. It created a new generation of people that could think and create. This education produced highly-skilled engineers. Along with business management skills, a commitment and desire to succeed means that the IT industry is second in the volume of export only to the military industry. The difference is that the latter receives government support, while our industry does not and is a commercial venture that started from nothing.
Are Russian IT projects well known on the global market?
Among the 50 world leaders in IT service suppliers, six are Russian companies and six are from Belarus and Ukraine. So 20 percent of world-leading IT outsourcing companies are Russian-speaking. During the last two years, new names have emerged. The world leader in business intelligence, for example, is a company from Perm. Most foreigners do not even know where the city is but they are world leaders.
There is also another important element in the development of Russian IT industry abroad – just a couple of years ago, Russian companies still did not advertise they were Russian. There existed a prejudice against the Soviet Union and later Russia. As recently as two years ago, we noticed that the amount of positive articles about Russian technological achievements outweighed the negative. As a result, more and more Russian companies are now unafraid to declare that they are Russian. There are not many people in the world who know that Russian technologies are good because, while they may know the technologies, they believe that they are American, German or Czech. In reality, many of these companies are actually Russian developers.
Is prejudice the only reason Russian companies presented themselves as foreign-owned?
Intellectual property rights are not well protected in Russian legislation. It is more profitable and safer to bring the project to market in other countries such as, for example, Malta or the United States, where rights are protected. This results in a strange situation where the authors of the ideas are in Russia, the ideas are patented in another country and the sales are handled in a third country, Holland, for example, as the conditions for doing business are better there. There are lots of barriers that prevent the development of the right image of Russia as a country where companies produce, protect rights, sell and gain a profit. This is the way it should be. The government is now taking the encouraging measure of attracting Russian companies back to Russian jurisdiction but it is not a fast process.
Do Russian users know that the local IT market is a successful, homegrown industry?
To learn about the local market, Russian consumers have to buy local products. Local purchasing power is almost absent. Today, the market is developing and Russian products and services are emerging but it is still rather difficult. People learn about the achievements of the IT industry through relatives and friends when they hear about a young man whom recently graduated university and is already buying a flat. The average salary of a software developer is two times higher than the regional average. It is a very promising industry for those who did well at school. It is impossible to do any experiment in modern science without designing these processes, which are possible only with IT technologies. All new trends in science are based on IT.
Speaking about Russian developers, you mentioned the Soviet educational system. What about contemporary IT education?
Our Soviet, Russian education gives a person the opportunity to think globally, to learn mathematics and to use it for solving tasks in other areas. It teaches students to program as well as understand the sense of the process, so we are strong in designing chemical, physical, economic processes – those processes where one needs mathematics, the ability to think outside the box and use knowledge from any other area to draw a conclusion. This is where we are powerful. We have a qualified IT education that is still maintained by a number of universities. The leading ones are the St. Petersburg State University, ITMO, St. Petersburg State Polytechnic University, St. Petersburg State University of Aerospace Instrumentation and St. Petersburg State Electrotechnical University. Although almost every educational institution offers an IT education, after 5 years of study the graduates often do not understand how the industry works. The IT sphere changes rapidly every year so if you are not involved in it, you cannot teach it. To teach IT, one should be constantly engaged in the process and if the teacher is an elderly man, he teaches theory that is true in general but differs significantly from current practice. Some universities have managed to build cooperation with business and, as a result, they turn out top specialists of an international caliber while companies then develop their skills.
Is business ready to cooperate with educational institutions to prepare qualified specialists?
Businesses have started to create their own educational centers and raise new graduates to the necessary professional standard. Yet it is rather expensive for companies. Other countries offer a system of tax breaks for the companies that invest in education. We created a project where companies’ education centers act as departments of a new educational institution — the Academy of Post Graduate IT Education. In this way, every educational center prepares not just 15 specialists per year for itself, but 100 people for the entire market. We are ready to help but not only at our own expense; we are ready to co-finance education with state investment. The government needs to invest in the basic sciences, in the teachers who make young people remain in educational institutions to teach the next generations and inspire a passion to achieve. It is necessary to have incubators, infrastructure, to give small- and medium-sized business an opportunity to enter global markets. There is a necessity for government support. If this is received, before long Russia will occupy its rightful position on the global IT market and companies will no longer feel the need to conceal their Russian origins.
Why did you decide to open a representative office of Russoft in the Netherlands?
It is rather difficult for a young company to survive on the global market. Where can it get money for marketing? Nobody will give it. Most countries, other than Russia, support such emerging companies. We came up with the idea of having our own representative office on the global market, so we launched the office in The Hague as we found the attitude of local authorities and businesses to be receptive. Maybe it is a result of Peter the Great visiting Netherlands [as part of the Great Embassy, during which the Russian Emperor studied shipbuilding]. They stimulate the launch of innovative companies from other countries, especially Russian ones, as our engineers are world famous. It is our first office outside of Russia. We are also planning to open a representative office in the U.S. next year. Later we have plans to open offices in the Middle East and Latin America.
Valentin Makarov sat down with The St. Petersburg Times at the Russoft headquarters, in the former house of the Eliseev family on Vasilievsky Island, and spoke about the paradox of Russian IT firms, the problems with contemporary IT education, the place of industry in both the local and global markets, his frustration with a government that does not do more to support the industry and the Russian origins of some of Silicon Valley’s most famous companies.
Q: How did the idea to create an association of leading software emerge?
A: The idea surfaced in 1999 when I was working as the deputy head of the Committee for External Relations of St. Petersburg. We organized a visit by a group of companies to California, to Silicon Valley, where we visited various companies such as Oracle, HP and Sun Microsystems. Everywhere we went, we heard the same thing: They knew that Russian engineers were highly qualified (we saw lots of Russian names on the offices of many companies) but that Russian companies were too small and it would be too difficult and risky to cooperate with them. So when we returned to the hotel after these meetings, we immediately drew up the general regulations of a new consortium that was then called Fort Ross. It was named after the former Russian fort on the west coast of North America. Ten companies joined our consortium, which aimed to promote the products and services of St. Petersburg-based companies on the global market. Later, more companies joined us and, in 2001, the Americans officially acknowledged that Russia had a software development industry.
How did Fort Ross become Russoft?
We hold various seminars and forums annually and visit other countries. Everything was based almost entirely on our enthusiasm and paid for with our own money. The [Russian] government offered us barely any help. Gradually, the association developed and companies from Belarus and Ukraine joined us to form a community of Russian-speaking developers. Then we merged with the National Software Development Association and changed the name to Russoft to underline the fact that that the entire Russian-speaking software world is represented by our brand.
What were your relations with the government?
When the industry began to get noticed and become more developed, we understood that we could not do everything on our own, so we needed to cooperate with the government. We explained [to them] that we needed help promoting Russian software on the global market and needed to change the system of education, invest more in basic research and, in this way, provide the country with more tax revenue to create job opportunities. We began to cooperate and succeeded in having the social security payments reduced for software developers focused on export. Then the crisis occurred and all of the industry’s privileges were taken away. We had to fight to regain them for more than a year. We finally succeeded and expanded the tax breaks to include all developers. It was a huge job and it has been a great success.
Why wasn’t the government happy that the industry was developed in the country? Why doesn’t it support the industry?
It is the same process all over the world. The government focuses on traditional industry and other pressing problems that have a large impact on the country's development. Innovative industries are too small and too young and it is unclear if they will be successful or not. We could prove that innovative technologies should be supported by the leaders of the country. The so-called long economic cycle [Kondratiev Waves – the cyclical phenomenon in the modern economy where each wave or cycle ranges from forty to sixty years] demands that money be invested in unknown areas at the beginning of the wave and then, in 30-50 years, this area will show a profit and those who invested in it will become the leaders of the world economy.
Can the Russian IT industry be considered highly developed today?
Nowadays, it is the most developed innovative segment of the economy. We calculate this based on the portion of exports that we have on the global market. The general volume of software and development services export was $4.6 billion last year and this success is built on the achievements and experience of the Soviet Union educational system. It created a new generation of people that could think and create. This education produced highly-skilled engineers. Along with business management skills, a commitment and desire to succeed means that the IT industry is second in the volume of export only to the military industry. The difference is that the latter receives government support, while our industry does not and is a commercial venture that started from nothing.
Are Russian IT projects well known on the global market?
Among the 50 world leaders in IT service suppliers, six are Russian companies and six are from Belarus and Ukraine. So 20 percent of world-leading IT outsourcing companies are Russian-speaking. During the last two years, new names have emerged. The world leader in business intelligence, for example, is a company from Perm. Most foreigners do not even know where the city is but they are world leaders.
There is also another important element in the development of Russian IT industry abroad – just a couple of years ago, Russian companies still did not advertise they were Russian. There existed a prejudice against the Soviet Union and later Russia. As recently as two years ago, we noticed that the amount of positive articles about Russian technological achievements outweighed the negative. As a result, more and more Russian companies are now unafraid to declare that they are Russian. There are not many people in the world who know that Russian technologies are good because, while they may know the technologies, they believe that they are American, German or Czech. In reality, many of these companies are actually Russian developers.
Is prejudice the only reason Russian companies presented themselves as foreign-owned?
Intellectual property rights are not well protected in Russian legislation. It is more profitable and safer to bring the project to market in other countries such as, for example, Malta or the United States, where rights are protected. This results in a strange situation where the authors of the ideas are in Russia, the ideas are patented in another country and the sales are handled in a third country, Holland, for example, as the conditions for doing business are better there. There are lots of barriers that prevent the development of the right image of Russia as a country where companies produce, protect rights, sell and gain a profit. This is the way it should be. The government is now taking the encouraging measure of attracting Russian companies back to Russian jurisdiction but it is not a fast process.
Do Russian users know that the local IT market is a successful, homegrown industry?
To learn about the local market, Russian consumers have to buy local products. Local purchasing power is almost absent. Today, the market is developing and Russian products and services are emerging but it is still rather difficult. People learn about the achievements of the IT industry through relatives and friends when they hear about a young man whom recently graduated university and is already buying a flat. The average salary of a software developer is two times higher than the regional average. It is a very promising industry for those who did well at school. It is impossible to do any experiment in modern science without designing these processes, which are possible only with IT technologies. All new trends in science are based on IT.
Speaking about Russian developers, you mentioned the Soviet educational system. What about contemporary IT education?
Our Soviet, Russian education gives a person the opportunity to think globally, to learn mathematics and to use it for solving tasks in other areas. It teaches students to program as well as understand the sense of the process, so we are strong in designing chemical, physical, economic processes – those processes where one needs mathematics, the ability to think outside the box and use knowledge from any other area to draw a conclusion. This is where we are powerful. We have a qualified IT education that is still maintained by a number of universities. The leading ones are the St. Petersburg State University, ITMO, St. Petersburg State Polytechnic University, St. Petersburg State University of Aerospace Instrumentation and St. Petersburg State Electrotechnical University. Although almost every educational institution offers an IT education, after 5 years of study the graduates often do not understand how the industry works. The IT sphere changes rapidly every year so if you are not involved in it, you cannot teach it. To teach IT, one should be constantly engaged in the process and if the teacher is an elderly man, he teaches theory that is true in general but differs significantly from current practice. Some universities have managed to build cooperation with business and, as a result, they turn out top specialists of an international caliber while companies then develop their skills.
Is business ready to cooperate with educational institutions to prepare qualified specialists?
Businesses have started to create their own educational centers and raise new graduates to the necessary professional standard. Yet it is rather expensive for companies. Other countries offer a system of tax breaks for the companies that invest in education. We created a project where companies’ education centers act as departments of a new educational institution — the Academy of Post Graduate IT Education. In this way, every educational center prepares not just 15 specialists per year for itself, but 100 people for the entire market. We are ready to help but not only at our own expense; we are ready to co-finance education with state investment. The government needs to invest in the basic sciences, in the teachers who make young people remain in educational institutions to teach the next generations and inspire a passion to achieve. It is necessary to have incubators, infrastructure, to give small- and medium-sized business an opportunity to enter global markets. There is a necessity for government support. If this is received, before long Russia will occupy its rightful position on the global IT market and companies will no longer feel the need to conceal their Russian origins.
Why did you decide to open a representative office of Russoft in the Netherlands?
It is rather difficult for a young company to survive on the global market. Where can it get money for marketing? Nobody will give it. Most countries, other than Russia, support such emerging companies. We came up with the idea of having our own representative office on the global market, so we launched the office in The Hague as we found the attitude of local authorities and businesses to be receptive. Maybe it is a result of Peter the Great visiting Netherlands [as part of the Great Embassy, during which the Russian Emperor studied shipbuilding]. They stimulate the launch of innovative companies from other countries, especially Russian ones, as our engineers are world famous. It is our first office outside of Russia. We are also planning to open a representative office in the U.S. next year. Later we have plans to open offices in the Middle East and Latin America.