An Interview with Russia’s Deputy Minister of Communications, Mark Shmulevich
Interview by CNews
Jan 29, 2013
Deputy Minister of Communications Mark Shmulevich is responsible for the development of Russia’s IT industry. In an interview with CNews, he spoke about the results of his first half-year with the Ministry of Communications and planned measures to support Russian IT companies.
Which goals for the IT industry have you given priority?
We have not just set goals, but also held public discussions. We received a lot of interesting comments, some of which we have taken on board, and given priority to three objectives: developing industry staffing, attracting investment and maintaining high growth rates.
Following the selection of targets, a plan of specific, detailed measures was made. I will briefly describe them by focus. First is what I call "soft" matters – that is, everything relating to human capital. Here we look at ways to promote the profession, improve education and perhaps migration to Russia from other countries.
At the other extreme is the matter of infrastructure, which includes industrial parks and the infrastructure necessary for the development of IT companies. Between them there is a very important legal issue: to create favorable conditions for companies operating in Russia. Another focus is the promotion of Russian companies on international markets, and the increase of the efficiency of foreign companies operating here.
We gathered an advisory council and have formed three working groups. Meetings with professional associations and leading companies have shown the shape of the Russian IT industry today, the problems it faces, and what we can do to help.
What are the main results from the first six months of your work at the ministry to achieve these goals?
The first six months were spent getting oriented. I hope that we can return to the same question at the end of 2013. A key challenge for me was to put a team in place. In addition, we have already made a number of important decisions.
Regarding staffing, we decided that we would develop 30 new professional standards in the field of IT in 2013–2014. These will include professional standards that don’t yet exist, but that are important – for example, in product management.
We decided what to do with the Rosinfocominvest fund, which has been in existence since 2007 but which has not been very effective. The decision was made to adjust its investment strategy. In January, we will publish the relevant documents. In particular, the fund will now start to co-invest with qualified market investors.
In 2012, we worked on the program of technology parks as planned. In 2013, changes will be made to improve the transparency and efficiency of the overall program.
Much was done to prepare for the meeting of the Presidential Council on Modernization, where one of my tasks was to create an agenda that reflected the interests of the IT industry. So, the meeting dealt with patent protection for Russian companies abroad, representing the interests of residents of the tech parks, supporting fundamental research, and preserving preferential tax initiatives for IT companies.
In your view should all companies operating in Russia receive support, or only those owned and operated as Russian concerns?
You cannot focus only on the support of Russian companies – meaning those whose jobs and intellectual property are based here. Such companies do exist. For example, 1C has been successfully operating on the Russian market and, if I remember correctly, the company earns 75 percent of its revenue from working here. However, there are other companies that can be thought of as being Russian, even though the main source of revenue results from sales in the West. We don’t need to herd them all into the Russian jurisdiction and say that we support only those in Russia. We must create an environment – and this is the role of government – where companies find it more profitable to work in Russia.
Has the Ministry decided to monitor the taxes of companies that position themselves as Russian?
We are aware of the issue, but there is no separate tax monitoring. Maybe we will look into this later, but initially it seems to me more important to create the conditions under which there will be more such companies.
How does the Ministry encourage companies to register and pay taxes in Russia?
First and foremost, a favorable tax system is one way to encourage companies. Social contributions are, for many companies, actually a tax on their turnover, and many cannot afford it. In addition to this there are things like patent protection and intellectual property rights. We support the idea of a shared fund of foreign patents in Russia.
The exchange of experience in foreign markets is important if talking about development companies. So that those companies that already know how to operate internationally can share their knowledge. The state is able to support the participation of Russian companies in those events where they can interact with their more experienced colleagues.
What is the role of foreign companies in the development of the Russian IT industry?
First, many foreign companies have opened development centers in Russia. Intel and other prominent companies use such units to effectively carry out high-quality development in Russia. An important issue is the difference between the development centers themselves and the beneficiaries of the work they carry out. As a rule, all rights are sent abroad. I find it important to have the option to keep at least part of these intellectual property rights in Russia. Discussions have been initiated on this very complex subject and we are planning to work on that.
Equally important, is that Russia’s largest IT companies are funding departments at universities in order to resolve their staffing issues. In any case they attract people to the industry, and in this case it doesn’t matter whether the company is Russian or not. I see their role as popularizing IT as a form of activity, which is one of our key objectives.
Do you encourage foreign companies that operate in Russia?
I wouldn’t call what we do an encouragement to work in Russia. The main task, as I see it, is to increase the effectiveness of such business for Russian economy. As I said, it is important to open research and development centers, preferably with the conservation of some intellectual property rights in Russia. Here we need to find compromises.
What place is there in your work for stimulating Russian software exports?
We should not directly assist Russian companies, but rather offer them training. Doing business on foreign markets largely requires the company to have an initial intention to work outside of Russia. It requires a different approach than working within Russia, and if a company was originally set up to operate here then it is very difficult to establish international sales. Then, as I have said, patent protection abroad is also a factor with exports.
The lion’s share of Russian exports are in the form outsourcing, and I think this is a very important trend. This area is also in need of personnel.
Today there are countries where expensive IT development is in its infancy, and will certainly increase. I see this as a window of opportunity for Russia. As I remember, a large share of our core outsourcing customers are located in the west – in the U.S. and other countries. But it is important not to forget about third world countries. The window of opportunity will not be open forever.
In which niches are Russian exporting companies more competitive than their foreign counterparts when working on foreign markets?
In the creation of companies in areas requiring complex technologies. For example, the Internet company Yandex, which is one of the leaders on the European market, has a technology that uses sophisticated algorithms to analyze traffic patterns on the roads. Russian companies may also have a stronger position in the intelligent processing of big data and business analysis. As for outsourcing, even though we are not yet a world leader, the industry is very well established in Russia.
I also see the potential of our start-ups. Even though the success of Russian start-ups in non high-tech areas are rare. At the same time, there is a good opportunity to build the ecosystem in which they can develop. This will help make Russian start-ups competitive.
What does the ministry do to support Russian companies in the areas where we have a competitive advantage?
I do not think that we need to restrict state aid to the activities of specific niche markets. Most of the measures which I have already mentioned work equally well for everyone. Skilled workers are needed by any company that uses complex engineering solutions. Start-ups have their own particularities, but all these measures affect the industry as a whole.
Can you identify the countries where Russian IT companies are most competitive? What is being done to support them in these regions?
I do not think that they can be identified. As I recall, in the last RUSSOFT report such data exists. But the Ministry of Communications does not conduct any particular geographic monitoring. This could make some kind of sense for us, but not in the first six months of operation.
Does the Ministry have its own assessment of personnel shortages in IT?
By analyzing institutions, market players and professional associations we know that the country now produces 3500-4000 highly skilled specialists annually. And the industry needs at least one and a half times that – about 6000.
What was done in 2012 by the Ministry to address staff shortages in the IT sector?
I think this is a key problem, though not the only one. We have so few people that work directly in the IT industry and this is the industry’s most important resource. To provide more talented people for IT I think it is more important to ensure the growth of the industry, for example, than to work towards improving the level of education.
Education, as strange as it may sound, is not the most important thing for us to focus on. More important is promotion of the industry – especially in the Russian regions. In Moscow, St. Petersburg, Yekaterinburg, Nizhny Novgorod, Kazan, and other large cities there is an ecosystem of IT companies. But most places just do not have enough understanding of IT as a promising type of activity for young people.
To ensure the supply of personnel it is important to influence young people’s decisions about what to study from an early age. It is difficult to study information technology when there are no role models, and when you rarely see the successes of IT companies portrayed on TV. The second stage of such an education takes place at university. If I remember correctly, according to the statistics of the Ministry of Education, we have about 700,000 graduates from higher education annually, of which about 60,000 end up working in IT. This figure should be increased.
It is important to use an approach by which a person, who was educated in a different field (engineering, science), can find his or her way into IT. Often, such a change of direction can happen relatively quickly.
We are now considering ways in which to promote distance education in cooperation with several organizations. There are some simple measures that can be taken, such as translating foreign distance education into Russian for people who might be able to work in IT, but do not yet speak English.
Of course, we need to use and the possibility of attracting foreign specialists to Russia. On the one hand, the salary of a Java-developer in Germany is more than one-and-a-half times higher than that of his Russia counterparts. On the other hand, there are qualified professionals in the CIS countries – Kazakhstan, Ukraine, Belarus – who earn less than their Russian counterparts. They may decide it is now profitable to work with us, but this requires a simple procedure for temporary emigration to Russia, and work permits for highly qualified professionals.
There are now such mechanisms in Russian legislation. However, the Russian IT industry has said that in many cases these mechanisms do not work effectively. We have to address this so as to understand what steps need to be taken so that they are more effective. The window of opportunity will not last forever. This is one of our challenges for 2013.
In many ways it is not necessary to invent anything new, we can use the tools that we already have. We just need to understand clearly how they actually work at the moment. We have conducted a number of meetings in Moscow, as well as in the regions that attract labor from abroad, and there is almost always talk about the difficulties companies face and the fact that the migration mechanisms are not efficient enough. We need to understand why.
How do you feel about the idea of introducing the term "domestic hardware developer"?
It is important to understand what added value such a developer actually creates. In Russia today, companies that say they produce hardware actually purchase a large number of imported components. This supplies low added value within the country and in this case, the assignment of the status of "national hardware developer" is a very controversial issue. The first step is to assess the Russian market in hardware development and integration with high added value. Before we talk about this, more research is needed.
How do you feel about the idea of restrictions on Russian customers storing data outside of the country in order to develop the domestic IT services market?
Data centers are being built in Russia and we cannot say that everyone uses only foreign data centers; these centers are being built by large banks, investment companies and telecommunications operators. It is necessary to clearly separate the markets from the interests of national security. In the second case, restrictions probably have to be put in place. In the first case, they are simply not feasible.
There is a large area of research in IT that requires high capacity. If in the past it was achieved through the purchase of high-performance hardware systems, today there is already an apparent transition to cloud computing. The situation where a research team buys computing power from Amazon instead of buying a system outright is very real. Today, therefore, we cannot limit foreign cloud use because the commercial market is heading in the opposite direction. This is an opportunity for our cloud providers to increase the attractiveness of their services.
Speaking about the concept of APKIT, you have talked in the past about beginning work on a detailed tactical document. How is work on that progressing?
The APKIT strategy has a lot of points with which I agree – for example, those concerning the role of broadband and taxation. But to adopt this strategy in its entirety as presented is impossible, as it is quite specific. The document was actually developed by a precise set of companies, including many integrators. They commissioned the document, and it reflects the interests of the industry. But there are other important areas that also need to be considered.
There are important research topics, such as large data or mobile applications, without which Russian development companies will become uncompetitive in five years. There is also the task of creating an ecosystem for start-ups, which is also very important. There are, as well, staffing issues that, I believe, are not described in significant enough detail in the document.
I’m not saying that the strategy is bad, they have done a very good job and we are grateful to APKIT, firstly for the work itself and secondly for their constructive approach. We, of course, will use the document. It is simply a case where the strategy for the Russian IT industry is wider.
I did say that we are conducting more detailed work in each of the four areas that we have outlined. We have identified a mechanism and are planning to create a separate sub-program dedicated to the development of the IT industry during the first half of 2013 as part of the state’s Information Society initiative.
How will the Information Society sub-program of which you speak be funded?
We have not yet announced it, but I can say that it will adopt part of the existing program – for example, technology parks.
What are the main challenges of your work at the Ministry of Communications?
First and foremost, it was the important task of selecting an effective team. It was really complicated, and is not yet complete. I can say that for me the selection of team members at the Ministry has been more time consuming than I had imagined. Second, in my previous positions I was engaged in the development of business and science, but I am relatively new in public service. I cannot call this a complexity, but there is a lot to learn.
How far have your expectations about working at the Ministry coincided with reality?
They have been very much aligned. Even before I began at the Ministry, I thought that working with a team focused on results would be very important. My work has only confirmed this. One of the key problems is that a lot of people are process-oriented, and we have another goal. We want to achieve a particular result. We need to expend a lot of energy on reaching our goals.
Which goals for the IT industry have you given priority?
We have not just set goals, but also held public discussions. We received a lot of interesting comments, some of which we have taken on board, and given priority to three objectives: developing industry staffing, attracting investment and maintaining high growth rates.
Following the selection of targets, a plan of specific, detailed measures was made. I will briefly describe them by focus. First is what I call "soft" matters – that is, everything relating to human capital. Here we look at ways to promote the profession, improve education and perhaps migration to Russia from other countries.
At the other extreme is the matter of infrastructure, which includes industrial parks and the infrastructure necessary for the development of IT companies. Between them there is a very important legal issue: to create favorable conditions for companies operating in Russia. Another focus is the promotion of Russian companies on international markets, and the increase of the efficiency of foreign companies operating here.
We gathered an advisory council and have formed three working groups. Meetings with professional associations and leading companies have shown the shape of the Russian IT industry today, the problems it faces, and what we can do to help.
What are the main results from the first six months of your work at the ministry to achieve these goals?
The first six months were spent getting oriented. I hope that we can return to the same question at the end of 2013. A key challenge for me was to put a team in place. In addition, we have already made a number of important decisions.
Regarding staffing, we decided that we would develop 30 new professional standards in the field of IT in 2013–2014. These will include professional standards that don’t yet exist, but that are important – for example, in product management.
We decided what to do with the Rosinfocominvest fund, which has been in existence since 2007 but which has not been very effective. The decision was made to adjust its investment strategy. In January, we will publish the relevant documents. In particular, the fund will now start to co-invest with qualified market investors.
In 2012, we worked on the program of technology parks as planned. In 2013, changes will be made to improve the transparency and efficiency of the overall program.
Much was done to prepare for the meeting of the Presidential Council on Modernization, where one of my tasks was to create an agenda that reflected the interests of the IT industry. So, the meeting dealt with patent protection for Russian companies abroad, representing the interests of residents of the tech parks, supporting fundamental research, and preserving preferential tax initiatives for IT companies.
In your view should all companies operating in Russia receive support, or only those owned and operated as Russian concerns?
You cannot focus only on the support of Russian companies – meaning those whose jobs and intellectual property are based here. Such companies do exist. For example, 1C has been successfully operating on the Russian market and, if I remember correctly, the company earns 75 percent of its revenue from working here. However, there are other companies that can be thought of as being Russian, even though the main source of revenue results from sales in the West. We don’t need to herd them all into the Russian jurisdiction and say that we support only those in Russia. We must create an environment – and this is the role of government – where companies find it more profitable to work in Russia.
Has the Ministry decided to monitor the taxes of companies that position themselves as Russian?
We are aware of the issue, but there is no separate tax monitoring. Maybe we will look into this later, but initially it seems to me more important to create the conditions under which there will be more such companies.
How does the Ministry encourage companies to register and pay taxes in Russia?
First and foremost, a favorable tax system is one way to encourage companies. Social contributions are, for many companies, actually a tax on their turnover, and many cannot afford it. In addition to this there are things like patent protection and intellectual property rights. We support the idea of a shared fund of foreign patents in Russia.
The exchange of experience in foreign markets is important if talking about development companies. So that those companies that already know how to operate internationally can share their knowledge. The state is able to support the participation of Russian companies in those events where they can interact with their more experienced colleagues.
What is the role of foreign companies in the development of the Russian IT industry?
First, many foreign companies have opened development centers in Russia. Intel and other prominent companies use such units to effectively carry out high-quality development in Russia. An important issue is the difference between the development centers themselves and the beneficiaries of the work they carry out. As a rule, all rights are sent abroad. I find it important to have the option to keep at least part of these intellectual property rights in Russia. Discussions have been initiated on this very complex subject and we are planning to work on that.
Equally important, is that Russia’s largest IT companies are funding departments at universities in order to resolve their staffing issues. In any case they attract people to the industry, and in this case it doesn’t matter whether the company is Russian or not. I see their role as popularizing IT as a form of activity, which is one of our key objectives.
Do you encourage foreign companies that operate in Russia?
I wouldn’t call what we do an encouragement to work in Russia. The main task, as I see it, is to increase the effectiveness of such business for Russian economy. As I said, it is important to open research and development centers, preferably with the conservation of some intellectual property rights in Russia. Here we need to find compromises.
What place is there in your work for stimulating Russian software exports?
We should not directly assist Russian companies, but rather offer them training. Doing business on foreign markets largely requires the company to have an initial intention to work outside of Russia. It requires a different approach than working within Russia, and if a company was originally set up to operate here then it is very difficult to establish international sales. Then, as I have said, patent protection abroad is also a factor with exports.
The lion’s share of Russian exports are in the form outsourcing, and I think this is a very important trend. This area is also in need of personnel.
Today there are countries where expensive IT development is in its infancy, and will certainly increase. I see this as a window of opportunity for Russia. As I remember, a large share of our core outsourcing customers are located in the west – in the U.S. and other countries. But it is important not to forget about third world countries. The window of opportunity will not be open forever.
In which niches are Russian exporting companies more competitive than their foreign counterparts when working on foreign markets?
In the creation of companies in areas requiring complex technologies. For example, the Internet company Yandex, which is one of the leaders on the European market, has a technology that uses sophisticated algorithms to analyze traffic patterns on the roads. Russian companies may also have a stronger position in the intelligent processing of big data and business analysis. As for outsourcing, even though we are not yet a world leader, the industry is very well established in Russia.
I also see the potential of our start-ups. Even though the success of Russian start-ups in non high-tech areas are rare. At the same time, there is a good opportunity to build the ecosystem in which they can develop. This will help make Russian start-ups competitive.
What does the ministry do to support Russian companies in the areas where we have a competitive advantage?
I do not think that we need to restrict state aid to the activities of specific niche markets. Most of the measures which I have already mentioned work equally well for everyone. Skilled workers are needed by any company that uses complex engineering solutions. Start-ups have their own particularities, but all these measures affect the industry as a whole.
Can you identify the countries where Russian IT companies are most competitive? What is being done to support them in these regions?
I do not think that they can be identified. As I recall, in the last RUSSOFT report such data exists. But the Ministry of Communications does not conduct any particular geographic monitoring. This could make some kind of sense for us, but not in the first six months of operation.
Does the Ministry have its own assessment of personnel shortages in IT?
By analyzing institutions, market players and professional associations we know that the country now produces 3500-4000 highly skilled specialists annually. And the industry needs at least one and a half times that – about 6000.
What was done in 2012 by the Ministry to address staff shortages in the IT sector?
I think this is a key problem, though not the only one. We have so few people that work directly in the IT industry and this is the industry’s most important resource. To provide more talented people for IT I think it is more important to ensure the growth of the industry, for example, than to work towards improving the level of education.
Education, as strange as it may sound, is not the most important thing for us to focus on. More important is promotion of the industry – especially in the Russian regions. In Moscow, St. Petersburg, Yekaterinburg, Nizhny Novgorod, Kazan, and other large cities there is an ecosystem of IT companies. But most places just do not have enough understanding of IT as a promising type of activity for young people.
To ensure the supply of personnel it is important to influence young people’s decisions about what to study from an early age. It is difficult to study information technology when there are no role models, and when you rarely see the successes of IT companies portrayed on TV. The second stage of such an education takes place at university. If I remember correctly, according to the statistics of the Ministry of Education, we have about 700,000 graduates from higher education annually, of which about 60,000 end up working in IT. This figure should be increased.
It is important to use an approach by which a person, who was educated in a different field (engineering, science), can find his or her way into IT. Often, such a change of direction can happen relatively quickly.
We are now considering ways in which to promote distance education in cooperation with several organizations. There are some simple measures that can be taken, such as translating foreign distance education into Russian for people who might be able to work in IT, but do not yet speak English.
Of course, we need to use and the possibility of attracting foreign specialists to Russia. On the one hand, the salary of a Java-developer in Germany is more than one-and-a-half times higher than that of his Russia counterparts. On the other hand, there are qualified professionals in the CIS countries – Kazakhstan, Ukraine, Belarus – who earn less than their Russian counterparts. They may decide it is now profitable to work with us, but this requires a simple procedure for temporary emigration to Russia, and work permits for highly qualified professionals.
There are now such mechanisms in Russian legislation. However, the Russian IT industry has said that in many cases these mechanisms do not work effectively. We have to address this so as to understand what steps need to be taken so that they are more effective. The window of opportunity will not last forever. This is one of our challenges for 2013.
In many ways it is not necessary to invent anything new, we can use the tools that we already have. We just need to understand clearly how they actually work at the moment. We have conducted a number of meetings in Moscow, as well as in the regions that attract labor from abroad, and there is almost always talk about the difficulties companies face and the fact that the migration mechanisms are not efficient enough. We need to understand why.
How do you feel about the idea of introducing the term "domestic hardware developer"?
It is important to understand what added value such a developer actually creates. In Russia today, companies that say they produce hardware actually purchase a large number of imported components. This supplies low added value within the country and in this case, the assignment of the status of "national hardware developer" is a very controversial issue. The first step is to assess the Russian market in hardware development and integration with high added value. Before we talk about this, more research is needed.
How do you feel about the idea of restrictions on Russian customers storing data outside of the country in order to develop the domestic IT services market?
Data centers are being built in Russia and we cannot say that everyone uses only foreign data centers; these centers are being built by large banks, investment companies and telecommunications operators. It is necessary to clearly separate the markets from the interests of national security. In the second case, restrictions probably have to be put in place. In the first case, they are simply not feasible.
There is a large area of research in IT that requires high capacity. If in the past it was achieved through the purchase of high-performance hardware systems, today there is already an apparent transition to cloud computing. The situation where a research team buys computing power from Amazon instead of buying a system outright is very real. Today, therefore, we cannot limit foreign cloud use because the commercial market is heading in the opposite direction. This is an opportunity for our cloud providers to increase the attractiveness of their services.
Speaking about the concept of APKIT, you have talked in the past about beginning work on a detailed tactical document. How is work on that progressing?
The APKIT strategy has a lot of points with which I agree – for example, those concerning the role of broadband and taxation. But to adopt this strategy in its entirety as presented is impossible, as it is quite specific. The document was actually developed by a precise set of companies, including many integrators. They commissioned the document, and it reflects the interests of the industry. But there are other important areas that also need to be considered.
There are important research topics, such as large data or mobile applications, without which Russian development companies will become uncompetitive in five years. There is also the task of creating an ecosystem for start-ups, which is also very important. There are, as well, staffing issues that, I believe, are not described in significant enough detail in the document.
I’m not saying that the strategy is bad, they have done a very good job and we are grateful to APKIT, firstly for the work itself and secondly for their constructive approach. We, of course, will use the document. It is simply a case where the strategy for the Russian IT industry is wider.
I did say that we are conducting more detailed work in each of the four areas that we have outlined. We have identified a mechanism and are planning to create a separate sub-program dedicated to the development of the IT industry during the first half of 2013 as part of the state’s Information Society initiative.
How will the Information Society sub-program of which you speak be funded?
We have not yet announced it, but I can say that it will adopt part of the existing program – for example, technology parks.
What are the main challenges of your work at the Ministry of Communications?
First and foremost, it was the important task of selecting an effective team. It was really complicated, and is not yet complete. I can say that for me the selection of team members at the Ministry has been more time consuming than I had imagined. Second, in my previous positions I was engaged in the development of business and science, but I am relatively new in public service. I cannot call this a complexity, but there is a lot to learn.
How far have your expectations about working at the Ministry coincided with reality?
They have been very much aligned. Even before I began at the Ministry, I thought that working with a team focused on results would be very important. My work has only confirmed this. One of the key problems is that a lot of people are process-oriented, and we have another goal. We want to achieve a particular result. We need to expend a lot of energy on reaching our goals.