Russia Information Technology Report Q4 2008
Russia Information Technology Report Q4 2008 - a new market research report on http://www.companiesandmarkets.com
Nov 25, 2008
Market Overview BMI projects that the size of the Russian IT market will increase from US$13.1bn in 2007 to around US$31.4bn in 2012. On a financial platform boosted by high oil prices and gas revenues, the government has announced plans for very significant spending on IT to promote competitiveness and diversification.
Meanwhile, the Russian economy shows few signs of slowing in the medium term, and higher incomes and more availability of household credit will sustain double-digit PC growth.
PC penetration is currently around 15%. This, together with the potential for IT investments by Russia’s traditional industries, makes Russia a key market. The government may have as much as US$350bn in reserve to apply IT to improving areas such as education, healthcare, defence and the power sector.
Increased funding has also been announced for the ambitious series of IT parks. However, spending has often lagged far behind budget, raising questions about the government’s ability to drive its IT agenda.
Much will also depend on the government’s ability to maintain an environment conducive to further development, including an effective customs regime, low import duties and generally transparent business environment. The government has recently mounted a stronger campaign against illegal imports of IT components and taken a stronger stance on intellectual property issues.
Industry Developments Government IT spending in Q108 fell short of implied targets, leaving raising questions about the ability of the government to see through its ambitious e-agenda over the next few years. Only RUB1bn was actually spent on ICT in the first quarter, which was just 5.5% of the approved ICT budget for 2008 of RUB178bn.
Overall the Russian government’s spending on IT projects is expected to accelerate over the next two to three years, as the government promotes competitiveness. The government has outlined a number of major IT projects including automated customs procedures, biometric passports and a National Electronic Library. In 2008-2009 all Russian schools are to enjoy free internet access, with the federal government picking up the bill.
Two government measures with important implications for the software market were introduced in January 2008. A new legal code came into operation, which strengthens protection of IT intellectual property. Meanwhile, VAT on software licensing agreements was abolished in the same month. A stronger government drive against illegal software may counteract any downward trend in market prices as a result of the VAT cut.
Competitive Landscape Acer was the leading notebook player in the market in 2007, followed by Asus, HP, Samsung and Toshiba. Acer reported total revenues for Russia and Kazakhstan of US$915mn, which it hopes to increase to US$1.5bn in 2008, a growth of 68%. In 2008 the company plans to invest US$20mn to achieve its growth target, up from US$11mn in 2007. Much of the money will go on developing its services network. With notebooks less than half of PC unit sales however, local brands and assemblers still dominate the PC market.
Open source software continues to receive promotion from some quarters. Recently several Russian companies have started installing the popular Linux Ubuntu operating system of PCs sold in Russia. For example, Excimer and NT Computer have recently launched such models. There have been projections that Ubuntu sales in Russia might reach 300,000 units. The Deputy Chair of the State Duma Committee for IT recently suggested restricting imports without alternatives to Windows OS Hardware Around 20% of PCs sold in Russia are self-assembled, but BMI estimates that the Russian IT hardware market grew to a value of around US$8.9bn in 2007. The main driver of growth was falling prices, but higher internet penetration is also becoming a factor in some areas. The government is keen to increase computer penetration to speed internet adoption, and to this end is encouraging local production. In 2008 the government has announced a target of developing a US$400 domestic computer for market this year.
This follows from the new ‘computer for every home’ subsidised computer programme launched by the Ministry for IT and Communications (MITC) last year. Hardware spending CAGR in the next five years will be in the region of 18%.
Software The Russian domestic software market was worth US$1.4bn by the end of 2007, and should be further boosted by recent measures to strengthen intellectual property protection. Although Russia has the fifthhighest software piracy rate in the world (87%), BMI expects that government efforts to strengthen IP protection as part of WTO entry will see this decrease closer to average Eastern European levels. This could boost the market to US$2.6bn by 2010. The rapid growth of internet penetration is stimulating demand for security solutions, while there is growing demand from the corporate sector for ERP and CRM applications. The corporate market is moving beyond demand for single function applications such as accounting, to broader solution packages. Meanwhile, the small business market is emerging as the primary battle ground for enterprise application vendors in the Russian market, with domestic companies emerging to challenge the multinational vendors.
Services Russia’s IT services sector is growing from a low base, with BMI calculating a value of about US$2.8bn in 2007, up from US$2.2bn in 2006. The IT services sector is expected to grow at a CAGR of 22% in the period up to 2012. Russian vendors continue to dominate the market, with companies such as Croc (the market leader), R-Style, Open Technologies, Borlas, Optima and Lanit all in the top ten, along with HP. Other foreign vendors such as IBM, SBS and Logica-CMG are also winning significant contracts, however, and the market remains diffuse, with the top 40 companies accounting for less than 50% of spending.
Special Focus: IT Parks The ‘technopark’ programme is the government’s flagship policy for development of the IT sector (see Industry Developments). The main construction phase began in 2007, with a federal budget of around US$74.68mn initially assigned for the project, which is being co-ordinated by the Federal Agency for IT (see below). A new phase of funding for 2008-2010 worth some US$850mn has recently been announced.
The ‘technoparks’ were initially intended to be exclusively ‘IT Parks’, but are now actually open to enterprises in other sectors such as nano- and bio-technology, as well as Information Technology. A plan was approved in March 2006 to construct the parks in seven regions, and it is expected that the parks will employ 19,000 people by 2008 and 75,000 by 2011. Investment will be US$985mn, and the Russian IT Minister predicts that the output of the technoparks will be US$749mn by 2008, reaching US$4.4bn by 2011. So far the St Petersburg project is the most advanced.
Intra-departmental wrangling over budgets has caused some delays to many projects. State financing is expected to make up only around 20% of the funds required by the programme, which overall are likely to exceed RUB100bn. One proposal floated – for tax breaks – was not included in the current programme.
E-Readiness Internet penetration was estimated by BMI to have reached around 24% by end 2007, representing more than 34mn internet users, up from 26mn users in 2006. By the end of 2007, BMI estimates that there were around 4.3mn broadband users, mostly DSL, and this is expected to increase to 24mn by 2012.
The government’s ambitious policy is that every locality in Russia should be provided with fixed line telephony infrastructure, cell phone coverage and internet by 2015. According to the ministry’s target, every populated area in the country should be provided ‘irrespective of its economic ‘weight’ and population’. Russian IT and Communications minister, Leonid Reiman, has described the ‘digital divide’ as a very challenging issue for all Commonwealth of Independent States (CIS) countries, and one that the Russian government was seeking to overcome.
Meanwhile, the Russian economy shows few signs of slowing in the medium term, and higher incomes and more availability of household credit will sustain double-digit PC growth.
PC penetration is currently around 15%. This, together with the potential for IT investments by Russia’s traditional industries, makes Russia a key market. The government may have as much as US$350bn in reserve to apply IT to improving areas such as education, healthcare, defence and the power sector.
Increased funding has also been announced for the ambitious series of IT parks. However, spending has often lagged far behind budget, raising questions about the government’s ability to drive its IT agenda.
Much will also depend on the government’s ability to maintain an environment conducive to further development, including an effective customs regime, low import duties and generally transparent business environment. The government has recently mounted a stronger campaign against illegal imports of IT components and taken a stronger stance on intellectual property issues.
Industry Developments Government IT spending in Q108 fell short of implied targets, leaving raising questions about the ability of the government to see through its ambitious e-agenda over the next few years. Only RUB1bn was actually spent on ICT in the first quarter, which was just 5.5% of the approved ICT budget for 2008 of RUB178bn.
Overall the Russian government’s spending on IT projects is expected to accelerate over the next two to three years, as the government promotes competitiveness. The government has outlined a number of major IT projects including automated customs procedures, biometric passports and a National Electronic Library. In 2008-2009 all Russian schools are to enjoy free internet access, with the federal government picking up the bill.
Two government measures with important implications for the software market were introduced in January 2008. A new legal code came into operation, which strengthens protection of IT intellectual property. Meanwhile, VAT on software licensing agreements was abolished in the same month. A stronger government drive against illegal software may counteract any downward trend in market prices as a result of the VAT cut.
Competitive Landscape Acer was the leading notebook player in the market in 2007, followed by Asus, HP, Samsung and Toshiba. Acer reported total revenues for Russia and Kazakhstan of US$915mn, which it hopes to increase to US$1.5bn in 2008, a growth of 68%. In 2008 the company plans to invest US$20mn to achieve its growth target, up from US$11mn in 2007. Much of the money will go on developing its services network. With notebooks less than half of PC unit sales however, local brands and assemblers still dominate the PC market.
Open source software continues to receive promotion from some quarters. Recently several Russian companies have started installing the popular Linux Ubuntu operating system of PCs sold in Russia. For example, Excimer and NT Computer have recently launched such models. There have been projections that Ubuntu sales in Russia might reach 300,000 units. The Deputy Chair of the State Duma Committee for IT recently suggested restricting imports without alternatives to Windows OS Hardware Around 20% of PCs sold in Russia are self-assembled, but BMI estimates that the Russian IT hardware market grew to a value of around US$8.9bn in 2007. The main driver of growth was falling prices, but higher internet penetration is also becoming a factor in some areas. The government is keen to increase computer penetration to speed internet adoption, and to this end is encouraging local production. In 2008 the government has announced a target of developing a US$400 domestic computer for market this year.
This follows from the new ‘computer for every home’ subsidised computer programme launched by the Ministry for IT and Communications (MITC) last year. Hardware spending CAGR in the next five years will be in the region of 18%.
Software The Russian domestic software market was worth US$1.4bn by the end of 2007, and should be further boosted by recent measures to strengthen intellectual property protection. Although Russia has the fifthhighest software piracy rate in the world (87%), BMI expects that government efforts to strengthen IP protection as part of WTO entry will see this decrease closer to average Eastern European levels. This could boost the market to US$2.6bn by 2010. The rapid growth of internet penetration is stimulating demand for security solutions, while there is growing demand from the corporate sector for ERP and CRM applications. The corporate market is moving beyond demand for single function applications such as accounting, to broader solution packages. Meanwhile, the small business market is emerging as the primary battle ground for enterprise application vendors in the Russian market, with domestic companies emerging to challenge the multinational vendors.
Services Russia’s IT services sector is growing from a low base, with BMI calculating a value of about US$2.8bn in 2007, up from US$2.2bn in 2006. The IT services sector is expected to grow at a CAGR of 22% in the period up to 2012. Russian vendors continue to dominate the market, with companies such as Croc (the market leader), R-Style, Open Technologies, Borlas, Optima and Lanit all in the top ten, along with HP. Other foreign vendors such as IBM, SBS and Logica-CMG are also winning significant contracts, however, and the market remains diffuse, with the top 40 companies accounting for less than 50% of spending.
Special Focus: IT Parks The ‘technopark’ programme is the government’s flagship policy for development of the IT sector (see Industry Developments). The main construction phase began in 2007, with a federal budget of around US$74.68mn initially assigned for the project, which is being co-ordinated by the Federal Agency for IT (see below). A new phase of funding for 2008-2010 worth some US$850mn has recently been announced.
The ‘technoparks’ were initially intended to be exclusively ‘IT Parks’, but are now actually open to enterprises in other sectors such as nano- and bio-technology, as well as Information Technology. A plan was approved in March 2006 to construct the parks in seven regions, and it is expected that the parks will employ 19,000 people by 2008 and 75,000 by 2011. Investment will be US$985mn, and the Russian IT Minister predicts that the output of the technoparks will be US$749mn by 2008, reaching US$4.4bn by 2011. So far the St Petersburg project is the most advanced.
Intra-departmental wrangling over budgets has caused some delays to many projects. State financing is expected to make up only around 20% of the funds required by the programme, which overall are likely to exceed RUB100bn. One proposal floated – for tax breaks – was not included in the current programme.
E-Readiness Internet penetration was estimated by BMI to have reached around 24% by end 2007, representing more than 34mn internet users, up from 26mn users in 2006. By the end of 2007, BMI estimates that there were around 4.3mn broadband users, mostly DSL, and this is expected to increase to 24mn by 2012.
The government’s ambitious policy is that every locality in Russia should be provided with fixed line telephony infrastructure, cell phone coverage and internet by 2015. According to the ministry’s target, every populated area in the country should be provided ‘irrespective of its economic ‘weight’ and population’. Russian IT and Communications minister, Leonid Reiman, has described the ‘digital divide’ as a very challenging issue for all Commonwealth of Independent States (CIS) countries, and one that the Russian government was seeking to overcome.