Russian IT Quarterly, Issue #18, January, 2009

Though it's too early to sum up the results of 2008, we can already trace the most important trends of the previous year for Russian ICT market.

• Business consolidation.
  The year was marked by unprecedented number of merges and acquisitions on the Russian ICT market. Web-portal Merges.ru declares 122 deals were closed in this sector. All types of market players were buying and selling - telecom operators like Vympelcom (acquisition of Golden Telecom), Internet projects (Tiger Global Management buying 14, 5% of Mail.ru), systems integrators and outsourcing providers (Reksoft becoming a member of Technoserv group, Lanit-Tercom merging two! of its daughter companies into one).
  
  
• Filtering into European markets.
  This year we observed first steps of Russian IT companies on its way on entering European market as full-rate players and not only work force suppliers. They opened new sales and development offices and strengthened their market activities in Europe. Thus, EPAM opened its point of presence in Sweden and Luxoft acquired local software developer in Romania.
  
  
• Opening of production centers in the low labour cost countries and Russian province.
  Due to the gradual growth of labour cost that took place in large Russian cities like Moscow and St-Petersburg IT company had to re-place some of their development centers to the province where the expenses are considerably lower or to the other countries of the former USSR and South East Asia. However, present economic situation might put an end to this tendency. As the labour cost ! in Russia decreases, it becomes much more profitable to use highly-edu cated and skilled resources that providers already accumulated in Russian megalopolises.
  
  
• Considerable demand growth from the local market.
  Growing Russian manufacturing sector along with oil and energy enterprises made the local demand for IT products and services skyrocket. According to RUSSOFT research, this year IT product and services export equaled with the local consumption for the very first time in Russian ICT history.
  
  
• Enhancement of intellectual property rights protection.
  According to Business Software Alliance statement, Russia holds the world record in effective struggle with piracy, and the main role in it BSA ascribes to the governmental authors's rights protection programmes.

However, the present economic situation may affect the picture dramatically.

• First of all, we observe a drastic change of solvent demand on various markets: a serious meltdow! n in the USA, an unstable economic situation in Russia. So change of sales destination vector looks very probable, but now the industry holds its breath waiting. Too much depends now on currency rates.
  
• Though demand for outsourcing will continue growing, due to the overall IT cost cut the competition among the providers will increase.
  
• At the same time Russia will experience labour cost decrease and it may provide its outsourcing companies with a competitive advantage in comparison with their rivals in Europe and America. As I've already said, it will also slow down or stop the opening of new production factories in Asia and Eastern European countries.

So the wind of changes is blowing and the whole IT development and support market is moving. What it will look like tomorrow? We don't know, but it depends on us.