Russian IT Quarterly, Issue #15, April, 2008

Breaking up with Prejudices

I have a world map up on the wall in my office. Each time Reksoft gets a new customer, I pin up a red flag to the new location. A few weeks ago I was getting together the statistics on Reksoft last year's revenue (which, in fact, doubled) and noticed that my red flags spread not only all over Europe and US, but also to some Asian locations. Such growth corresponds well with the industry figures recently revealed by Russoft association. With 2.3 bln USD in outsourcing revenues from Russia in 2007, it is high time to revise outdated perceptions of Russian IT. A classic example is Gartner Group's white paper from 2004, which is still used by many buyers for country eval! uation since it features an excellent SWOT analysis, covering weaknesses and threats:

Negative perception of Russia's political, economic and legal risk

March 2008 brought good news on Russia's image in the international arena: Standard & Poor's revised Russia's rating outlook to Positive, and Russia got the highest score in the Connectivity Scorecard 2008. These upgrades reflect the analysts' expectations of the maintained progress of Russia, such as continued growth of the budget and external reserves of the country.

Lack of government support

Although over the course of time the government support of the country's IT companies seemed to have slowed down, the beginning of 2008 showed positive developments - both on local and federal levels. The Ministry of IT and Communications finally set up an agency, responsible for accrediting IT companies and supporting export SWD firms with fun! ds and human resources.

Lack of venture capital i nvestments in IT

With 21% raise in investments in Russia's economy over the last 12 months, it is obvious that the investment capital rushed into the country. Indeed, an array of TMT-focused funds emerged in the last few years. At the same time, the interest of generalist investment groups (both Russia-based and foreign) towards the technology sector rose. Besides, a state-owned technology VC ("RVC") is going to compete with the independent funds for targets.

Competition from other countries (China/India)

Competition is a natural force in every market and this threat will always exist. But why did Russia get more comparisons with India and China than with Ireland or, for example, Israel? It is not obvious to me why Russia needs to follow the path of a 1-billion-human-resources-strong industry of the Asian countries and not to develop its own way, more similar to the strong software engineering traditions of the! "I"-countries?

Slow to develop a NASSCOM-like organization

Russoft, uniting about 100 Russian software outsourcing companies, established itself as a credible source of information about the Russian ICT, and is now regarded as a reliable partner for both government agencies and foreign partners.

Limited range of services; External service providers: small and just a few

This is where I have to agree with the fact - Russian ESPs still export a limited range of services, offering mainly ADM. But the context of this thesis is wrong - this might be a weakness only if compared directly with Indians. Russia's workforce, almost 100% of which have higher education degrees, is mainly educated for engineering tasks and it would have been a failure to try to turn university graduates to call center employees. Compared to the potential, Russian exporters are still small. However, they already are the! largest in Easter Europe and still exhibit strong growth.

And the last but not the least - poor marketing

Two months ago, CMP released the new Global Services 100 list, presenting the best performing global IT services providers. In sub-list for Emerging European providers, 8 out of 10 companies are members of Russoft, which means that they have their development forces in Russia, Ukraine and Byelorussia. Do you still think that they have bad marketing skills?

Read the full version of RIQ 15th issue here (PDF, 226Kb).