russian software developing industry and software exports

Chapter 2.
Volume and Structure of Russian Software Export
The total revenue of all Russian companies from
sales of software products, software development
services, implementation and maintenance of
information systems (including revenues of their
international development centers) amounts to
approximately USD 5.5 bn at the year-end 2008.
In 2008, the volume of software export increased
by 21% and made USD 2.65 bn. This was the smallest
growth in the whole history of the survey. Since 2003
this indicator never dropped lower than 28%. The
Compound Annual Growth Rate (CAGR) of software
sales by Russian companies abroad in the period from
2002 till 2007 was 44.3%.
Obviously, the slowdown in the growth rate was
caused by the crisis. According to the most optimistic
estimates, in 2009 software export will not increase
more than by 10%. It is not impossible that there
would be no export growth whatsoever.
On the basis of respondents’ expectations the poll
allows to make a forecast for 2010. The companies
hope for the improvement of the market situation and
for the average growth by 18%. However, it becomes
difficult to make forecasts based on anticipations
changing every month.
Before the global crisis forecasts based on
evaluations of company executives enabled to make
quite accurate predictions that differed from the
final result maximum by 10% in either direction. Such
deviations are quite acceptable given the complexity
of forecasting. Anyway, we could speak of the
sustainable growth in the foreseeable future, and this
prediction would always come true.
The 2008 results have shown that in the situation
of the crisis the prediction method based on company
expectations brings incorrect results. Instead of the
forecast export volume of USD 3.35 bn and growth
by 52% final figures were only USD 2.65 bn and 21%,
respectively. The growth of exports by 21% looks
quite substantial, but only for the economies with
a developed IT industry. To realize its potential in
the field Russia should grow by 30-50% at least for
several years.
At the moment it is difficult to understand all
reasons of a reduced growth rate. Certainly, the
impact of the crisis cannot be denied, however in
2008 software export could be affected by other
factors, too.
Due to the duration of the current projects the
crisis hit the revenues of Russia service companies
closer to the year-end. The world market of readymade
solutions and products also started to decline in
late 2008. Therefore, the growth rate reduction from
the expected 52% to 21% is unlikely to be caused by
the crisis alone.
It should be noted, that in 2007-2008 several
major service companies ceased to see any prospects
in the expansion of their offices and establishment
of new development centers in Russia. The Russian
labor market faced problems in finding sufficient
numbers of specialists to maintain the growth rate at
the same level. If salaries had to be further increased,
developers would have become uncompetitive in
the global market of software development. That is
why such companies as Luxoft and Exigen Services
opened their development centers in South-East Asia
(in Vietnam and China, respectively).
In future production sites in Asia can become
a source for significant growth of certain companies.
At the same time, at the initial stage it is planned
to increase the staff carefully following the
synchronization of works of teams located in different
parts of the world in different cultural environments.
Nevertheless, Russian companies need to globalize
and, therefore, be represented in all important labor
markets of the world.
The growth of foreign development centers
will require training of a big number of qualified
specialists able to participate in international projects.
In the coming years changes in the education system,
employment of the population, tax legislations and a
more substantial state support of the industry in other
areas may help to considerably increase the inflow to
the Russian market of developers with qualifications
and costs that would satisfy export companies.
Russian programmers are still earning at least
2-3 times less than their colleagues in the USA and
Western Europe. But Russian export companies
have other expense items that make this competitive
advantage less significant. Moreover, they compete
mainly with companies from the countries where
the level of payment, tax burden and lease costs are
much lower than in Russia.
Due to the crisis staff costs and costs on office
lease in Russia have considerably decreased. This
has already positively influenced the growth of
software companies, and if these costs remain at such
levels, we can expect that the positions of Russian
companies in the global market of IT services would
also maintain. But if the State raises taxes, then all the
benefits obtained owing to the crisis will immediately
disappear.
The impact of the staff issue on the reduction of
export growth rate is also proved by the discontinued
mass transfer of employees from small companies to
larger enterprises. The share of dismissed staff in small
and larger companies is almost the same. Experts and
company executives started to speak of the staff issue
as a threat to future growth of the industry already
long ago. Nevertheless, during the market growth
the number of specialists involved in the software
sector was constantly growing (partially owing to
employees moving to Russia from the neighbor
states). Software export was also booming. All that
created an illusion of absolute prosperity for Russian
officials. They forecast export volumes for many years
ahead proceeding from the current growth rate
thus reporting on the actual state of affairs in the
supervised industry.
It should be taken into consideration that export
growth decreased more than total software exports.
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