russian software developing industry and software exports

Chapter 2.
Volume and Structure of Russian Software Export
According to the Gartner poll, over 70% company
executives in Western Europe responsible for IT
services indicated budget restraints and costs
reduction as the main priority for 2009, which is 17.5%
more against 2008. Many of these executives rely on
outsourcing as a real way of business optimization.
Moreover, a big proportion of respondents (36%) are
only learning to use outsourcing.
Simultaneously, the crisis forces clients to require
discounts, which may lead to price wars. Gartner
expects that by 2010 the cost of IT outsourcing
services would drop by 5-20%.
Apparently, Russian companies have higher costs
on developer salaries than their competitors in South-
East Asia (mainly China and India). But they have
certain advantages – higher qualifications of staff,
geographical and cultural proximity to key markets
(Europe and USA), which results into lower total costs
of projects.
Additionally, the fall in the ruble led to the
decrease in salaries expressed in dollars while major
Russia’s competitors have not faced the devaluation
of national currencies. In the course of price wars the
changes taking place in the money market are still in
favor of Russia developers. The reduction of lease
costs on premises also improves the competitiveness
of Russian software companies. Another plus is the
increase in the number of programmers on the labor
market due to the reduction of IT services by Russian
enterprises.
The attractiveness of internal markets of IT
services is growing for Chinese and Indian companies,
since unlike the Russian market these markets are
continuously growing (or there are big hopes for
their growth).
Russia’s Indicator in the context of changes on the Global market
Consolidated IT budget
of global companies and
organizations
Growth
in 2007
Growth
forecast
for 2008
Global IT market 6% 5%
Russian IT market
Russian
software market
Global
software market
Russian software
export volume
Growth
in 2008
Growth
(downfall)
forecast
for 2009
2,7% 3,0% -3,8%
18%
(24,5%)
8%-
8,2%
The world market is being still dominated by India.
According to NASSCOM, in 2007 its revenues from IT
services exports topped USD 40.8 bn. India will retain
its leadership in this market in the coming years, but
its share is steadily decreasing. This is caused, among
other things, by a faster export growth of Russia and
-3%
China. According to preliminary data, last year Indian
export of IT services grew only by 15-20%. Some
Indian companies are confident that the growth rate
of previous years would never be achieved.
«Notorious» cancellation of services is also not
in favor of India. For example, at the end of the last
year the World Bank broke a contract with the Indian
company Satyam Computer Services referring to its
inefficiency. Moreover, major Indian companies have
to increase the number of US citizens in their offices
due to the decreased quota for foreign manpower.
Consequently, the cost of services provided by Indian
companies in the US is likely to slightly grow.
In any case, Russia will be unable to compete with
India by the volume of IT services export due to a
significant difference in the number of population and
specialization on software development in the niche
of high-tech services. If, according to NASSCOM,
there are 2 mln people in India involved in IT services
export, in Russia only 50 thousand people work
in software development for export. Fortunately,
the major part of employees in Indian outsourcing
export companies operate in areas of no interest for
Russian companies (IT infrastructure provision and
maintenance, ВРО).
In future it will be possible to make comparisons
with India by the total export of software including
products and ready-made solutions. With a sufficient
state support Russian companies can export to
external markets to the total sum of USD 10-20 bn in
the coming 5-10 years.
Only China can claim to the leadership of India
by its volume of IT services. The Chinese software
industry is rapidly growing owing to a strong state
support.
The Ministry of Industry and
Information Technology of China stated
that the export volume of Chinese
software companies increased by 54%
Source
Gartner and
other sources
IDC, Gartner,
Forrester Research
29% 10,5% -22,1% PMR и IDC
40% 53,7% 26% -30,8% IDC
11% 8% 10,3% 0,3%, 0%
Gartner, Forrester
Research
52% 52% 21% 13% RUSSOFT
in the first 5 months in 2009. Owing to a
well-established system of mass education
of IT specialists China may overtake India
by the volume of services provided in the
near future.
Yet, Russian companies do not feel a
strong pressure of Chinese developers for
being involved in usually more complex
projects that require experience and
expertise of executors. China still lacks this
experience, but with time this drawback
can be eliminated.
Major revenues from IT services
export is earned by Philippines, Brazil
and Mexico, but at the moment Russian
developers rarely intersect with these software
companies in the global outsourcing market. More
often Russian companies compete with companies
from Eastern Europe because their advantages and
disadvantages are similar in many respects. After the
entry of a number of Eastern European countries
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