ekaterinburg and sverdlovsk region - Marchmont Capital Partners

Modern Technologies
regions, mindful of the threat posed by
the arrival of firms from the big two cities.
One example of this is consulting firm AB
Consult, a partner of German company SAP
which, having faced falling customer levels,
opened an office in Moscow recently and
has already had some promising results
there. Another partner of SAP in Ekaterinburg,
IT Energo-Consult, has similar plans
to expand beyond the Ural Federal District
and says it doesn’t want to limit itself to the
regional customer base.
Competition between national and
regional companies has not yet reached
fever pitch. None of the large regional
players has left the market or reduced their
speed of development. There is a 80—20
ratio weighted heavily in favor of national
companies, who spend around 20% of resources
on projects and yield 80% of the
profits, while regional firms commit 80% to
a project and receive just 20% of profit. The
imbalance is enough to force many regional
firms out of business.
The role of consulting isn’t the only element
of the IT industry on the rise – labor
costs involved in projects are also steadily
increasing. Moscow-based companies have
SWOT
Strengths
55 The Sverdlovsk region ranks third in Russia
after Moscow and St Petersburg in terms of
IT production.
55 Tendency for IT companies to merge in order to
survive the effects of globalization. Local companies
expand by opening regional branches in
various parts of Russia and by aspiring to offer
international-standard services and levels
of transparency
55 Demand for IT consulting services is particularly
on the ascent, as a response to the ongoing
development of the regional economy
55 As the need for businesses to become more
transparent and well-managed grows, so there
is a need for more sophisticated, evolved software;
demand for various CRM (customer relationship
management), document management
and finance management systems is
also growing
55 IT companies’ participation in social projects
run and financed by state authorities
55 The state’s demand for IT products remains
high; state authorities are prepared to spend
increasing amounts of money in this sphere,
as gradually state mechanisms and processes
move over to IT-based methods
55 More than ever now investors are prepared to
look beyond the oil and gas sectors when con-
to offer above-average pay in the regions to
entice regional staff away from local firms
and counter loyalty towards local firms
over national ones. Predictably, staff in local
IT firms respond to this by seeking their
own pay increases. Another factor regional
firms need to consider when opting for
national – but regionally-represented – IT
firms over local ones is the possibility that
the contractor may need to ship in some of
its capital-based experts, pushing project
costs up further. This cross-pollination of
staff and resources makes for a complex HR
picture in many Russian regions.
Development Prospects
It is believed that, before long, growth in
the Urals software industry will begin to
slow, particularly if the problem concerning
the deficit of qualified staff isn’t remedied.
Companies are feeling the lack of high-level
business analysts and software developers
capable of designing programs worthy
of world markets. Teaching employees inhouse
or at training centers has proven ineffective
as this process needs a great number
of software developers and business
analysts who could share their experience
55
sidering investment and now show particular
interest in areas such as machine-building, a
sector in which IT is heavily used
IT services are increasingly sought by large,
national companies who look to IT to help them
manage their operations and coordinate activity
between their subsidiaries and regional
branches
Weaknesses
55 As decision making centers are traditionally
concentrated in Moscow, the region’s manufacturers
find it more convenient to work with
one large IT company in the capital, deflecting
potential business and income away from
the region
55 Moscow IT firms are upping their presence in
the regions by opening local branches in cities
across Russia
55 Despite the regional branches of companies
doing most of the legwork, profit distribution
is usually weighted in favor of a firm’s Moscow
head office. This leads to disinclination among
skilled staff to work for regional IT companies,
which turn into little more than a knowledge
base for Moscow companies, who give them
little in return.
and knowledge. It’s more preferable for IT
specialists to emerge through higher education
institutions. The problem is that, at
present, higher education institutions prepare
only traditional specialists like engineers,
economists, physicians, mathematicians
and others.
ERP systems, their developers and software
integrators bridge the gap between
programming and economics. Writing
business software requires not only an understanding
of programming but also of the
economic subject matter the program will
handle as well as an appreciation of a business
end user’s needs. But higher education
institutions are bound to state educational
standards that regulate the majority of
subjects taught, and state education is failing
to keep pace with the IT sector’s rapid
development. There is a lack of specialists
capable of teaching students the knowledge
and skills needed in this field, and what
teaching there is suffers from the fact that
the equipment and systems needed to aid
IT learning is of course expensive.
Opportunities
55 A fundamental yet crucial aspect in the attempts
of Urals IT firms to stem the threat
from Moscow firms is establishing and maintaining
good customer relations to secure customer
loyalty
55 Regional IT firms need to capitalize on the fact
that employing Moscow-based firms over regional
ones is considerably more expensive
55 Higher education establishments and IT companies
should work closely together to ensure
the education and training of IT specialists
leads to students graduating with the necessary
skills needed by the regional IT sector
Threats
55 Deficit of highly-skilled staff, partly due to the
lure of Moscow salaries for top professionals
55 Regulation governing IT is sluggish in developing
and lags behind the pace of IT development
55 In-house training of IT specialists has proved
ineffective, leaving universities as the only
source of skilled IT staff
55 Considerable expense to higher education institutes
to provide IT classes, often meaning
they cannot afford to provide suitable equipment
and technology
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