In 1998 the falling prices of Russia’s major commodities, oil and natural resources, delivered a powerful external shock to the Russian economy. A semi-fixed exchange rate was introduced in order to keep the situation stable, but this system did not succeed. The devaluation crisis of 1998 had a very positive effect on the Russian economy. The oil boom generated massive foreign currency inflows which helped to replenish Russia’s foreign exchange reserves. Thus, investment activity experienced a remarkable revival. The Russian GDP grew in 1999 and still continues to grow. In addition, Russian companies took advantage of the gains in competitiveness brought about by the devaluation.
There are considerable doubts as to whether or not the Russian economy can produce higher growth rates on a sustainable basis, since much of the recent recovery was driven by high world prices for oil. Even though they helped to stabilize the economy and ensure the rapid recovery of the investment climate, Russia’s economy is nowadays highly dependent on oil prices (Eiu.com 2005). If Russia’s competitiveness does not increase in the other sectors of the economy, the country may encounter serious problems. The ICT sector is a reasonable platform for initiating and continuing this development. Nowadays, the growing ICT market will play an increasingly important role in the future of the Russian economy; in 2004 its value was USD 19.6 billion and IT products and services were exported for USD 764 million.
Substantial investments in technology and human resources are required for the development of the Russian ICT market. The amount of investment has been growing for several years but not enough for Russia to be the one of the leading countries in ICT development. However, Russian universities produce a large number of high-quality specialists every year. In order to make the Russian market more attractive for FDI, the government has placed heavy emphasis on the strategic allocation of resources and has recognized the role of ICT in the state and society. High-level authorities have seen the necessity of economic reform and the development of the high-tech sectors.
Researchers claim that it is practically impossible to shift from a resource-based to a postindustrial economy without building an information society Therefore, the government intends to expand the adoption of IT in all state institutions, and these organizations purchase ICT products and services on a large scale. In addition, Russia's manufacturing base is dilapidated and must be replaced or modernized for the country to achieve broad-based economic growth; thus, the demand for ICT is practically unlimited. The government is the biggest consumer of IT products and services in Russia. Its influence is dangerous for companies that are overly dependent on state orders. At the same time, until recently only big 55 companies were ready to purchase IT solutions, whereas today SMEs actively use IT products and services.
The ICT market is rather heterogeneous as are its consumers. The sale of telecommunications and hardware continues to be the most intensively developing segments. However, companies in the IT sector have begun to conquer the market. When the economy was in the early stages of recovery, organizations consumed basic ICT products in order to build up their basic infrastructure. As businesses have become more developed, their attention has focused on advanced products and services. Customized software solutions, integration, consultancy and outsourcing usually bring IT companies to the next stage of development. With these services, an organization can improve its business processes, diversify its activities, control resource flows and increase its competitive advantage.
Russia is a big country that consists of seven federal districts, but globalization and consolidation in the domestic IT market are quite typical. The most noticeable trend in the Russian IT market is the expansion of companies from Moscow, the country’s capital, to other Russian regions. Until recently, IT companies were not able to grow much outside Moscow and the other big cities in Russia because of poor demand. Nowadays, the economies of the regions outside Moscow are developing rapidly, and therefore the demand for IT services and products is increasing outside the capital as well. Regional boundaries have broken down; the process of the unification of the national IT market has begun. For many companies from the capital and big cities, expansion into the regions outside Moscow offers new perspectives for development. Regional companies are attempting to move into the capital and large cities as well because they are interested in expansion and gaining new clients. The number of new companies both in Moscow and the regions outside the capital is growing. In addition, a number of foreign IT companies operate in the Russian market. These companies are basically branches or representative offices of large international corporations.
Moscow, St. Petersburg and Novosibirsk are the fastest growing centers of the Russian IT market. Moscow is the capital, where governmental institutions (they purchased ICT products and services for approximately USD 3 billion between 2001 and 2003 and generated about 25 % of the overall sales) and a large number of companies are situated; these organizations are more developed and are interested in complex IT solutions and consultancy services. Thus, the leader in terms of the number of IT companies is Moscow, and Moscow companies sell their products and services to various organizations. The main trend in the Moscow IT market is to merge into holding companies, which provides extra maneuverability both financially and for development.
St. Petersburg is the centre of the North-Western federal districts. At present, the St. Petersburg’s IT sector is undergoing a period of active expansion and restructuring. The basis for this process is the high and continuously growing demand for IT products and service, as well as the city’s well-developed educational system. Many St. Petersburg companies were established on the basis of university departments in order to take advantage of the high-quality educational and research potential in the city. For this reason, most St. Petersburg companies are small and medium-sized. SMEs specialized in offshore outsourcing services are the trademark of St. Petersburg. These companies work with the Western markets, mainly in Scandinavia, Germany and the USA, and are looking for new fruitful partnerships.
Novosibirsk is the center of the Siberian federal districts and the third biggest Russian city after Moscow and St. Petersburg. The main problem in Novosibirsk and the Siberian federal district is that its economy is dependent on the extractive and processing industries. The rapid growth of the Siberian economy in the future is uncertain, and so the government is trying to diversify the economy there because Novosibirsk has a lot of potential for innovation – the Siberian Academy of Science is situated there as are many research institutes. One of the features of the
Novosibirsk IT market is the high level of competition between local companies and large companies from Moscow. However, local companies are the leaders in offshore SW development.
Nowadays, Russia has very positive growth potential, since the price of its main export commodity, oil, is very high. However, the current situation cannot last forever. Russia must increase the competitiveness of the other sectors of its economy. The IT sector is a good example of such a sector that has succeeded. Furthermore, the well educated specialists and scientific institutes which form the basis for many Russian IT companies offer an excellent potential for development. However, the Russian government should stimulate and motivate it to develop due to the lack of internal financial resources in Russian IT companies.
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