Forecasts for 2012 assume the pace of growth will slow down, but it will remain double-digit.
IT market development
According to the latest report “IT market in Russia 2012. Development forecasts for 2012-2017” published by PMR, a market research company, IT product sales and services in Russia increased to RUB 584.4bn (€14.3bn) in 2011, 15.4% more than in the previous period. The majority of the leading vendors and system integrators reported double-digit revenue growth in the country last year. Several big projects were also announced in 2010 and 2011, including SAP implementations in Gazprom and Severstal, a MTS contract with Oracle, Gazprom’s software licence purchase agreement with Microsoft, Oracle’s e-Business Suite implementation in the Russian State Treasury and Oracle’s Siebel CRM installation in Sberbank.
When measured in the euro, the Russian IT market in 2011 finally exceeded its peak €14.1bn value registered in 2008, when the economic crisis damaged IT spending of home and institutional users. Several factors encourage this market growth. In H2 2010 and 2011 the stable development of the Russian economy facilitated IT investments in the corporate sector. Telecommunications operators and IT service companies launched the construction of new data centre facilities while the Russian government continued to finance its e-governance programmes.
Another important market development was in computer hardware retail sales. In fact, as the proliferation of personal computers in the home user segment and also overall use of information technologies in the public sector and business is still relatively low, there is significant opportunity for organic growth for different IT products and services in the country. As a result of macroeconomic stability, the Russian IT market shows stable growth driven by corporate and public investments and increased consumer IT spending.
The relatively lower hardware sales increase last year does not mean that the Russian IT market changed its development model. Notebook sales, which pulled the entire IT market up in 2010, continued to grow last year. However, 28% year-on-year sales volume growth led to only 15.5% of annual value growth, due to the sharp decline of the average end user price. In fact, in 2010, Russian home users reacted quickly to the macroeconomic improvement in the country and boosted personal computer sales, the main home users’ product category. The corporate IT sector reviewed its IT budgets in H2 2010, therefore, the software and services sales recovery after the economic crisis was observed only in 2011. As a result, software and IT services slightly increased their cumulative value share on the Russian IT market. PMR predicts that in the following years, under stable macroeconomic conditions, the hardware market growth rate will be close to the software and IT services market growth rate. Hardware sales will continue shaping more than half of the Russian IT market in the next years, considering the relatively low market maturity and remaining significant space for personal computer sales and servers in the country. At the same time, a sturdy increase of IT services market shares will also be a long-term market trend.
“In a longer term, we consider IT services to be the fastest growing market segment in Russia while the growth rate in the hardware and software sectors will gradually decline. The average annual growth of the Russian IT market is expected to reach 9% during the next five years. However this forecast is based on the assumption of macroeconomic stability; many Russian IT companies mentioned that the expectation of a second wave of economic crisis and the resulting decline in oil and gas prices are the main threats to IT market development in the country” – summarizes Pawel Olszynka, a PMR analyst and one of the report authors.
From the point of view of IT project quality, in 2012 Russian business will keep investing in hardware virtualization and plan some trial implementations of cloud computing services and transitions to open source. Most spending in the corporate sector will be connected to the procurement and installation of new hardware. Along with the strong increase in home users’ notebook purchases, PMR expects the hardware market segment to keep more than a 50% share in the total IT spending in Russia in the next five years.
Economic development and regional differences
Russia experienced fast economic growth from 2001 until 2009. The annual GDP in the country expanded at a rate higher than 5% year on year. In 2009, the Russian GDP declined by 7.8% year on year because of the world economic crisis and decline of resource prices, Russia’s main export commodity. However, economic growth recovery was registered in 2010 when the Russian GDP grew by 4% year on year to RUB 44.9bn (€1.1bn). In 2011 economic growth in the country hit 4.3%. As a result, the average unemployment rate last year declined to 6.6% from 8.4% at the end of 2009. Russian authorities also managed to decrease inflation.
One of the key factors which impacted economic development in Russia in 2010 was the growth of oil prices. In 2011, the average annual price of the Ural brand increased to $109.40 per barrel from $78.20 per barrel in 2010 and $61.10 in 2009. This strengthened the financial shape of oil and gas companies and also increased federal budget incomes. However, the Russian domestic consumer market still has sufficient space for development, which attracts investments and drives local production growth. In 2011 for example, a high 22.1% year-on-year growth rate was registered in the agriculture and food processing industry.
In 2011 investments in the Russian economy increased by 6.2% year on year to the 2009 level after a 16.2% decline in 2008 and 6% growth in 2010. Industrial production grew faster than the GDP; its growth rate hit 4.7% year on year in 2011. The Russian foreign trade balance remains positive and even grew last year with $521.4bn in exports and $323.3bn in imports in 2011.
Economic development differences between Russian regions cause significant variations in the size and maturity of regional IT markets. The two biggest regional IT markets in Russia are Moscow and St. Petersburg and both are accountable for most IT spending in the country. One of the main reasons for this regional market concentration is that the headquarters and offices of federal authorities and big companies are located in Moscow. As a result, many IT projects and developments implemented in the country’s regions are contracted in Moscow. At the same time, at least in the hardware sector, the development of mass computer sales caused fast growth in other regions’ shares. This trend was confirmed by vendors in interviews, who indicated the growing sales share of regional distributors and retailers.
In the next several years, the Russia IT market will also develop thanks to regional expansion. Federal e-governance programmes and the development of affordable internet in Russian regions are expected to catalyse this process. The growing skills shortage and high salaries force IT companies to look at regional labour markets, another IT development driver in Russia’s smaller cities.
This press release is based on information included in the PMR report “IT market in Russia 2012. Development forecasts for 2012-2017”.