This year may turn out to be almost the best for the Russian software industry over the past few years. In mid-September, Deputy Prime Minister Dmitry Chernyshenko reported to Vladimir Putin that the export of Russian software in 2021 increased by 13.5% and exceeded $5 billion compared to the same period last year. Of course, this is not the only success. The domestic market is growing, and the share of domestic software is also growing on it. One of the possible reasons for the growth is that in 2021 a tax maneuver began to operate for Russian IT companies. But can only the protectionism of the authorities ensure growth?
There are quite a few segments of the software market that have only benefited from the pandemic: have shown dynamic growth in collaboration solutions, video conferencing, and remote office applications. The market for electronic document management systems in 2020 grew by 10%, and this year it is predicted to grow by 12-15%. The Russian cloud services market grew by almost 30% last year, and it will continue to grow. Moreover, a study by the Russoft Association revealed that Russia is planning a boom in investment in software companies.
So, is this the result of a pandemic or protectionist measures? The pandemic certainly played a big role. But it happened not only in Russia. For comparison: the global corporate software market (various ERP-, CRM-systems, etc.) in 2020 grew by 4.1%, and the Russian market - by 6.7% (in rubles).
The tax maneuver is unlikely to have a strong impact on the Russian software industry this year. Until mid-2021, the industry had questions about the application of this maneuver, and the Ministry of Digital Development prepared explanations for it only in September. Rather, the maneuver will have an effect only in 2022, when the accumulated effect from it is triggered. Moreover, the Ministry of Digital Development has prepared a second package of measures to support the IT industry. Ultimately, the degree of efficiency of the tax maneuver can be assessed by the difference between the growth of the Russian market and the growth of the global software market.
There are other factors influencing the growth of the Russian software market. First, growth comes at the expense of regions that are increasingly involved in digital transformation processes. Secondly, digital transformation is viewed by enterprises not as something expensive and fashionable, but as an inevitable condition for the competitiveness of business: more and more enterprises are engaged in this systematically, and the pandemic has only spurred the desire of companies to more actively move from paper to digital, from offline to online. Thirdly, a consistent policy of import substitution has an effect – a complete software stack has been formed in Russia to replace most of the used Western technologies.
The growth of the Russian IT market could be even more dynamic if it were not for the constraining factors.
The first problem is personnel. Due to the massive transition to remote work, salaries were equalized between Moscow and the regions, which negatively affected the development cost. At the same time, companies developing new solutions need qualified personnel, and they are just not enough. From January to August 2021, IT employers posted 70% more job offers than in the same period last year. In September, salaries increased by 20% compared to June. Such dynamics of salaries actually eats up the financial effect of the tax maneuver.
The personnel shortage is aggravated by the fact that not only IT companies, but also financial structures have begun to hunt for IT specialists. By diversifying their own financial investments, they set the goal of creating IT ecosystems. This leads to the fact that conditionally unlimited investments in startups located within financial structures greatly distort the salary market.
The second problem is the instability of demand and the general low purchasing power. With each change of the management team in a state-owned company, as a rule, the digitalization process slows down and budgets are frozen for a while.
As for the general level of purchasing power, the software market here directly depends on the overall growth of the economy. And supporting customer subsidies can pay off. Now such a program has been launched for small businesses. It is too early to talk about the outcome. It will be possible to sum up and give some predictions only at the end of next year.
The third problem is the poor awareness of potential customers about Russian products. Affects the stereotyped perception of Russian software as raw. The habit of foreign software, which they have been using for many years, is so strong that the fear of change blocks potential demand. Although the proposal of a Russian developer can be better in quality and more profitable in price.
Russian developers usually do not promote their solutions globally until they reach a certain point of success in the Russian market. Such a strategy does not stimulate them to enter the world market as soon as possible, thereby tightening the conditions of competition within country.
