Central and Eastern Europe’s ICT/ITO Profiles: Russia

Posted: April 28, 2010 in Market Research

In Q1 2009 the number of ITO contracts had a double drop compared to Q1 2008. By the end of 2009 the situation had improved in public sector, oil and gas industry and education. The newly signed contracts were restructured with a focus on the IT infrastructure development and support rather than IT optimization, as was before.

Today Russia is obviously strengthening its competitive advantage and position as a lucrative hub for doing outsourcing business. However, poor infrastructure and software piracy are two major factors preventing Russia from becoming the leading IT outsourcing destination in the CEE region.

Slow implementation of government’s infrastructural reforms in ICT and telecom industries is still keeping Russia behind the curve from its Western counterparts.

However, the Russian ICT industry is targeting at increased offshore software development, managed network security, IP telephony, packaged software, and value-added services such as IT consultancy and support. The newly launched E-Government program and the in-flow of venture capital help increase national spending in ICT.

Strong trend of mergers and acquisitions continues in the Russian economics in general and ICT market in particular. For instance, ITO provider Reksoft became a member of Technoserv Group and Lanit-Tercom merged two of its daughter companies into one.

Recession has led to a significant decline in the Russian ITO market. As a result, many service providers restructured their IT spending to support implemented solutions and to reduce the cost of services. IT spending on systems upgrade has been frozen, while spending on IT support – retained.

Currently, there are two groups of IT players in the Russian IT outsourcing market: large systems integrators and mid-sized IT services providers. For the first the revenues from ITO account for only an average of 5% of the total IT services value, while for the latter these revenues account for 35-40% of the total IT revenues.

The main problem of the Russian ITO industry is seen in the lack of transparency, immaturity and standards. Additionally, Russian legislation does not favor the support of long-term relationships between the service providers and buyers, which is a serious barrier in the way of Outsourcing 2.0 evolution.

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