ict spend russia market analysis

Didier Andrieu, April 2015

Russia ICT Spend overview

Business Accelerator: Client Buying Power Solution

Acquire DevelopRetain

Trivia Marketing International has developed a great knowledge and expertise to determine the companies’ IT buying powers in more than 35 countries in the world. In the case of Russia, we conducted a survey from 2014, with more than 6,000 IT decision makers covering every type of industry and company employee size.

We propose to return to you some of the results of our research embellished with some historical and economic data on this large rapidly developing country.

We hope to give you food for thought. We remain at your disposal for any further information.

Enjoy the reading!

Trivia Marketing’s team.

Trivia Marketing International ©20152

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7. Russia Interesting Insights 8. Russian Financial Crisis 9. Some Gross Financial Indicators 10. Measuring Russian Economic Efficiency 11. Largest Business Cities 12. ICT Spend Insights

12. ICT Market in Russia 13. Russia is in TOP10 in the ranking of ICT Spend 14. Software 15. Cloud Services 16. Computer Highlights 17. Annual Buying Power in regions 18. Total Annual ICT Spend by largest city 19. Trivia Marketing’s ICT Spend accuracy validation against IDC & Gartner

20. Trivial Marketing Geographical Expertise 21. Benefits from the Trivia Marketing CBP Solution

A quick tour of Russia in 13 slides

Agenda


Russia Interesting Insights

Geography: Russia or officially Russain Federation is the largest country in the world (17,075,400 square kilometres, more than one-eighth of the Earth's inhabited land area). Russia is also the world's 9th most populous nation (nearly 144 million people). From northwest to southeast, Russia shares land borders with 14 countries: Norway, Finland, Estonia, Latvia, Lithuania, Poland, Belarus, Ukraine, Georgia, Azerbaijan, Kazakhstan, China, Mongolia, and North Korea. It shares maritime borders with Japan by the Sea of Okhotsk and the US state of Alaska across the Bering Strait. Extending across the entirety of northern Asia and much of Eastern Europe, Russia spans 9 time zones and incorporates a wide range of environments. Russia's extensive mineral and energy resources, the largest reserves in the world, have made it one of the largest producers of oil and natural gas globally. Population: Ethnic Russian people make up 81% of the total population. Six other ethnicities have a population exceeding 1 million – Tatars (3.9%), Ukrainians (1.4%), Bashkir (1.1%), Chuvash (1%), Chechens (1%) and Armenians (0.9%). In total, 160 different ethnic groups live within the Russian Federation's borders. Population density is 8.4 people per square kilometre. Language: Though most native Russian speakers obviously live in Russia, Kazakhstan, Belarus and Kyrgystan. There are also Russian speakers in other former Soviet Union countries and approximately 250 million people speak Russian as a native language worldwide. Trains: The world’s longest railway is in Russia. The Trans-Siberian Railway, which runs for 9,200 km, and Moscow’s Metro is the world’s most used subway/underground system, with over 9 million people a day moving between its stations. Russians: Hospitality is very important in Russian culture. The people are extremely welcoming to their guests, even if they turn up uninvited.


Crimean CrisisRussian Financial Crisis

The Russian Financial Crisis and the associated shrinking of the Russian economy is the result of the collapse of the Russian ruble beginning in the second half of 2014. The lack of confidence in the Russian economy stemmed from at least two major sources. The first is the fall in the price of oil in 2014. Crude oil, a major export of Russia, declined in price by nearly 50% between its yearly high in June 2014 and 16 December 2014. The second is the result of international economic sanctions imposed on Russia following Russia's annexation of Crimea and Russian military intervention in Ukraine. Crimean Crisis The crisis unfolded in the aftermath of the Ukrainian Revolution on February 2014 which removed president Yanukovych. The new Ukrainian government was recognized by the United States and European Union but was rejected by Russia. After pro-Russian protests were held in the Crimean city of Sevastopol and the peninsula was occupied by Russian soldiers.The ensuing 16 March 2014 referendum on whether to join Russia resulted in a 96.77% (Crimea) and 95.6% (Sevastopol) affirmative vote, but the referendum was condemned by the EU, the US, Ukraine for violating Ukraine's constitution and international law. The following day, the Crimean Parliament declared independence from Ukraine and asked to join the Russian Federation, on next day Russia and the separatist government of Crimea signed a treaty of accession of the Republic of Crimea and Sevastopol into the Russian Federation. The UN General Assembly passed a non-binding Resolution that declared the Crimean referendum invalid and the incorporation of Crimea into Russia illegal. There has been a range of international reactions and sanctions to the crisis.


Some Gross Financial Indicators

Russian currency: The strict sanctions against Russian companies—in response to Russia’s annexation of Crimea and hostilities with Ukraine earlier last year—and the continuous fall in oil prices caused the Russian ruble falling since July 2014. The strategic objective for Russia now is to install the independent economy.

XE Currency Chart: RUB per 1 USD

Economic Indicators Last Reference

GDP 2097 USD Billion Dec/2013

GDP Growth Rate 0.04% Aug/2014

Unemployment Rate 5.5% Jan/2015

Inflation Rate 16.7% Feb/2015

Food Inflation 26.1% Feb/2015

GDP: The IMF released forecast for 2014-2015 (IMF Economic Outlook Database 2014, October). It appears that Russia’s GDP is projected to remain nearly flat in 2014 and recover modestly to grow by 0.5% in 2015 as investment contraction moderates and non-energy exports strengthen. The reasons of GDP decreasing is reducing of inflow investments in connection with the situation in Ukraine, a significant slowdown in manufacturing and trading of stocks and low domestic demand.

Russian economy isn’t the best period now

0 RUB

18 RUB

35 RUB

53 RUB

70 RUB

April 2014

May 2014

June 2014

July 2014

August

2014

September 2

014

October 2

014

November 2

014

December 2

014

January 2015

Febru

ary 2015

March 2015


DB 2015 Rank

DB 2014 Rank

Change in Rank

RUSSIA DB RANK 62 64 up 2

Starting a Business 34 58 up 24

Dealing with Construction 156 172 up 16

Getting Electricity 143 141 down 2

Registering Property 12 17 up 5

Getting Credit 61 55 down 6

Protecting Minority Investors 100 97 down 3

Paying Taxes 49 48 down 1

Trading Across Borders 155 154 down 1

Enforcing Contracts 14 14 no change

Resolving Insolvency 65 62 down 3

Measuring Russian Economic Efficiency

Russia moved up 2 positions in the new ranking of Doing Business 2015 from the last year by the World Bank and took 62th place (in 2011 Russia took only 120th place). Rating presents the comfort of doing business in 189 countries around the world.

Many positive factors are also associated with the activation of the inter-regional competition for direct investors. Each entity now offers simplified conditions for attracting investments.The competition level isn’t too high yet in the most areas, which allows almost anyone to set up their own business.

However, some issues remain unresolved. In particular, the lack of access to credit resources, unjustified inspections and opacity of the judicial system. All this adversely affects the business climate.


RussiaLargest Business Cities


Chelyabinsk

VORONEZH

NOVOSIBIRSK

VLADIVOSTOKCHELYABINSK

PERM

KRASNODARROSTOV ON DON

EKATERINBURG

MOSCOWN.NOVGOROD

ST.PETERSBURG

SAMARA

UFA

ICT Spend InsightsICT Market of Russia

According to the analytical study of Orange Business Services the Russian market for ICT services in the B2B segment in 2014 will be about 635 bn rubles, which is 7.4% more than in 2013. According to forecasts, the market will increase approximately by 6% and will reach 750 bn rubles by 2017.

In March 2013, the Russian government approved a long-term forecast of socio-economic development of the country for the period up to 2030, developed by the Economic Development Ministry. According to the forecast of conservative scenario of economic development in 2030 the volume of the Russian IT market will increase by 2.7 times compared to that of 2011 and will reach 4,102 bn rubles ($73 bn).

IDC company made a forecast which takes in account: fall of GDP by 3%, average dollar exchange rate of 45 rubles, the continuing escalation of sanctions and declining oil prices to less than $80- $95 per barrel. According to analysts, in 2015 the sales of equipment in Russia will decrease by 20% in foreign currency (3% in rubles), software sales - 25% in foreign currency (9% in rubles), and IT services - 10 % in foreign currency, but in rubles increase by 9%. In general, the Russian IT market, forecasted by IDC, will decrease by 18% in foreign currency and by 1% in rubles.

Obviously the fall of Russian ruble makes the negative forecast in foreign currency. However it should be highlighted that this economic crisis in Russia was provoked by the political situation rather than economic. It is highly possible that the right political decisions will lead to a rapid establishment of the economy.


ICT Spend InsightsTOP 10 countries: Russia is on 9th position of the ICT Spend per person

According to Bitkom/EITO Russia is on the 9th place in the ranking based on estimated spendings on information and communications technology par person (on each head in the country) in 2013.


ICT Spend InsightsSoftware

Last year the Russian market for content management software grew by 9.3% and reached $155 million of suppliers’ prices.

Total exports of software and development services in 2013 grew by 15% to $5.2 billion.

IT exports exceed 0.9% of the total Russian exports. The share of Russian software companies in the world market software (including custom development services) is about 2.5%.

Russian developers are paying more attention to the markets of Russia and CIS. Long time interest to USA and Canada markets decreases.

Government becomes one of the key customers of software development. According to the world ranking of e-government, published by the United Nations in 2012, Russia moved from 59th to 27th place in a year. This rating presents the readiness and ability of the governments among 193 countries to use ICT in the prospection of public services.


According to research of IDC, the total Russian market for cloud services in 2013 increased by more than 70%, reached about 353 million dollars. This market includes operational services on a subscription (about 67% of the market) and design services (33%), implemented within the public, private, virtual private clouds, and combinations of them.

Today the cloud services have just 1% share of the total IT market in Russia. However the cloud is in high demand even in the general stagnation of the IT market, which allows a variety of cloud providers to increase their turnover by 100% a year or even more.

The consumption of cloud services depends on the sectors of the economy: public clouds are more popular in the sector of wholesale and retail trade (mainly small and medium-sized enterprises); at the second place - the financial service sector; at the third place - the telecommunication sector and the media.

The difficult economic situation in Russia may reduce the number of projects based on private clouds. And on the other hand the decreasing of IT budgets and the desire to optimize IT budjets will attract companies to cloud solutions.

The expected total annual growth of the cloud services market (including design) for the period from 2013 to 2017 will be 27%.

ICT Spend InsightsCloud Services


According to the research of IDC, one of the main trends of the market in 2013 was the displacement of computers by tablets (7.7 mn units against 3.3 mn units in 2012).

According to J'son & Partners Consulting in the III quarter of 2014 in Russia was delivered about 2.3 million personal computers, which is 15.6% less than in the same period for last year. In October, analysts estimated that the market declined by 16.1%.

The economic situation today impacts on the development of the personal computer market. There is a tendance to reduce IT equipment budgets mostly in all companies. In the meantime the private consumers prefer low-cost devices. And the price increasing of computer equipment (due to rubles exchange rate) is already on the way which will freeze the consumer purchasing power.

ICT Spend InsightsComputer Highlights

2010 2011 2012 2013

8 M units

3 M units

1 M units0 M units

7 M units

9 M units

8 M units

7 M units

4 M units4 M units4 M units

4 M units

Computers Notebooks Tablets + TREND


Far Eastern 950.6 M $

Siberian 2,907.1 M $

Volga 4,518.5 M $

Central 10,860.4 M $

Far Eastern Russia

Siberian

Urals

Northwestern Russia

Volga

Central Russia

Southern Russia

ICT spend budgets by region shown on this slide are calculated through Trivia Marketing solution adding each ICT company spend per region.

Northwestern 3,889.9 M $

Urals 2,203.1 M $

North Caucasian 0.002 M $

Southern 1,825.8 M $

$27,155.3 Million of ICT Spend in 2014Annual ICT Spend: Sum of (Hardware, Software, Services, Telecom) spend


Total Annual ICT Spend by largest cityTOP 5 cities accounts for 59% of total spend

Novosibirsk

Yekaterinburg

ICT spend budgets by city shown on this slide are calculated through Trivia Marketing solution adding each ICT company spend per city.

MOSCOW

ST.PETERSBURG

N.NOVGOROD

EKATERINBURG

NOVOSIBIRSK

More than 800 M $

From 500 M $ to 799 M $

From 300 M $ to 499 M $


Trivia Marketing ICT Spend accuracy validation vs IDC & Gartner Russia ICT Spend Gross Budget by Line-of Businesses

5,498

29,121

2,5515,192

BP HARDWAREBP TOTAL

7,232

72,856

1,789 2,513

27,155

BP SOFTWARE

7,351

14,402

45,911

17,356

BP TELECOM

7,716

BP SERVICES

11,622

Gartner (M $)IDC (M $)TRIVIA MARKETING (M $)

Top-down analysis shows Trivia line-of-business ICT gross budgets fall close to Gartner forecasts as well as Trivia Total ICT gross budget.

Trivia’s budgets are based on real figures collected through surveys conducted annually with IT exec across the country.

Neither Trivia Marketing nor Gartner include costs for data and

voice in TELECOM spend.


Trivia Marketing Geographical Expertise… More than 125 million companies for which we know their ICT Spend…

Done Work in Progress – Q2 2015


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ict spend russia market analysis

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