Technological sovereignty and platform solutions: how the Russian IT industry is coping with the challenges of 2024
In the past year, many Russian companies faced the need for rapid import substitution of foreign software, an aggravated shortage of IT specialists due to their departure from the country, and a disruption of exports, including digital services. But this is not the only thing that has happened and is still happening in the Russian IT market. What path it will follow in 2024 and what trends will determine its development was told by Vladimir Rozin, CEO of IT group OPEN.
Striving for technological sovereignty
The issue of achieving technological sovereignty was one of the key topics of the Eastern Economic Forum, which was held at the end of December. As the speakers explained, if earlier at the top of the world's best companies were organizations related to oil, gas, banking and insurance industry, today there are technology companies - Amazon, Alphabet (Google), Apple. Now the key condition for any country to survive and maintain stability will be to achieve technological sovereignty. This is a trend not for 2024, but for the next decade at least.
This means that in the coming years Russia will strive to develop more actively in the field of AI, IoT (Internet of Things), blockchain, 5G networks, and create more of its own products in these niches. In addition, according to analysts, the formation and strengthening of technological sovereignty also implies attention to quantum technologies, new materials and biotechnologies.
Active transition from foreign IT solutions to Russian ones in certain industries began in 2020, when the President ordered to abandon foreign software for critical information infrastructure facilities. We are talking about companies in the transportation and telecom industries, healthcare, financial sector, and many others. The 2022 sanctions have aggravated the issue of finding Russian solutions to replace foreign ones.
In 2024, this issue remains relevant. Russian software is available, it is of high quality, there is a lot of it, but not all segments have a large selection of products. For example, there is enough cybersecurity software, there are many local b2c products like search engines, maps, cab services, and consumers are satisfied with them. Corporate software capable of competing with Oracle is more difficult. Creating Russian alternatives is not a one-month or even a six-month task, so developers will be solving it over the next few years.
At the same time, speed is now a priority, business is not ready to wait a year for a replacement for the same Oracle, so, firstly, in the coming year the existing ones will be updated and finalized. And secondly, there will be a lot of solutions that cover localized pains and needs of the business. From these small products, companies will probably build entire platforms later.
Transition to platform solutions
While small businesses can get by with a small amount of software for digitalization and process automation, large companies, especially corporations, usually have dozens of programs. At the same time, all processes are closely interconnected, so different software should not work separately from each other. In today's import substitution strategy, one of the key points is the development of platform solutions that will replace sets of foreign software. Integrators are often engaged in assembling a system from several products, so their value for business will grow.
The transition to platform solutions is relevant for several reasons. First, it is easier to develop and integrate new programs into a platform than to implement them alone. You only need to create an additional module for the system, not a separate software. Module development is faster and cheaper.
Secondly, it is possible to increase the potential of the assembled system almost indefinitely. Including at the expense of solutions from other vendors - not the ones that developed the platform.
Growing government influence
The government's presence in the IT market will continue to grow in 2023, primarily due to the fact that many government agencies and state-owned companies will become clients of Russian IT software and equipment developers. It is the public sector that needs to be primarily transferred to domestic solutions in order to improve the security and stability of its work, so the share of such customers and buyers of IT companies will continue to grow.
In addition, the government will increase its importance as an investor in the IT market. The number of grants and subsidies for new developments will continue to increase, and because of this, the dependence of the appearance and implementation of IT products on government decisions will increase. This will lead to the fact that companies will create GR-departments (government relations departments) and focus on GR-management in order to simplify their interaction with the regulator.
Changes in the labor market
Ever since the pandemic, which stimulated a more active digital transformation, the problem of the shortage of IT specialists has become more acute in Russia and globally. According to Microsoft estimates, in 2020 the global market lacked 30 million IT specialists, while in Russia in 2021 it was about 1 million. In 2022, there were several changes in the Russian market.
On the one hand, many foreign companies left Russia, and with them some of the employees who chose to relocate after their employers. But those who did not leave were freed up and became available as job seekers for other organizations in need of personnel.
On the other hand, during two waves of emigration, in spring and fall, about 10% of employees of IT companies left Russia and did not return: this is about 100 thousand specialists. Such data was cited at the end of the year by the head of Mintsifra Maksut Shadaev. The shortage of personnel has worsened again, and in all niches. For example, Rostec in the summer spoke about the shortage of IT specialists in 40 areas, and the corporation needs to fill 2500 vacancies in total. And this is just one example.
Although IT professions are now at the peak of popularity, they are advertised, the government creates opportunities for career guidance and retraining, the market is mainly filled with juniors who still need to be raised to a higher level. And business often needs middles and seniors. Therefore, the issue of staff shortage will have to be solved in 2023, including, probably, hiring more juniors and growing them for themselves.
The government is developing measures to stimulate the return of specialists who have left - for example, it offers support to employees of Russian IT companies in the form of preferential mortgages and deferment from the army. This may bear fruit. But given other IT trends, including the active pursuit of Russian products and technological sovereignty, even this will not cover the growing need for mid- and high-level specialists for business. And as job seekers see their growing value in the eyes of employers, they will look for more attractive offers, and companies will have to raise salaries to snag a potential employee, which is not easy given the economic situation.
Addressing the challenges of exporting IT services
The 2022 sanctions have created difficulties for Russian exports in general, including the IT services export segment. In 2020, their share in all services exports from Russia amounted to 10% against 7.2% in 2019, and this despite the pandemic. Russian companies provided more than 30% of IT services for the United States. Also among the leaders in purchasing Russian IT services were the UK, Cyprus, Germany and Switzerland.
All these countries are now on the “unfriendly” list, exporting IT services to them is almost impossible, so one of the trends in 2024 will be the search for new export destinations. It is highly likely that IT services from Russia will go to the EAEU countries as the most friendly ones. It is possible that IT services will also be purchased in Southeast Asia, India, and Latin America.
But reorientation will not happen instantly: these markets, especially in Asia and India, already have their own successful solutions, as well as Chinese ones, with which the Russian ones will have to compete. This is in addition to the fact that any entry into a new market means finding ways to overcome bureaucratic and legal difficulties.
