IT market in Russia – current situation and forecasts for 2016-2017

More information on this topic is presented in the PMR report:

IT market in Russia slumped by almost a third in euro terms last year and thus its value fell below €10bn. Short term forecasts assume the market will continue to drop, however, only slightly, in 2016, while a bounce-back is possible in 2017.

 

The sales of IT products and services in Russia declined by 8.8% y-o-y to RUB 652.1bn (€9.7bn) in 2015. In terms of euro, last year the contraction of market value reached 31.7% y-o-y. The valuation done in euro better characterises market performance. The hardware and significant part of software solutions are imported to Russia and their prices almost directly depend on exchange rate fluctuations. As a result, sharp devaluation of rouble in H2 2014 and throughout 2015 inflated the value of hardware and software segments of the IT market in the country last year distorting its real development trend.

The main segments of the Russian IT market and even the markets of specific product groups showed contradictive performance in 2014 and in 2015. The sales of hardware and declined even in rouble terms, conversely, the sales of software and IT services showed some modest growth to a large extent driven by price inflation.

 

 

Stagnation in 2013 and further market decline in 2014 and 2015 became challenging for IT companies in Russia which accustomed to quick market growth. The managers mentioned that they need to adapt their strategies to handle new challenges including restructuring of the demand, growing competition, pressure on prices, and profitability and increasing volume of bad debts in the distribution channel. In 2014 and 2015 there were also several bankruptcies on the market although in general, most of the leading players maintained their sales and profitability.

In H2 2014 and 2015, the decline of energy prices on the global market as well as the confrontation between Russia and US and the EU around Ukraine and followed economic sanctions against Russia caused sharp devaluation of rouble and increase of hardware and software prices in rouble terms. Price inflation led to sharp decline of computer hardware market and visible re-distribution of the market shares of hardware and software vendors.

In 2014 the Russian government announced a plan to reduce technological dependence from foreign IT vendors. In 2015 Russia approved the law which gives priority for local software in public procurements and allows government authorities purchasing the software of global vendors only if there are no local options. This law came in force in January 2016 and is expected to further influence the market structure.

In 2015, global hardware and software vendors started to re-build their strategies in Russia being oriented to the direct contacts with big retailers and end users. Interestingly the corporate sector was more interested in B-brands or even a white label hardware. Another major trend observed over the last two years or so shows that Russian companies and the public sector started to re-orient their hardware purchases giving an advantage to Chinese vendors. Chinese companies, including Huawei and Lenovo have been recently investing in the development of sales and support in Russia and it may lead to a growing importance of Far East suppliers on the Russian market in 2016-2017.

 

 

In 2014, GDP of the country showed 0.7% increase only whereas in 2015 it dropped by 3.7% y-o-y being affected by the decline of the energy prices on the global markets. The decline of GDP in 2015 can also be explained by economic confrontation with the Western countries and sanctions introduced against Russian banks and some industrial sectors. Assuming no deterioration of political relations between Russia and Western countries in our opinion in 2016 the Russian economy will stop contracting and will return back to growth in 2017.

Last but not least, further economic development in Russia depends on many factors however the role of the government in managing economic growth is higher here in comparison to the other countries. The investments in the country are to a much extent driven by government sector and state owned companies which follow the guidelines of the government. There is no doubt a need to change economic model facilitating the development of local businesses is needed. However, this would require painful reforms and institutional changes and the authorities are afraid taking a risk doing them in 2016 when the elections to the parliament are taking place.


More information on this topic is presented in the PMR report:
IT market in Russia 2016. Market analysis and development forecasts for 2016-2021