Russian IT Market to Recover in 2011

Online, June 16, 2010 (Newswire.com) - During the period 2001-2008 the compound annual growth rate of the IT market in Russia exceeded 30%. In 2009 the market declined by 25% year-on-year to approx. RUB 407bn. According to the latest PMR report "IT market in Russia 2010. Development forecasts for 2010-2014" the main reason for the contraction of the Russian IT market was the financial crisis, which hit the country already in the second half of 2008. The crisis caused a significant reduction of IT investments and IT spending, especially in the first half of 2009 and some stabilisation was achieved only closer to the end of the year. In 2009 the market was characterised by so-called postponed demand when planned IT investments of many companies were put off until the situation with their business and revenue would become stable.
The Russian IT market is corporate oriented, and the sector accounts for 55% of total market spending. In 2008-2009 the market share of corporate customers in overall IT spending declined, which is explained by the sharp reduction of the investments by the business.
The reduction of IT investments took place together with significant demand restructuring. In 2009 companies were looking at the efficiency and control of their business, therefore projects with clear and quick outcomes received the priority. These projects were focusing on the automation of specific important functions, typically some accounting or CRM rather than implementation of big ERP systems targeting the entire business. Companies were implementing IT systems keeping in mind return on investments and there was no interest in the development of IT infrastructure and installation of ERP solutions with the objective of company capitalisation before an IPO. As a result, less expensive solutions with less brand image were usually chosen. Finally, IT budgets were cut significantly and companies were trying to make more for less money, putting suppliers in a pretty tough position.
Individual users also started to look for savings in their budgets, with a view to reducing IT expenditures as well. The unemployment level in Russia went up and in 2009 growing uncertainty in the future incomes was observed. Therefore the purchase of new PCs declined, as well as a consequence of the hardware price growth as a result of the Russian rouble devaluation.

Positive macroeconomic forecasts
Until 2007 Russia experienced nine years of average annual GDP growth of 6.9%. Whereas in 2007 the country's GDP grew by 8.1%, in 2008 it increased by 6.7%. At the same time, while the inflation rate rose to 11.9% in 2007, in 2008 it exceeded 13%. In 2009 the Russian GDP declined by 7.9% to RUB 39,063.6bn in current prices and inflation remained at the level of 8.8%. The main reason for the worsening socio-economic situation has been the global financial crisis, which has led to a higher unemployment rate and a reduction in the purchasing power of the population. Inflation in 2009 was lower than the year before as a result of the slump in demand in spite of the fact that the devaluation of the rouble made imports more expensive.

The improvement of the Russian economy after the financial crisis will have a significant impact also on the confidence of domestic companies. The crisis showed that efficiency of the business, flexibility and financial control are critical for survival and IT is an essential element of these business capabilities.
Russian companies are still far from being saturated with IT systems. Besides traditional biggest IT spenders i.e. telecoms, oil and gas and financial sector, we expect growth of the demand from the retail and manufacturing industries. PMR also expects that government efforts and investments will have a positive impact on the IT market, especially in 2011 when the development of governmental e-services will take place.

This press release is based on information contained in the latest PMR report entitled "IT market in Russia 2010. Development forecasts for 2010-2014".