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Presented by
Angie SongJon RogosichAmy Benner
GeographyGeography
Largest country in Largest country in terms of area: terms of area: 17,075,200 km17,075,200 km22
Slightly less Slightly less than twice that than twice that of the United of the United StatesStates
Russian border is Russian border is the world’s longest the world’s longest (57,792 km) (57,792 km)
Natural resources: Natural resources: Oil.Oil.
Russia is in Northern Asia, bordering the Arctic Ocean, Russia is in Northern Asia, bordering the Arctic Ocean, between Europe & the North Pacific Oceanbetween Europe & the North Pacific Ocean
3 main cities of IT 3 main cities of IT clustercluster
NovosibirskNovosibirsk In the heart of Siberia - Siberia’s Silicon Valley In the heart of Siberia - Siberia’s Silicon Valley Concentration of high tech companies Concentration of high tech companies Built to be a dedicated scientific town, its remote Built to be a dedicated scientific town, its remote
geographic location & telecommunications difficulties are geographic location & telecommunications difficulties are hard to overcomehard to overcome
http://www.bisnis.doc.gov/bisnis/lead.cfm?1346http://www.bisnis.doc.gov/bisnis/lead.cfm?1346
MoscowMoscow The capital of RussiaThe capital of Russia In close proximity of the In close proximity of the
governmentgovernment
St. PetersburgSt. Petersburg best geographic location of the best geographic location of the
three - located close to several three - located close to several Scandinavian borders & has very Scandinavian borders & has very little domestic marketlittle domestic market
Intellectual capital of Russia - Large Intellectual capital of Russia - Large community of computer community of computer programmersprogrammers
IT Penetration IT Penetration Outside of Major CitiesOutside of Major Cities
Tver RegionTver Region Gross regional product ~ $2 billionGross regional product ~ $2 billion 44% percent of the population live below the poverty 44% percent of the population live below the poverty
lineline Many young persons leave to work/live in MoscowMany young persons leave to work/live in Moscow Limited natural resources in area prompted IT EffortsLimited natural resources in area prompted IT Efforts Region's new governor, Dmitry Zelenin, launched an Region's new governor, Dmitry Zelenin, launched an
unprecedented campaign to bring in the United unprecedented campaign to bring in the United Nations and UNICEF to help stimulate the local Nations and UNICEF to help stimulate the local economy.economy.
Recovery Plan: Includes setting up techno parks, Recovery Plan: Includes setting up techno parks, plots of land that are specially outfitted, legally plots of land that are specially outfitted, legally cleared and strategically marketed to technology-cleared and strategically marketed to technology-heavy companiesheavy companies. .
TransportationTransportation
Roads inadequate in quality & quantityRoads inadequate in quality & quantity
Railroad system in need of large-scale Railroad system in need of large-scale repairrepair
Major international airports in Moscow and Major international airports in Moscow and St. PetersburgSt. Petersburg
Importing products into Russia through Importing products into Russia through Russian customs is often timely & costlyRussian customs is often timely & costly
DemographicsDemographics PopulationPopulation 146,001,176146,001,176
½ of the United States population½ of the United States population
Age StructureAge Structure0-14 years: 18%0-14 years: 18%15-64 years: 69%15-64 years: 69%65 years: 13%65 years: 13%
LiteracyLiteracyAbout 98 % of population over age fifteen are About 98 % of population over age fifteen are literateliterate
Socio-Cultural PictureSocio-Cultural Picture
LanguagesLanguageso Russian Russian o ~100 others spoken~100 others spoken
Ethnic GroupsEthnic GroupsRussianRussian 81.5%81.5%
TatarTatar 3.8%3.8%
UkranianUkranian 3%3%
ChuvashChuvash 1.2%1.2%
BashkirBashkir 0.9%0.9%
ByelorussianByelorussian0.8%0.8%
MoldovianMoldovian 0.7%0.7%
Ethnic Groups in Russia
Other8.10%
Chuvash1.20%
Moldavian0.70%
Belarusian0.80%
Tatar3.80%
Bashkir0.90%
Ukrainian3.00%
Russian81.50%
Model for Global IT Model for Global IT EnvironmentEnvironment
Political System
Key MIS Management
Issues
MultinationalBusiness and
IT Strategy
HistoryHistory 1917 February Revolution ~ Defeats of the Russian 1917 February Revolution ~ Defeats of the Russian
Army in WWI led to rioting in Russian Empire and the Army in WWI led to rioting in Russian Empire and the overthrow of 300 year old Romanov Dynastyoverthrow of 300 year old Romanov Dynasty
Communists under Lenin seized power and formed Communists under Lenin seized power and formed USSR (1917)USSR (1917) New Economic Policy, partial return to market economy, New Economic Policy, partial return to market economy,
widespread sense of optimism & opportunitywidespread sense of optimism & opportunity Stalin’s brutal rule (1928-53)strengthened Russian Stalin’s brutal rule (1928-53)strengthened Russian
dominance of Soviet Union at a cost of tens of millions of dominance of Soviet Union at a cost of tens of millions of liveslives
Khruschev & Brezhnev followed - economy deteriorated, Khruschev & Brezhnev followed - economy deteriorated, political climate pessimisticpolitical climate pessimistic
Mikhail Gorbachev & the End of Communism (1991)Mikhail Gorbachev & the End of Communism (1991) Introduced Introduced glasnost glasnost (openness) and (openness) and perestroika perestroika (restructuring) (restructuring)
in an attempt to modernize Communismin an attempt to modernize Communism
History of History of TelecommunicationsTelecommunications
During the Soviet period, all means of During the Soviet period, all means of communications controlled by the statecommunications controlled by the state
Centralization of communications in Moscow led to Centralization of communications in Moscow led to development of satellite communicationsdevelopment of satellite communications Began with launch of Molniya satellite communications Began with launch of Molniya satellite communications
system in 1965system in 1965 In 1980’s, priority given to military and government In 1980’s, priority given to military and government
applicationsapplications Since the breakup of the Soviet Union, there has Since the breakup of the Soviet Union, there has
been reorganization & modernization of Russia’s been reorganization & modernization of Russia’s communications systemscommunications systems
In the mid-1990’s, Russian laws and regulations In the mid-1990’s, Russian laws and regulations limited foreign participation in the supply of limited foreign participation in the supply of equipment and services equipment and services
Government & PoliticsGovernment & Politics
Government type: federationGovernment type: federation Declared Independence from Soviet Declared Independence from Soviet
Union August 24, 1991Union August 24, 1991 Current constitution adopted Current constitution adopted
December 12, 1993December 12, 1993 Divided into executive, legislative, & Divided into executive, legislative, &
judicial branchesjudicial branches
Government PoliciesGovernment Policies
Legislation to strengthen the financial sector Tax reforms Deposit Insurance Law Currency Regulation and Control Law
Little ICT policy prior to Putin’s presidency Okinawa Charter of the Information Society 2000 Electronic Russia 2002-2010
IT PoliciesIT Policies ““Electronic Russia 2001-10 Plan”Electronic Russia 2001-10 Plan”
$2.6 Billion program intended to boost e-commerce and internet use in the country
Phase 1 - $230M Phase 2 - $804M Phase 3 - $1,595M
Program addresses 4 key areas in ICT Regulatory environment and institutional
framework Internet Infrastructure E-Government E-Education
IT PoliciesIT Policies ““Electronic Russia 2001-10 Plan”Electronic Russia 2001-10 Plan”
Timeline: 2002 – refine the plan, identify necessary
feasibility studies and define pilot projects 2003-2004 – Studies and pilot projects
conducted
2005 – full implementation expected to begin
Model for Global IT Model for Global IT EnvironmentEnvironment
Level of Economic
Growth
Political System
Key MIS Management
Issues
MultinationalBusiness and
IT Strategy
EconomyEconomyCountry Comparison of 2003 PPP
(in $ billions)
857.8 758.81,282
10,990
3,033
1,375477.5
456.7 17.35295.2
6,449
01,000
2,0003,000
4,0005,0006,000
7,0008,000
9,00010,000
11,00012,000
Country
$ in
billio
ns
EconomyEconomy2003 GDP
Real Growth Rate
7.30%
4.70%
3.10%
6.70%
1.90%
0.20%
4.10%
3.10%
3.10%
9.10%
8.30%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00%
Russia
Estonia
United States
Thailand
South Africa
Brazil
Indonesia
South Korea
Egypt
China
India
EconomyEconomy2003 GDP per capita
$8,900
$12,300
$37,800
$7,400
$10,700
$7,600
$3,200
$17,800
$4,000
$5,000
$2,900
$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000
Russia
Estonia
United States
Thailand
South Africa
Brazil
Indonesia
South Korea
Egypt
China
India
EconomyEconomy
Gini index
39.9
37
40.8
41.4
59.3
60.7
37
31.6
34.4
40
37.8
0 10 20 30 40 50 60 70
Russia
Estonia
United States
Thailand
South Africa
Brazil
Indonesia
South Korea
Egypt
China
India
EconomyEconomy
25%8.50%
0%10.10%
12%6%
10.40%2.20%
50%31%
22%12.30%
27%8.70%
4%3.40%
16.70%9.90%
10%10.10%
25%9.50%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Russia
Estonia
United States
Thailand
South Africa
Brazil
Indonesia
South Korea
Egypt
China
India
Population below Poverty Line (2003) Unemployment Rate (2003)
Financial Crisis of 1998Financial Crisis of 1998
After shock of the Asian crisis. Interest rates tripled in less than a year Possible Causes:
The Asian crisis exposed Russia Russia’s budget deficit was huge at 8.2 percent of
GDP Large short-term foreign debt the government crisis shook investor confidence strikes aggravated the situation. Hurt by a law limiting foreign ownership in Unified
Energy System, Russia’s second largest company.
EconomyEconomy Under President Putin (elected 2000) Russia’s economy
growing. 5 years of Economic growth ~ due to boom in oil exports
In 2003, Russia’s real GDP grew by 7.3%, surpassing average growth rates in all other G8 countries, and marking the country’s fifth consecutive year of economic expansion. Russia’s economic growth over the last five years has been fueled primarily by energy exports, particularly the boom in Russian oil production and relatively high world oil prices. This type of growth has made the Russian economy dangerously dependent on oil and natural gas exports, and especially vulnerable to fluctuations in world oil prices. The World Bank predicts that the oil and gas sector may have accounted for up to 25% of GDP in 2003—while employing less than 1% of the population.
Recent growth due to relatively cheap ruble
Economy Economy Since Financial Crisis of 1998:
GDP growth has averaged 6.5% annually Real fixed capital investments have averaged gains greater than 10% since
2000 Real personal incomes have averaged increases over 12%. Russia’s international financial position has improved since the 1998
financial crisis, with its foreign debt declining from 90% of GDP to approx. 28%.
Strong oil export earnings have allowed Russia to increase its foreign reserves from only $12 billion to some $80 billion.
Renewed government effort to advance structural reforms, have raised business and investor confidence in Russia's economic prospects.
Recipient of Economic aid 2001 from US, $979 million (including $750 million in non-proliferation
subsidies) 2001 from EU, $200 million
EU is Russia’s main trading partner (accounting for more than 50% of overall trade)
Risks for Russian Risks for Russian EconomyEconomy
Capital Flight "Clearly, the risk for the Russian economy is capital flight and
Russia not continuing with the very healthy investment growth needed to sustain economic growth," says Christopher Granville, chief strategist at Russian investment bank United Financial Group. “ (Businessweek “A Fear Rises In Russia” Oct 28, 2003)
Cautious Optimism Political Fear?
The October 2003 arrest of oil tycoon & ‘richest businessman in Russia” Mikhail Khodorkavsky (CEO and major shareholder of leading Russian oil outfit, Yukos)
Many Russian’s felt that Khodorkovsky's arrest (on charges of fraud, tax evasion, and forgery) was politically motivated because he has been a sharp critic of Putin's policies. Distrust, Who’s next? How strictly will punishment be enforced?
Gains from oil dependent on world demand and price
IT EconomyIT Economy Growth Trend
Since the August 1998 financial crisis, the Russian Internet market has grown by three times, to 3 million permanent users.
Since 2000, the population's incomes have grown by 50%, so food and clothes are no longer the dominate expenditure for the average Russian family, they can invest in owning a computer
A modest government forecast presented by the Economic Development and Trade Ministry shows that the number of Internet-users in Russia will increase by three times in two-three years. (2003)
Russia’s economy would look 3 to 4 times larger if its large underground economy were taken into account
IT FinancingIT FinancingCapital SourcesCapital Sources
Market-Based Commercialization Initiative US Import Export Bank
FDI into ITFDI into IT FDI (confidence) into Russia grew by ~14% in
2003 Key investment was British Petroleum’s
investment (first multibillion dollar investment in Russia’s history)
Few US companies have actually made direct investments in to the Russian IT market.
Sun, Microsoft, Intel
IT Financing IT Financing contcont..
June 2003 extension of cooperation agreement between the Government of Finland and the IFC for eastern Europe (International Finance Corporation is the financing arm of the World Bank group)
To provide technical assistance programs in Northwest Russia
Purpose to develop the private sector focusing on partnerships between Finnish and Russian businesses To develop the local Information and Communication
technology industry in NW Russia and to assist Finnish companies to develop relationships with Russian firms.
Current Investors in Current Investors in Russia’s ITRussia’s IT
Microsoft Microsoft’s Windows XP Starter Edition Pilot
Program to launch early 2005 Scaled down in cost and program to meet
more ‘basic’ computing needs Pilot programs in Indonesia, Malaysia,
Thailand, Brazil & People’s Republic of China, India (areas of software piracy)
Ship low cost PC’s loaded w/ XP Starter Edition to Russia to test whether consumers will pay for low cost computing
Offers courses for engineers at companies that buy their technology
2003 sales in Russia grew 80%
Current Investors in Current Investors in Russia’s ITRussia’s IT
Intel Set up in Russia in 1991. In Dec. 2002 ran pilot tests in Moscow & St. Petersburg where
Russians could buy computers with down payments-successfully showed those w/ down payment of $99 sold out of PCs compared to those offered w/ down payment of $199
Implemented “Teach to the Future” program that trained 7,000 Russian teachers (02’) and 20,000 in 2003, in using computers and the Web
Created labs at Russian universities to familiarize students w/ technology
Currently, Russia is Intel’s fasting growing market Sun
2001-2003, sales have doubled Hewlett Packard
Become a ‘favorite’ of local businesses b/c they offer tech support regionally and not just major cities
IBM, Xerox, SAP
Model for Global IT Model for Global IT EnvironmentEnvironment
Level of Economic
Growth
Political System
Culture
Key MIS Management
Issues
MultinationalBusiness and
IT Strategy
Hofstede’s DimensionsHofstede’s Dimensions Russia US
Power Distance 90 40
Attire Suits are very important and formal business attire is expected
for all meetings
Hierarchy is of great importance Communication
Only close friends and relatives use first names Appropriate to use just your last name in an introduction to a
business acquaintance It is important to learn the titles of those that you are working
with Russians appreciate foreigners attempting to speak their
language
Hofstede’s DimensionsHofstede’s Dimensions
Russia US
Uncertainty Avoidance 70 46 In most offices, the addressee opens his or her mail,
causing delays. It’s advisable to get straight to the point in business letters and correspondence.
Allowing your Russian contact to get to know you personally is essential for successfully conducting business
Contracts should be clear, concise, and translated into both Russian and English
Contracts without actual handwritten signature considered valueless
Hofstede’s DimensionsHofstede’s Dimensions
Uncertainty Avoidance cont’d The series of events in Russian history has
led to Russians having very little trust Lack of trust worsened because rapid economical,
political, and cultural changes Low credit card penetration Many save most of their money in USD under the
mattress (Nazarova and Lakaeva, 2000) Supply chain partners often rely on flea market
mode of transaction (inspection, cash payment, trade)
Limits overall economic growth & e-commerce development
Hofstede’s DimensionsHofstede’s Dimensions Russia US
Individualism 42 91
Teamwork Russian culture values comfortable situations more
than higher salaries, so if a business person is comfortable in a team and the salary is adequate for them, then they are less inclined to try to gain advancement
Communism history classless society Goal of communism is a non-hierarchical society
Severe climatic conditions necessitated collaboration
Culture Implications for Culture Implications for ITIT
Click & mortar shops Do well due to poor IT infrastructure in some
regions Customers come to a partner store and see product
info through an on-line system Appealing because Russians, with high UAI, like to
physically see product (displays), able to see a physical store, can easily pay in cash
Lock -in values shopping bonus pointsshopping bonus points wide-range of services/one stop shoppingwide-range of services/one stop shopping ease of useease of use
Culture Implications for Culture Implications for ITIT
It is possible to find most things one needs in Moscow and St. Petersburg. However, finding it is usually a challenge because of smaller stores, poor organization, underdeveloped phone books e-Commerce websites which help customers
find products e-Commerce websites that provide one
location for many products
Hofstede’s DimensionsHofstede’s Dimensions
Russia US
Masculinity 37 62 Mission statements
Russians like to have the idea that they are working for a larger purpose, so missions statements usually have less to do with individual firm success and goals than western firms
Relationships takes longer to develop and require more effort than in the West
EducationEducation An important legacy of the Soviet Union is the
widespread, yet basic educational system Constitution guarantees right to free preschool,
basic general, and secondary vocational education Basic general education mandatory until age fifteen In 1995 about 500 postsecondary schools in
operation, including forty-two universities. Private schools and universities emerging in mid-
1990s. Russian IT professionals have minimum 5 years of
university-level training
IT and EducationIT and Education
Russia’s schools have one computer for every 500 students
One in 50 schools has Internet access In comparison, almost all elementary and
secondary schools in the US had Internet access by 2001
Source: June 2001 State Council reportSource: June 2001 State Council report
IT TrainingIT Training In a poll of 102 countries, Russia was 76
in computer ownership and 59 in lowest computer utilization
Due to the fact that Russia has a limited amount of computers, there is low IT knowledge among the population
The high level of education among the population and the decline of ISP rates makes the potential for IT competency extremely high
IT WorkforceIT Workforce Number of IT graduates increasing
A study done by Auriga, Inc. revealed that in 2004 the number of Russian IT graduates with Master’s degrees in Computer Science or with software engineering majors will amount to 68,126 people, up 6.9% from 2003.
Russia’s potential fresh IT labor supply represented by higher education graduates will amount to a total of 225,831 people by the end of the 2003-2004 academic year, up 11.2 % from the 2002-2003 academic year
Success stories of Russian High Tech Eli Lily, the leading pharmaceutical company, uses ERP systems
designed by a Moscow company PolyAnalyst, one of the most popular programs for data mining in the US
was developed by a Moscow company Graffiti was developed by Russian engineers (ParaGraf) Tetris was developed by a Russian software engineer who is now head of
computer games department at Microsoft
Technology PictureTechnology PictureTelecommunication Infrastructure (million) Main Phone lines : 35.5 (2002) Cell phone usage : 17.6
Internet Diffusion Number of websites 16,964,567 Internet users (millions) 6 PCs per 100 people 4.29
< 5% of Russian households have PCs, and >60% for US
~ 97% software piracySource: CIA Factbook
Technology PictureTechnology Picture
50.8%50.8%1,219,1731,219,17390904949FinlanFinlandd
33.1%33.1%82,14282,14266663535EstoniEstoniaa
54.3%54.3%115,311,95115,311,9588
54546262USUS
4.2%4.2%560,874560,87412122525RussiaRussia
% of % of PopulatioPopulatio
n that n that uses uses
InternetInternet
Internet Internet HostsHosts
# of # of Cellular Cellular Phones Phones per 100 per 100 peoplepeople
# of Main # of Main telephone telephone Lines per Lines per
100 100 peoplepeople
ICT ReadinessICT ReadinessWorld Economic Forum’s Annual Global IT
Report2002-2003 Countries were ranked based on 64 criteria & divided
into 3 indexes - environment, readiness and usage Ranked 69 out of 82 (US was 2nd and Estonia 24th)
68th in terms of market, political, regulatory and infrastructure landscape
60th in openness toward new technologies 78th in usage rates 29th in the number of skilled scientists and engineers
Only 3.7% of Russia’s GDP is invested in Information and Communication Technology, compared to New Zealand’s 13.6%
Technology ForecastTechnology Forecast
Forecasts indicate that by 2010: Number of main telephone lines will
increase to 33% Number of cellular subscribers will
increase to 15% The percentage of the population that
uses the Internet will increase to 18%
TelecommunicationsTelecommunications Telecommunications infrastructure undersized
& largely out of date Inconsistent quality and accessibility Major population centers (Moscow/ St. Petersburg) well
served, however estimated 54,000 small communities have no telephone access whatsoever (2002)
High demand for internet access Long delays in allocating a private fixed line
fuelled growth in number of cellular phones 6 million Russians on waiting list for basic phone service
(2002) Cellular market = 35% of Russia’s telecommunication
market by value (2002)
TelecommunicationsTelecommunications
Post financial crisis, Russia has spent ~ $2 billion annually on telecommunications equipment.
About $40 billion needed over the next decade to invest in telecommunication networks to remedy past deficiencies & meet new subscriber needs (Country Commerce)
Approximately 60% of telecommunication equipment imported since domestic products not price competitive
Cell phone use Moscow near saturation (at 30%). National
penetration rate of cell phone use still low at 5.4%
Internet UseInternet Use
Slow to take off Poor telecommunications infrastructure Low computer use in households (less than
5% of households have a PC) Lack of payments systems High fees
Demand for internet access outstripping the domestic supply of high-seed PCs
Security & trust issues Minimal broadband infrastructure
Technology ForecastTechnology Forecast
By 2010: Number of main telephone lines will
increase to 33% Number of cellular subscribers will
increase to 15% The percentage of the population that
uses the Internet will increase to 18%
E-Commerce PictureE-Commerce Picture
Currently small specialized companies dominate (DVDs, books, software, Prepaid phone cards)
Also several e-commerce companies in the grocery trade in Moscow & St. Petersburg
~85% of online sales are paid in cash Online debit- and credit-card
transactions remain limited
E-Commerce PictureE-Commerce PictureBarriers to E-commerceBarriers to E-commerce
Weak legal framework and legislation Difficult to obtain PCs for households & small
businesses Weak telecommunications infrastructure, especially
outside major cities Lacks reliable, affordable Internet access Electronic payment systems not widely available Lack of stable, trustworthy banking sector to back
electronic payment systems Poor penetration of credit card use
E-Commerce PictureE-Commerce PictureFactors to Stimulate E-CommerceFactors to Stimulate E-Commerce
Russians are literate and well educatedRussians are literate and well educated Intellectual property laws among the best Intellectual property laws among the best Ready market for web-based retail sites Ready market for web-based retail sites
outside main cities outside main cities
WebsitesWebsites Russian Information AgencyRussian Information Agency Personal ClassifiedsPersonal Classifieds Moscow Lifestyle - The Russia JournalMoscow Lifestyle - The Russia Journal Demos-Internet Demos-Internet
Internet Service ProviderInternet Service Provider One of the oldest network companiesOne of the oldest network companies
Golden Telecom, Inc.Golden Telecom, Inc. Largest independent facilities-based provider of
integrated telecommunications and internet services to businesses and other high-usage customers and telecommunications operators
http://www.relcom.ru/http://www.relcom.ru/ Internet service provider in Moscow & St. PetersburgInternet service provider in Moscow & St. Petersburg
WebsitesWebsites http://www.http://www.TenderonlineTenderonline..ruru
companies post business proposals onlinecompanies post business proposals online organizations can participate online in organizations can participate online in
contract venders as suppliers or customerscontract venders as suppliers or customers http://www.http://www.xxlxxl..ruru
leading Internet shopping siteleading Internet shopping site http://www.http://www.CyberplatCyberplat..ruru
leading Russian online payments systemleading Russian online payments system Paypal vs. CyberplatPaypal vs. Cyberplat
Country Country ComparisonComparison
Russia and EstoniaRussia and Estonia
Estonia BackgroundEstonia Background
Estonia attained independence in 1918 after centuries of Danish, Swedish, German, and Russian rule
Estonia was forced to incorporate into the USSR in 1940
In 1991 Estonia regained its freedom with the collapse of the Soviet Union
After the last Russian troops left in 1994, Estonia has been free to promote economic and political ties with Western Europe
Joined both NATO and the EU in the spring of 2004
Estonia BackgroundEstonia Background Patterned itself after its developed neighbors, such as
Finland Created Technology Parks in order to accelerate scientific
research to move the economy forward. Estonia created the first Technology Park in 1992,
Tartu Science Park Research that is being undertaken by the resident
companies concerns laser technologies, electronics, & software development.
Tallinn Technical University Innovation Centre Foundation Major areas of research are software development,
internet services, electronics, and mechanical engineering. In addition, Estonian government is creating business
incubators to improve R&D development, develop businesses in underdeveloped regions, and support development of technology-based entrepreneurship
Country ComparisonCountry Comparison
Russia Estonia
Area 17, 075, 200 km2 45,226 km2
Population (2004) 143,782,338 1,341,664
Languages Russian (official), other Estonian (official),fluency in EnglishRussian, Finnish,German is norm inhigher education
Workforce Well-educated, skilled,inexpensive
Well-educated,skilled, inexpensive
Government ConstitutionalFederation
ParliamentaryDemocracy
Country ComparisonCountry ComparisonRussia Estonia
GDP (real growth rate) 4.3% 4.4%
GDP (purchasing power parity) $1.409 trillion $10,900
Gini Index 39.9 (2001) 37 (1999)
Inflation Rate 15% 3.7%
Unemployment Rate 7.9% 12.4%
Labor Force(by occupation)
Agriculture 12.3%Industry 22.7%Services 65%
Agriculture 11%Industry 20%Services 69%
Currency Ruble (RUR)1 USD = 28.78 RUR
Kroon (EEK)1 USD = 12.26 EEK
Country ComparisonCountry ComparisonRussia Estonia
Main Telephone Lines (2002) 35.5 million 475,000
Cell Phones (2002) 17,608,800 881,000
Internet Hosts (2004) 560,874 82,142
Internet Users (2002) 6 million 444,000
TelecommunicationInfrastructure
Poor Advanced
Internet penetration Low High
Banking System(including E-banking)
Lacking Developed
Software Piracy High High
Source: 2003 CIA Factbook
SWOT SWOT AnalysisAnalysis
Russia’s ITRussia’s IT
IT StrengthsIT Strengths Proximity of St. Petersburg to Finland Well educated & literate employee base(especially
in science, engineering and technology) Large state technological universities encourage
R&D and IT Competitive wages for outsourcing Developing Russian-language Web content Strong supply of Current investors Distribution system is expanding from just Moscow
& St. Petersburg, regional warehouses being set up and secure transportation being arranged
IT StrengthsIT Strengths
Russian government is drafting a federal policy on internet use and creating a legal framework to stimulate e-commerce development
Russia has started privatization and joint ventures in the telecommunications industry
Potential of B2B arrangements & emergence of B2C in major cities
Ready market for web-based retail sites Large potential for growth
IT WeaknessesIT Weaknesses Software piracy Poor infrastructure Low PC-penetration Low PC-penetration
30 million PC’s in Russia today (1/5 of population) 2003 30 million PC’s in Russia today (1/5 of population) 2003 datadata
Lack of electronic payments systemLack of electronic payments system Insufficient nationwide delivery modeInsufficient nationwide delivery mode Poor image Lack of English-language skills Low level of average disposable income,
low consumer purchasing power (but rising)
IT WeaknessesIT Weaknesses
Expensive~ Make it affordable The average computer and access to the Internet costs an
average of 75% of average monthly income Outside of Moscow, monthly income levels rose 29.5% between
02-03’ to $155. Inconsistent government policies Government driven vs. business driven development
Government Selective Entrepreneurs, thinkers, not encouraged (Hoefstede’s culture—
risk takers? Immature business and project-management skills Lack competitiveness: Current lack of capable and
modern manufacturing facilities for (majority 10+ years old)
Unavailable investors and financial assistance internally
IT Opportunities in IT Opportunities in RussiaRussia
Basic tech products: super servers, printers, computer peripherals aren’t produced domestically Imports of servers grew 80% in 2003
For wireless or landline phone networks isn’t produced domestically
ERP software (enterprise resource planning) For US suppliers and manufactures of electronic
components and electronic manufacturing equipment
Equipment manufacturers could form joint ventures w/ Russian manufacturers in order to obtain status as a domestic manufacturer and meet the Ministry of Communications requirements
Decrease digital divide
IT Investment IT Investment OpportunitiesOpportunities
At this point, B2B prospects are much At this point, B2B prospects are much more appealing than B2C because:more appealing than B2C because: weak consumer purchasing power low use of credit cards lack of trust in the banking system poor delivery system
Major end users for IT are government, Major end users for IT are government, educational institutions and computer educational institutions and computer manufacturersmanufacturers
IT Investment IT Investment OpportunitiesOpportunities
Software Market - OutsourcingSoftware Market - Outsourcing Russian specialists have proved to be skilled
innovators and developers in the field of software development
Software development has grown 40% over the past 3 years (Kozuharov)
Outsourcing to Russia can cost 1/5 of labor costs in the US, even considering the added expense of managing an offshore operation (Horowitz)
How does an investment in Russia compare with a similar investment in China or India?
Political advantage over China Geographical advantage over India
IT Investment IT Investment OpportunitiesOpportunities
Software Market - ProductionSoftware Market - Production Russia is generally well known for computer programming Software Market not as established as in other western
markets Not as profitable as hardware supplies because of high rate
of piracy However, increasing interest in brand-named, powerful PCs
should improve the software market Market for domestic software development is limited to
accounting software Market for software import is legal software for Russian
banks General application solutions, systems software, and
hardware supporting software are also in demand
IT Investment IT Investment OpportunitiesOpportunities
Hardware ProductionHardware Production Customs duty on imported hardware & Customs duty on imported hardware &
peripherals is 10%peripherals is 10% Domestic computer hardware market Domestic computer hardware market
dominated by imports from US companiesdominated by imports from US companies In the past few years:In the past few years:
computer manufacturing & assembly up 20-computer manufacturing & assembly up 20-30%30%
infrastructure market up 30%infrastructure market up 30% IT industry as a whole up 30-40%IT industry as a whole up 30-40%
IT Investment IT Investment OpportunitiesOpportunities
Cellular Phone Production Opportunity exists due to the state of the fixed
line infrastructure Cell-phone use in Moscow and St Petersburg is
nearly as prevalent as in New York City In 2002, Russians bought 1 million wireless
phones per month Mobile-communications hardware is among the
most in demand in Russia according to IDC Officials have welcomed foreign participation in Officials have welcomed foreign participation in
cellular phone productioncellular phone production
IT Threats in RussiaIT Threats in Russia High installation costs Complex regulatory environment difficult to enter Perceived as risky place to do business (lingering
negative image- communists) Negative Internal image- until 1990s entrepreneurs
considered crooks Global demand for oil drops~hurt flourishing
economy and decrease available capital to invest Software piracy huge problem (still 87%+ of
corporations using pirated versions of Windows operating systems
Poor transportation infrastructure makes deliveries slow & expensive
IT Threats in Russia IT Threats in Russia cont.cont.
Until government makes export laws easier, domestic production of high tech components isn’t profitable
The wide distribution of income requires a market differentiation strategy different from that in the West- more investment required to know the target market
Russia’s lack of operational and financial transparency hinders FDI
Russian telecommunications equipment and services market not easy to enter-Russia doesn’t recognize foreign test data
Investors may be deterred b/c obtaining approvals and licensing can be a long & costly process
Russia has no $
SUPPLIERS
Value Adding Investments
Software Outsourcing
OPERATIONS
Value Multiplying Investments
R&D centers for hardware development
Cell phone manufacturing
BUYER
Value Delivery Investments
Sales Offices for Banking software, Brand-name computers, Cell phones
Global IT Value ChainGlobal IT Value Chain
RecommendationsRecommendations Russia is a good choice/location…Russia is a good choice/location…
to outsource software * for a software sales office selling
Banking software General application solutions, systems software,
& hardware supporting applications
for a direct investment into accounting software market
for a hardware sales office selling brand-named computers with pre-installed versions of popular software
for a R&D center for hardware development for a sales office or manufacturing of cellular
phones
Questions/Questions/Comments?Comments?
ReferencesReferences Jason Horowitz, Manager, Russia Program Office, Sun Microsystems,
Incs., personal communication, June 2001. Fey, Carl and Rachel Doern. eCommerce in Russia Retrieved October 12,
2004 from http://www.bdforum.org/download.asp?id=10 “Development of information-communication technologies in Russia in the
process of setting up of the Global Information Society” United Nations Conference on Trade and Development Science & Technology for Development Network. http://r0.unctad.org/stdev/un/russia.htm
“E-Russia Federal Program” New Economy Foundation. Dec 28, 2002. http://www.neweco.ru
Skiden, Ulla. “E-Russia Program to put the Country Online” Center for Digital Government. Jul 2003.
Lakaeva, Irina and Inna Nazarova. “Overview of Electronic Commerce in Russia” BISNIS and the US Commercial Service. Moscow: Aug 30, 2000.
Lakaeva, Irina. “Trends in the Russian IT Market” US Commercial Service Moscow. 2002. www.buyusa.gov/russia/en/
Kozuharov, Simone (2004, July). Russia to Cash In on IT Growth. The Saint Petersburg Times. Retrieved from http://www.outsourcing-russia.com/kb/docs/russia/r06074-01.html.
