From Russia with software

Forgoing investment in Russian IT organizations because of the country’s image problems is robbing Canadian companies of a very good opportunity, industry leaders said Monday morning.

The state of Russia’s economy and its impact on the IT industry were discussed at a Canada-Russia IT Roundtable

Monday. Government and industry leaders spoke about an IT market growing by leaps and bounds, although largely without foreign investment. The problem has generally been one of perception, said vice-president of the Russian Chamber of Commerce Georgy Petrov. Russia still makes Canadian businesses think of crumbling infrastructure and unstable political climate, but that’s just not the case when it comes to the IT industry, he said.

The economic and political climate has stabilized under president Vladimir Putin, Petrov said. Russia’s IT industry in the same time period has been averaging 20 to 25 per cent growth. And yet despite the growing GDP and tremendous opportunity for investment, trade with Canada actually fell by 16 per cent in 2002, he said.

While freely admitting that Russia’s industrial infrastructure is in sore need of updating, Aram Pakhchanian, vice-president corporate projects ABBYY Software, pointed out that IT does not rely on that infrastructure.

“”Even if there are some risks to investing in Russia, that doesn’t apply to IT at all. You’re investing in people and not infrastructure,”” he said. “” And you’re developing intellectual property which can easily be transferred anywhere in the world.””

ABBYY Software is one of a growing number of Russian high-tech companies succeeding on global markets, Pakhchanian said. Its Finereader OCR software has been gaining market share internationally. Based in Moscow, it also has offices in Canada, the U.S., U.K. and Germany. It actually holds 50 per cent of the German retail market in its space and reported double digit growth in 2002.

“”But that’s the normal rate of growth for the Russian IT sector,”” he said.

Russia has had a recognized tradition of excellence in science and technology R&D and that’s still very much the case today, said TerraLink managing director and board member of the Canadian Business Association in Russia Ron Lewin.

Vancouver-based Canlan Ice Sports, the world’s largest private sector owner and operator of recreational ice sports facilities in the world, took advantage of that knowledge base in 2002. Canlan owns and/or manages 21 facilities with 57 sheets of ice in Canada and the U.S.

ASHL Oakville league manager Rob Goencz took said he was having a nightmare coming up with schedules for the 138 games he was in charge of each week. The schedules were made up manually.

Because the league is an after-work past time for its members the window of optimal game times was very small. Keeping the schedule balanced, giving everyone the same amount of prime ice time, and keeping the players happy was taking up about 30 per cent of his time, Goencz said.

“”Putting a schedule together manually…is very stressful because you want to treat each of your teams fairly,”” he says.

The league begun looking for a software solution to its logistical nightmare but was discouraged by development costs it heard quoted by North American developers. Then a player suggested they explore Russian options and a partnership was struck with Moscow based software company Bonasource.

Goencz said that because Bonasource has offices in Toronto language was never a problem. And even when dealing with engineers in Moscow his experience was very positive. The development cost was a fraction of what he’d heard from local companies, the development team very responsive to suggestions and surprising things like the time difference made the whole project run even smoother.

“”I would write up my notes while they were sleeping. Off the notes would go,”” Goencz says. “” They would work on it while I slept and my problems would be solved the next morning.””

The experience was equally positive for Luxoft, says its North American vice-president Joe Mukherjee. Luxoft used a Russian software developer to assist in its Newspaper Direct project. The project is a two-fold initiative which allows travelers access to world newspapers in real time either in print form or online.

The Russian partner came up with a print on demand solution which allows hotels, like current customer Intercontinental Hotels, to print regular copies of virtually any newspaper in real time. A printing station receives a digital feed from the newspaper at the same time as the feed is going into press in the originating city. This allows for The Seattle Times to be read in Australia at the same time, as it would be in Seattle, for example.

“”Sometimes you can actually get a copy quicker on one of these stations,”” Mukherjee said.

The Web-based version of the service, newspapers available on laptops, is being considered by Boeing as an in-flight service it may offer. That product, however, is not on the market just yet.

Mukherjee said he feels the Russian IT sector “” is at the verge of a big bubble . . . I’m very excited to be part of it.””

Despite all of the good news Lewin admitted that there are still some real challenges when it comes to doing business in Russia. Highly specified legal requirements, licensing and a tax reform not moving along as quickly as the business community would like it to can mean high operating costs.

Despite all those costs the productivity and knowledge of the Russian high tech work force makes it worthwhile to open Russian offices, said head of Nortel’s representative office in Russia Evgueni Lissitsin. Thanks to customers in the oil industry, government as well as alternative carriers, the Russian division has been reporting margins of over 60 per cent. It has also seen 30 to 35 per cent growth yearly since 1995.

The persistent image problems which has plagued the Russian IT sector when it comes to Canada may very well be depriving Canadian businesses of some great investment opportunities, said A4 Vision CTO Artiom Yukhin. The biometrics software developer has seen enthusiasm over investment opportunities from U.S. companies, he also points to many European enterprises who are now flocking to Russia and opening offices there.

“”Here all speakers begin by making excuses for Russia’s image problems. In the U.S., nobody talks about that anymore.””

Pakhchanian agrees and points out that success stories increasingly coming out of Russia’s high-tech sector are beginning to make the country a very appealing choice for U.S. and European investors. He said that Canadian companies looking for investment opportunities might do well to look now.

“”Probably in two years it will be too late,”” he said.

Lewin also points out that the notion of a Russian economy largely ran by organized crime is a myth. That is unless, he says, you happen to be an alcohol manufacturer.


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Jim Love, Chief Content Officer, IT World Canada

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