Russia turns to import substitution in its IT sector

The Russian IT sector continues to experience what is probably the most acute crisis in its history, following its exodus from Western IT companies and workers.

Russia’s IT industry has seen a huge drop in revenue this year as Russia’s invasion of Ukraine provokes economic sanctions from the West.

The Russian Electronic Communications Association, one of Russia’s public IT associations, recently reported that around 50,000 to 70,000 IT specialists left the country in March, and another 100,000 in April. May figures are not available at this time, however, according to some industry sources, they will be comparable to previous months.

Despite the state’s optimism, some local analysts expect Russia to face a severe shortage of IT technologies in the second half of the year.

The latest state data also shows that the threat is increasing. According to the Russian Ministry of Information and Digital Communications, the volume of failed IT tenders in Russia so far this year has increased by 1.5 times compared to the same period. of the previous year. Since the beginning of the year, 9,500 public IT tenders, worth $432 million, have failed due to the exit of foreign IT companies from the market and the disruption logistics.

Russian authorities are taking steps to reduce reliance on Western software and IT services amid Russia’s ever-increasing isolation.

Russian President Vladimir Putin recently signed an executive order prohibiting state authorities and other state customers from using foreign software on their infrastructure. In addition, since March 31, Russian state-owned companies are prohibited from buying foreign software. The same restrictions are expected to apply in the case of foreign computer services.

Switch to home computing

Russia hopes that local government agencies and businesses can switch to national IT to replace the majority of Western IT services and technologies in their day-to-day operations. These plans are considered possible despite the general lack of skills and experience in Russia, as well as the massive and continuous migration of skilled IT workers from the country abroad.

Probably one of the biggest losses in the industry could become a significant reduction in Google’s Russian operation and even a possible complete withdrawal. Recently, the American technology giant announced the opening of a bankruptcy process for its subsidiary in Russia. The reason for this was the company’s inability to meet its financial obligations due to enormous pressure from the Russian state resulting in the imposition of significant fines in recent months.

The largest of these fines was imposed on Google in December 2021. The company was fined 7.2 billion rubles ($113 million) for failing to remove prohibited information. In May, the Department of Judicial Officers of Moscow launched the procedure for the collection of this fine.

As an official spokesperson for Google Russia said in an interview with Russian RBC commercial paper, the company had previously suspended most of its business operations in Russia, as the freezing of its local bank account prevented its Russian office from fully continuing its activities. However, Google plans to continue its partial work in Russia through its free services, such as YouTube, Gmail, Google Maps and others, the company representative said recently.

The exit from Russia will become a great loss for both the country and its IT sector. As a source close to the company said in an interview with the Russian edition of Forbes magazine, its priority in Russia was to promote Google as a search engine, “so that the Russian user knows that this is not a cold, American machine, but a warm and understandable service” . To this end, the company launched the Google Reading project, which included streaming online readings of famous Russian literary works on YouTube.

So far, due to Russia’s invasion of Ukraine and the resulting sanctions, major IT companies, including Microsoft, SAP, Oracle, IBM and Nvidia, have exited the Russian market over the past last three months, and it is possible that the list of these companies will expand further.

Strict legislation

Many foreign IT companies may also consider leaving Russia due to the pressure of strict IT legislation, which leads to the imposition of regular sanctions and penalties against them.

For example, Russian IT regulator Roskomnadzor recently concluded a number of administrative protocols against Apple, Google, Airbnb, Pinterest, Twitch and others for violation of existing Russian legislation in the field of localization of Russian user databases on the territory of the country.

All these companies are subject to a fine of up to 6 million rubles, while Google faces 18 million rubles due to repeated violations. Representatives of the companies declined to comment.

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