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Press about Auriga

Nov 5, 2009

Bureaucracy stalls Russian IT boost

IT Europa, IT industry news stories and feature articles

Plans announced recently by the Russian government to transform the country's dependency on energy incomes into a technology-based world leader are bound to fail, say experts. Andrei Pronin, General manager at outsourcer Auriga, says Russia is probably still one of the top three countries in the world in the number of scientists and engineers per capita, and has the largest amount of science students among the total number of students.

And while the Russian administration is definitely thinking in the right direction, the main obstacle on the way to success is still the lack of coordinated activities in that area. The initiatives started at the top of the Russian government are often efficiently blocked by the underlying bureaucracy.

It is true for all components of the potential support package for the IT industry. The program intended for supporting marketing activities of Russian product vendors and IT services companies on the foreign market is of little value. The activities are rare, isolated, and of a very limited scale. Other countries that declared growing their innovative sectors as their strategic priority do much more. As an example of what could be done to support and develop the IT industry, Chinese government in some cases subsidises up to 50% of the costs on overseas exhibitions and promotional activities, financially supports inviting potential customers getting foreign patents, etc.

Another major roadblock to Russia becoming a leader in IT is the lack of tax and customs incentives for the IT industry. Even though there were many attempts to introduce new laws, most of them proved to be insufficient, or failed for various reasons. One of the major problems is the so called Unified Social Tax, which imposes equally high salary taxes on the employers in the oil industry, where salaries are only a fraction of the production costs, and IT, where salaries account for more than 60% (some say 80%) of the costs. And the very limited tax preferences given to IT exporting companies just recently, in 2007, are about to be canceled according to the currently official tax system modification plan in 2010, along with the overall increase of the social tax payments. There is a hope that following the recent instructions of the President, this government decision will be reverted, and IT companies continue to have some tax preferences.

But so far, that is only a hope, while there is less than two months left till 2010. And the situation with the customs barriers is not better.

Nevertheless, the IT industry in Russia continues to grow, but rather due to the efforts of individual companies, some of which already became segment leaders.

And Russia is probably still one of the top three countries in the world in the number of scientists and engineers per capita. All that feeds the software industry with bright people that quickly learn the needed skills to become efficient software developers. Nevertheless, one of the key challenges for us is the growing competition for IT talent. In 2007 the IT labor pool in Russia was about 1 million vs. 1.5 million needed. Currently, in the times of crisis the tension in the Russian labor market has significantly decreased, and it is now driven by the demand, not the supply. However, the lack of the IT specialists will be a problem again, once the IT industry starts to recuperate and grow, especially if the Russian industry starts increasing its share in the world software market.

/ Article originally published by IT Europa. Please note - you need to be registered to view the text/

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