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. Last Updated: 07/27/2016

COMPUTER BUSINESS: Russian IT Industry Has to Cross Borders




The nose-dive experienced by the Russian IT market in the wake of the summer economic crises exposed one major vulnerability at many local computer companies. Though most of the larger Russian IT companies now have fairly diversified local businesses, few generate significant revenues from outside Russia.


Until 1998 their argument was that the Russian market was so large there was no sense in looking outside it for additional business.


Moreover, winning business in other former Soviet republics or East European countries was often very tough since Russian companies lacked the contacts and market knowledge of local rivals. Nevertheless, a small number of companies did manage to establish non-Russian businesses and for them this is now paying dividends.


For distributors of computers and components expansion into neighboring markets currently makes a lot of sense. Over the years they have built up valuable vendor relationships, infrastructure and distribution expertise which is all now at risk while the Russian market is so depressed. By creating revenue streams in other markets, a company can help offset the current decline in sales in Russia and go some way toward shielding itself from future downturns in the market.


During recent months, the Minsk-based distributor Asbis Enterprises has launched a major westward expansion into the markets of Eastern Europe. Over the last three years, Asbis has slowly grown to be one of the largest distributors of hard disks and microprocessors in the former Soviet Union, and is today one of the largest distributors of hard disks in Europe.


After gradually piecing together a network of offices in Belarus, Russia, Ukraine and Kazakhstan, in 1998 the company expanded into the Czech Republic, Slovakia, Poland, Hungary, Bulgaria, Yugoslavia and Croatia.


The move into the Czech market involved the purchase of ELKO, a major local distributor. On a slightly less grand scale, DPI, the sole official distributor of Apple Computers in Russia (or IMC in Applespeak), announced in October that through a joint venture with a Ukrainian company it had gained Apple IMC rights in Ukraine.


Taking a very different approach, St. Petersburg-based Lanck has built up an export business largely unrelated to its own sales of computers. Lanck is primarily oriented on retail sales of computer equipment through its chain of stores in St. Petersburg and Moscow, but over the past five years has been patiently developing an export market for Russian-manufactured consumer night vision products.


Lanck says that it now occupies 70 percent of first generation consumer night vision world market, and distributes its devices through the giant U.S. retail chains Wallmart, Costco and JC Penny. When the crisis struck in August this export business proved to be a lifeline. While Lanck was forced to restructure the company and drastically cut its costs, profitability from sales of consumer night vision equipment went up and revenues from this source helped plug big gaps in cash-flow when local business ground to a standstill in the immediate aftermath of the currency crash.


Although it is rare for Russian distributors or systems integrators to have significant non-Russian businesses, for many software companies this has long been a perquisite for survival. High levels of software piracy have meant that many types of software products were simply not sellable in Russia. For this reason many software companies are not feeling the crisis quite as badly as one might expect.


Robert Farish is research director at IDC Russia. E-mail: farish@online.ru