Russian companies are increasingly buying homegrown software to avoid international sanctions, posing a challenge to the likes of Microsoft Corp. and Oracle Corp. in the country’s $3 billion local market.
OAO Sberbank’s life insurer in February started an online service running local operating system Rosa-Linux using an open-source PostgreSQL database, skipping alternatives from Microsoft, Oracle and International Business Machines Corp. Late last year, OAO Gazprom’s oil division completed testing of GeoMate, its own software used to analyze geological data and designed to replace applications from companies including Emerson Electric Co. and Schlumberger Ltd.
About three-quarters of an estimated 157 billion rubles ($2.9 billion) in Russian software spending last year went to imports. That share will probably fall by several percentage points in 2015, according to researcher IDC. President Vladimir Putin’s government has laid out a plan to cut foreign program reliance to less than 50 percent by 2025.
While it’s difficult to fully wean off imports, “companies are switching to local software in those business processes where they can,” said Elena Semenovskaya, a Moscow-based analyst at IDC.
That presents a hurdle for SAP SE, Microsoft and Oracle. The three had combined sales of 59 billion rubles in Russia last year, according to State Duma estimates. Even without Putin’s domestic preference, the country’s software market will probably shrink by 10 percent this year as the economy slips into recession, while a weaker ruble also makes foreign programs relatively more expensive, IDC said.
Digital Sovereignty
Banks and energy producers were among the first to answer Putin’s calls for “digital sovereignty,” after some were targeted in several waves of sanctions over Ukraine starting in March 2014. The U.S. first imposed sanctions on more than two dozen individuals and St. Petersburg-based OAO Bank Rossiya, prompting Visa Inc. and MasterCard Inc. to stop processing payments for some lenders. That’s when Grigory Gashnikov, an IT director at Sberbank’s life insurance unit, decided to go local.
Although Sberbank wasn’t named in the initial embargo, Gashnikov picked Moscow-based CJSC Rosa and software installed by Diasoft Platform in September. The logic was to “minimize potential sanctions risks,” he said in an interview.
Domestic Software
Representatives for Redwood City, California-based Oracle, Redmond, Washington-based Microsoft and Armonk, New York-based IBM declined to comment. Microsoft Chief Financial Officer Amy Hood said on Jan 26 she expected revenue declines in China, Russia and Japan.
Microsoft’s stock rose 0.2 percent to $45.93 at 11 a.m. in New York. Oracle was little changed at $44.64, while IBM gained 0.4 percent to $167.52.
The sanctions raised concerns in the banking industry and boosted demand for local systems, said Konstantin Varov, managing director of Diasoft Platform, a unit of Moscow-based developer Diasoft.
“We are now working with three of Russia’s top 10 banks to switch their IT landscapes from global to domestic software,” Varov said.
Defense companies were also sanctioned and now rely more on local alternatives. United Aircraft Corp. is working to replace foreign software, including programs from Autodesk Inc. and Siemens AG, for some sensitive tasks, including engine and airplane design, according to spokesman Sergey Rybak.
Local Boon
While some customers have chosen to substitute local alternatives following the sanctions, Autodesk hasn’t seen “widespread import substitution” in the majority of its client industries, the San Rafael, California-based company said in an e-mail. The company has lowered some prices in Russia to counter the drop in the ruble’s purchasing value, it said.
A Schlumberger spokesman in Russia declined to comment on the company’s relationships with clients. Representatives for SAP and Emerson Electric couldn’t immediately be reached for comment. A spokesman for Siemens declined to comment.
The local trend may be a boon to Russian companies including closely held anti-virus program maker Kaspersky Lab, business software maker 1C Co. and computer-aided design software supplier ASCON Group.
The Communications Ministry wants all state-controlled entities to buy from a list of domestic providers it’s compiling and plans to offer support to domestic developers worth about 3 billion rubles this year. A draft law requiring companies to choose local suppliers or explain why they can’t has passed the first stage of lawmaker approval.
Still, there may be ways for foreign suppliers to comply with the new rules. SAP is exploring local partnerships because of the pending legislative changes, the German company’s press office said in e-mailed response to questions.