INVESTMENTS IN RUSSIA: IT solutions are vital for bringing in oil dollars

An American tourist staying at the Marriott Grand Hotel recently was overwhelmed by the number of events on IT issues there. Companies present plans for the development of the Russian IT sector at press conferences, briefings and symposiums almost daily in the Russian capital. Though still the Internet backwoods of the industrially developed world, Russia is seen as having strong potential for growth in the computer and server markets, and for new solutions in high technology.

Sales volumes grew almost 30 percent in 2001 compared to the previous year, and even higher growth rates are projected for 2002. Brunswick UBS Warburg analysts say more than $100 million of venture and private capital was invested into the Russian technology sector, including IT and Internet trade, at the turn of the century. The analysts believe this underestimated sector will present far more attractive opportunities for Russian shareholders over the next few years.

Estimates show the Russian IT market brought in profits of $2.1 billion in 1999 and a further $3.2 billion in 2001; it is expected to continue its intense growth.

Jack Barbanel, president of Strategic Investment Group, said the biggest investment risk in high technology today is the nature of the technology itself. Investors must calculate how attractive and competitive a technology will be in three to five years.

Barbanel said the Fund’s investment cycle is between three and five years, so it will not invest unless it can predict how the market will look then. He believes the Russian IT market will improve significantly in the near future. Investors will gain experience and business models will be drastically different - more realistic and more interesting, based on carefully calculated economic realities.

Analysis shows almost all growth in Russian IT is in electronic commerce, whose share in the total IT sales volume nears 80 percent. The largest, fastest growth is seen in the volume of software supplied to various Russian enterprises and companies, and an increasingly large share is taken up by Russian solutions suppliers and various integrators. The demand for integrated technologies in Russia is fuelled by companies in production and retail, looking to optimize production with the newest computer and telecommunications technologies.

Oil- and gas-industry clients make up an increasingly large portion of IT suppliers’ orders. However, the direct relationship between Russian fuel and energy and the country’s IT market has its down side. If the price of oil and other energy resources falls, it can be expected that orders of IT solutions and equipment from oil and gas companies will drop. A recent conference on IT solutions in the oil and gas industry warned that suppliers of IT solutions should not repeat what happened in the late 1990s, when, warned away by the market and grim forecasts, they shut down fuel- and energy-oriented programs. Energy prices go up and down but, overall, there is a clear upward trend. Alexander Blokh, Tyumen Oil Company CEO, said the automated control of oil production presents a tangible opportunity to stay competitive on the world market, even during considerable price fluctuations.

To Russian fuel and energy representatives’ credit, they are consistently upgrading their enterprises’ information systems. Oil industry managers have popularized the outsourcing of services: For instance, Sibintek carries out full IT support for Yukos.

The oil and gas industries, along with a number of other branches of Russian economy, have entered a new stage in the development of information systems. Oil and natural resource companies are no longer concerned only with systems for collecting, relaying and storing information on current technologies. Now, they are also making it a priority to provide key managers with information to make important management decisions. This is especially vital now, when Russian companies are maturing: restructuring both horizontally and vertically, diversifying production, merging and forging alliances, attempting to access foreign fund markets and increasing competition.

Solving all these problems can be made easier by streamlining the management decision-making process. There is no doubt that Russia is starting to explore the world of corporate-management systems and it is not difficult to draw conclusions about where investment is needed.