SMBs in Russia are on the cusp of adopting technology that will energize their companies.By G. Patrick Pawling SummaryIn Russia, PC use is far from widespread. Broadband connectivity is available in and around major cities like Moscow and St. Petersburg, but is a challenge elsewhere. Programs to support new businesses are limited. Access to capital, though improving, remains an issue. E-commerce isn't common yet. And while the Russian Federation's land mass is immense, its population density is among the lowest in the world. Is that stopping Russia's small and medium-sized businesses? No. . 
"This is the start of the golden age," says Artem Ermolaev, commercial director for Step Logic, a full-service systems integrator and Cisco Systems 2004 Channel Partner of the Year in Russia. "There is huge need for IT implementation. We are the emerging market. Businesses now are really starting to understand that investment in technology will seriously improve their business models and their customer relationships, and help them increase their revenues." There's room for growth. Only 28% of Russian small and medium-sized businesses (SMBs) have a broadband connection, because it is either unavailable or too expensive, according to AMI–Partners. Much of the telecommunications infrastructure is still owned and operated by the national government; only a few Internet service providers (ISPs) exist. Russian SMBs are just beginning to build their IT infrastructures, Deepinder Sahni, senior vice president at AMI-Partners, notes. A mere 16% of SMBs have Web sites, and only a minority use PCs. "PC adoption among SMBs in Western Europe is in the 90% range, while in Russia it's closer to 30%," he says. "Right now, their technology focus is deploying PCs and local-area networks, and getting their accounting and production software up and running," he says. The Best of Times "Business formation is occurring at a high rate because of the transformation of the economy, just like in China," he says. Russia draws investments from European firms to set up manufacturing plants and other supply-chain businesses. Sahni predicts that "nearsourcing" to Russia will gain momentum and replace some outsourcing to China. "A lot of luxury goods are being sold because of this new money," Sahni says. "It's fueling the whole consumer goods market, which is clearly benefiting the SMB sector." A Tale of Two Companies Three years ago, the company invested in basic technology tools such as e-mail, instant messaging, and Web-based accounting and collaboration. This facilitated a period of rapid growth, with the company increasing from 8 to 25 retail outlets in three years. Technology is also helping ElectroComplectService to expand into new markets. "We actively use technologies of distributed networks and services," says Alexey Edmondovich Vazhenin, who heads the IT department. "This is directly connected with one of our strategic objectives, which is to create an integrated data environment for all our divisions and employees." Vazhenin explains that the implementations aim to support continued expansion through simplifying communications between its stores and main office, which will lower costs, streamline processes, and improve the company's agility and ability to respond to customers' faster than competitors. Next, the company plans to move to voice over Internet Protocol (VoIP). ElectroComplectService has calculated that the leasing costs for the T-1 lines it uses for its current data network are much higher than the cost to purchase, implement, and support its own converged IP network. Meanwhile, Rosbyttechnica, headquartered in Barnaul has 140 employees and sells domestically produced household appliances and hardware items ranging from screwdrivers to pots and knives. Rosbyttechnica's a converged network has integrated its branch offices, warehouses, and retail shops with its headquarters, enabled VoIP and unified communications, which saves money on local and long-distance calls. The company allows employees to access the network remotely using a virtual private network (VPN) connection. "Soon we'll add video over the Internet for meetings and training," says Konstantin Borodin, Rosbyttechnica's IT manager.
"There is no visible support from local government," says Pavel Alexandrovich Razuvaev, a product manager for NETA JSC, a Cisco Premier Certified Partner in Novosibirsk. NETA JSC uses Cisco discount programs to sell products to SMBs and provides Cisco training programs. Regional programs are scarce, but some national programs are available:
Business development support is especially difficult because SMBs have little access to bank financing. The average annual revenue for a Russian SMB was $1.2 million in 2005, according to AMI-Partners. Unless SMBs can get credit from a reseller, they often finance technology initiatives with their own cash, which inhibits strategic and long-term planning. Bright Spots for Business Ongoing regulatory reforms aimed at reducing bureaucracy (and therefore the costs and time required to establish and operate small businesses) will likely increase foreign and domestic investment, leading to increased technology investment and implementation. In particular, companies in food processing, power engineering, and defense are doing better financially and are investing in network technologies, according to Baranchugov. According to Step Logic's Ermolaev, mid-market companies are now requesting customer-relationship management (CRM) systems. "Not in huge quantities, but it is starting," he says. "They want call centers, VPNs, and IP telephony." The requirements for dramatic growth in technology implementations by Russian businesses are higher availability of, and lower prices for, broadband, he notes. Both are starting to happen, according to Anin K. Bose, manager of SMB market sizing for AMI-Partners. "Right now it's still expensive, and Russian SMBs are extremely price-sensitive," he says. "But broadband services are being privatized, more high-capacity backbone lines are being run, and as that happens, a lot of smaller ISPs will fill in the availability gaps." When broadband and capital become available, AMI-Partners research indicates that Russian SMBs will begin their network technology strategies with the basics:
Additionally, a Coleman Parkes Research study of Russian SMBs by found that 43% considered VoIP a "must-have" within the next three years. The SMBs most interested in implementing IP telephony stated the top benefits would be to reduce their phone bills and allow them to introduce future IP technologies easily and cost-effectively. As more Russian companies take advantage of technology tools, will the future be brighter? Analysts and the business leaders interviewed for this story say yes. Russian businesses, like the country itself, know a lot about overcoming adversity. About the AuthorBusiness Journalist G. Patrick Pawling, Founder of Pawling & Associates, writes frequently for iQ Magazine and has covered technology uptake among SMBs around the world. iQ Magazine, Second Quarter 2006 |
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Challenges Abound