Russia’s Ministry of Telecommunications recently developed a draft decree limiting the procurement of foreign software. The ministry intends to establish a register of domestic software developers and oblige state agencies and state-owned companies to buy software only from those on the list.
If the registry is missing the necessary software or it does not fit some criteria, organizations will be able to purchase from foreign counterparts, but they will have to submit a written justification, reported Russian business daily Kommersant.
New commitments vs. import substitution
SAP’s latest lobbying efforts have illustrated the concerns of foreign suppliers over Russia’s plans for import substitution. Kommersant has learned that its Russian representative office offered the government an investment agreement, whereby SAP will be committed to investments in technology development in the country, thereby partially localizing production and creating new jobs.
Under this agreement, SAP intends to confirm in writing their willingness to undergo any additional checks that would prove the absence of undeclared software capabilities.
According to Kommersant, SAP is considering offering access to its software solutions through Russian IT-companies based on OEM agreements. In addition, SAP lobbyists aim to clarify the conditions under which foreign IT-companies could participate in public procurement contracts on an equal footing with domestic companies.
In 2013, according to an industry association cited by Kommersant, more than a quarter of SAP’s profit (5.1 billion rubles, or approximately $150 million at the average 2013 exchange rate) originated from public contracts. Only Microsoft received more in this segment (11.3 billion rubles, or approximately $350 million).
From international tensions to currency fluctuations
Foreign software providers are exposed to another threat. Telecom minister Nikolai Nikoforov announced last week that the decree may require providers cover the entire Russian territory, including Crimea, in order to be eligible to supply software to Russian state organizations.
Should the decree be confirmed, the main software providers for the state agencies of Russia, a group that includes the American firms Oracle and Microsoft, may combine to lose about 14.5 billion rubles (approximately $250 million at the current exchange rate) per year, reported Kommersant.
Experts warn that fully refraining from using these products is not possible, but if the outcome proves successful, it could be extended to companies in other industries, which, fearing sanctions, do not wish to operate in Crimea.
As a result of an executive order signed by President Barack Obama on December 19, 2014, American companies are banned from supplying goods, services, and technology to Crimea. As a consequence, such companies as Apple and Valve, Visa, MasterCard and PayPal have blacklisted Crimea.
The positions of foreign solutions publishers in Russia have also been hampered by the ruble’s fall. The ruble price for SAP software, for instance, has increased by 50% in one year, a market player told Kommersant. However, some functionalities of SAP solutions are not available in the offerings of Russian competitors like 1C.
