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May 2007 Newsletters Archive
Welcome to the May issue of GidaSCOPE!
This issue will cover Russian satellite and IT communication sectors, will help you to find the best way around SvyazExpoComm 2007 and much more...
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Space Dogs, Russian CeBIT and SvyazExpoComm 2007
On the morning of August 20, 1960, two ordinary Russian dogs named Belka and Strelka, packed in a maze of wires, found themselves barking on their way to … outer space. Had these dogs ever dreamt of anything but a favorite bone? Not really. They were chosen. Now we have a line of nouveau riche who want to leave a trace in space. Flying shuttles has become mundane and trivial. Who needs the Oriental Express? We want to touch the red sands of Mars! And so it goes. Russian space and satellite companies see new opportunities and cash flow in developing future Martian tourism, yet the stable business lies on the Earth and it’s called VSAT. The satellite sector is slowly coming out of the nebula. Be it Russia, China, India or Brazil, more and more services are required for development of Internet in rural and remote areas, in provincial schools and business. Booming regional TV and radio broadcasting companies also need satellites more than ever. Read about dogs, satellites and the VSAT market in Russia further in my newsletter.
Anand or Kramnik? India or Russia? Who’s smarter? Who plays better IT outsourcing chess? Well, so far the opinions are quite divided. While India is leading the outsourcing world, taking billions into its coffers, Russia is learning the ropes of off-shoring. Flexing its growing IT muscles, this year Russia has become Germany’s CeBIT trade show partner country for the first time. And good news for promising high tech companies – more and more investments are coming your way!
Now let’s veer away from the mystique of the Orient to another direction. Don’t you agree that our generation looks like Medieval knights, cocooned in digital armor, and festooned with Black Berries, Palm Pilots, Smart Phones and Laptops, sending tons of e-mails and instant messages? We are always on and available. Yet the question remains -- are we efficient in our communications? Are we happy with our new business contacts? How do we go about it? Trade shows? Oh, no! They are dinosaurs! Who needs trade shows nowadays?
Well, the shows have not gone just yet. On the contrary, I believe that still there is nothing like a handshake and eye contact. One must feel and see whether you can trust your partner. And exhibitions are just perfect for this. For the Russian telecom sector, SvyazExpoComm remains the key expo of the year. Yes, there is InfoCom and other regional trade shows, but they have not yet reached the level of SvyazExpo aside from political support. So, if you are a newcomer to the Russian ICT sector, you certainly will gain a lot by visiting this trade show. With over 100,000 visitors annually and most Russian ICT system integrators and distributors present, you will have a good chance to “feel” the industry and find a partner. You can even ask GidaByte to help you!
The next issue of GidaScope will be available in July. Here are a few highlights of what you can expect:
Russian Mobile Content Sector Prepares Itself for 3G Therapy
Interview with Russian ICT market players
GidaBites: Words to the Wise
And much more!
So, if you haven't yet subscribed to GidaScope, do it here now: www.gidabyte.com/subscription
See You in the Next GidaSession!
Andrey N. Gidaspov
Editor-in-Chief
Table of Contents
1. “This is Ground Control to Major … Bow-Wow”: Updates on the Russian Satellite Industry
2. Doing Business in Russia Begins with a Partner: Words of Wisdom from an Industry Insider
3. Grand Russian IT Promenade: Outsourcing Cash Cows, CeBIT Lights, and Promising High Tech Start-ups
4. “Hot” Advice: Make sure you are at SvyazExpoComm-2007 – Best Way to Find Your Russian Partner in ICT!
“This is Ground Control to Major … Bow-Wow”: Updates on the Russian Satellite Industry
Sometime in the 1950s, the famous Italian monkey trainer Capellini showed his impressive skill at the famous Soviet Circus on Tsvetnoi Boulevard in Moscow. One day he was approached by some stern-looking men in grey suits. They pulled him aside and bombarded him with awkward questions, like -- how much time do you usually spend training a monkey to wear shiny shoes? Or how well can they handle injections? Can they carry human diseases? What happens when a monkey is alone for extended periods of time?
Soon after that meeting with Capellini, some interesting events began to occur in the Russian capital. Black autos with tinted windows would stop in the middle of the day or night in Moscow neighborhoods and teams of athletic guys would come out to hunt stray dogs. The odd thing was that these guys would catch only dogs that weighed less than 6 kg and were no taller than 35 cm. The barking fellows were put in mini-vans and driven to the “Dynamo” soccer stadium.**
What connected these two events? You’ve probably guessed by now. Soviet space scientists and bio-medical professionals (in the Institute located near “Dynamo”) were selecting the best crew for the first space odyssey. Apparently, monkeys were too sensitive and unprepared for long flights in inconvenient conditions, while stray dogs grilled by every day Moscow street life were just perfect for the harsh realities of the vacuum, noise and other unexpected disturbances of space travel. Paving the way for future cosmonauts, from 1951 to 1961 some 29 space shuttles filled with men’s best friends flew towards their own “Space Oddity.” Finally, on April 12, 1961, Yury Gagarin became the first man to challenge space, opening the doors for the Soviet/Russian satellite industry.
Little did he know that in just 40 years the Russian Space Agency would serve as a futuristic travel agency sending wealthy tourists into the first astral travels. Don’t you see it as science fiction coming true? When ecstatic Richard Branson comes out with his space odyssey plans, Stephen Hawking tests anti-gravity, Roman Abramovich is packing his stuff to meditate on the Moonlake and probably making plans for a new Chelsea soccer field at the Lunar crater Daedalus, there is a sense of new reality around us. The future is above us, gleaming through the shuttle window.
However, let’s leave space travel for some time and have a look at Mother Earth. In Russia there is still a great need for satellite communications pinging from some 25,000 locations that do not have telecom connections. The Russian satellite industry has become vital for a country of that sheerness. Connection to some remote areas in Siberia, the Far East and North is only possible by satellite.
In 2007 the key factor in the development of the satellite industry has become the National Educational Project that stipulates installation of about 12,000 VSAT-terminals to connect Russian schools to the Internet. Over 12,000 terminals are also required to provide universal services in Russian remote areas.
According to the Russian Space Communication Company (RSCC), the satellite market is growing further due to large national projects, an increase in TV and radio-broadcasting networks, especially in the regions, as well as a gradual decline in equipment costs. The only deficit in the market is the lack of orbit-frequency spectrum. Two major Russian satellite operators, RSCC and GazCom are set to launch new satellites in 2007-2010. Thus, to cover Central and Western regions RSCC will launch its Express-AM33 and Express-AM44 and Express-MD1 satellites in September and December 2007. Furthermore, adding satellite capacity for Eastern and Central Russia, RSCC will launch «Express-AM4» and «Express-ĚD2» in 2008. On top of that, to specifically cover radio broadcasting needs, RSCC plans to send three more satellites into orbit.
With 80% of the Russian satellite market share, RSCC affirms that TV represents a rapidly growing segment of the satellite service market: last year its share reached 35% among all RSCC services. Thus, RSCC satellites provide services to over 115 Russian and foreign TV and radio channels. Corporate clients and operators contribute some 30%, while the Internet accounts for 20%.
At the same time, foreign clients represent 48% of all RSCC service volume, while the saturation of transponder capacity only grows (in 2005-2006 it reached over 90%). Development of regional TV remains among the segments with the best prospects in the Russian satellite market. According to analysts, in 2006 some 15 regional satellite networks were installed. The trick is that satellite broadcasting is often the only available means to deliver quality regional programs to digital broadcast networks. Sixty regional satellite TV channels are broadcast in 49 Russian regions today, reports RSCC. RSCC is ready to invest some USD 2 billion in the next eight years.
RSCC’s major rival, GazCom, also plans to invest about USD 2 billion to develop its satellite fleet by 2015. As Vedomosti reported, GazCom is set to launch two more satellites “Yamal-300” in 2008, plus six more later. All in all, by 2015 GazCom will launch 15 satellites. While in 2000 GazCom broadcast only five channels, today it carries 80. In parallel, the demand for GazCom’s satellite capacity grows at 15-20% annually.
** NOTE: Information and pictures on the first Soviet dog space experiments are courtesy of Ansuz Aensland:
“I really want you to come back…” http://msaid.livejournal.com/81110.html
Russian VSAT Market Trends
Analysts estimate that the VSAT market in Russia will grow 50% to 70% in 2007, and the number of installed VSAT terminals should reach 20,000. Many existing Russian satellite operators have over 1,000 terminals within a single’s operator network. There is growing competition among equipment suppliers, where major market players, like ViaSat, HNS, and Gilat Network Systems are being threatened by new players, including iDirect Technologies, ND SatCom, Shiron Satellite Communications and EMS Technologies.
Among the core customers are corporate companies and operators, energy and oil companies, and retail chains. Yet their number is somewhat limited, while operators try to cater to their needs with ever lower pricing. Thus, the competition among satellite operators continues to grow. One major problem that adds to the competition is a lack of orbit frequency spectrum. Operators are awaiting availability of the Ku-spectrum that should be available in 2008 in both RSCC and GazCom.
The major regions where VSAT business is focusing on are the Urals, the Far East, Chukotka and Kamchatka. These remote areas with harsh terrain are in dire need of modern communication, and VSAT provides the perfect match for them. At the same time there is a trend towards further specialization of satellite operators: some work in a lower price niche, and others work mainly with corporate customers building VPNs and carrier networks. Yet, many operators are cultivating ties with the same corporate customers, cutting tariff rates.
Consolidation among operators is not yet significant, as the market is large enough for operators to co-exist. One interesting trend has been that large system integration companies are buying local satellite operators, investing into infrastructure and moving towards the VSAT business niche.
While the government makes steps to simplify VSAT registration procedures, operators indicate that this process has not been perfected yet. For example, there are contradicting regulations between two government agencies, the Russian Ministry of Communication and the Russian Consumer Control Agency, on obtaining sanitary and epidemiology certificates. Also, VSAT operators identified these procedures among the most expensive and labor intensive. Another problem is import of radio electronic equipment to Russia. There is a list of equipment recommended by the State Committee on Radio Frequencies (SCRF). Yet the Customs Committee does not take SCRF recommendation as a regulation, and requests permits for these imports.
(You can find contacts for major Russian satellite operators and integrators at: /catalogue/sat_rus/)
Doing Business in Russia Begins with a Partner: Words of Wisdom from an Industry Insider
Dr. Leonid Lazovsky, President of Universal Communications, gives the following tips on core principles for successful operation on the Russian ICT market:
1) Find a reliable Russian partner with a good track record
2) Don’t fall into excessive optimism: be realistic and pragmatic about Russia
3) Take care of brand positioning, spend some time and money on advertising
4) If you can provide financing and flexible credit terms, you increase your potential three-fold
What not to do:
1) Don’t think that you have come to “Eskimo Land”: the lion’s share of Russian telecom market professionals have advanced degrees and know-how
2) Don’t open your representative office and just observe the market for a year…rather be active and ready to act when you see a good opportunity
About Universal Communications:
UNIVERSAL Communications Corp. is the leading supplier of telecom, transmission and measurement equipment in Russia. The company also offers solutions for satellite, antenna and cable TV systems in Russia, CIS and Baltic states. The company supplies a wide range of high quality equipment, from simple TV antennas to high definition TV equipment, MMDS, LMDS and full spectrum of cable production.
UNIVERSAL Communications Corp was founded in 1994. Now it forms a holding group with its headquarters in Moscow. Some 1,000 professionals work in the head office. The company owns a large warehouse in Moscow. In addition the company has a large network of branches in Russian regions, including St. Petersburg, Nizhny Novgorod, Yekaterinburg and Voronezh. Its dealership network covers over 1,500 companies in 50 Russian cities and CIS countries. Most major TV broadcasting companies are clients of the corporation. Universal Communications is working with 430 cable network operators and 160 TV stations in Russia and CIS.
The corporation also represents products and technologies of over 50 major companies, vendors from 20 countries, including ECHOSTAR International Corporation, Gilbert (Cabelcon), Scientific Atlanta, Funke Antennen B.V., Promax Electronica S.A., Philips, California Amplifier, IKUSI, Radyne-Comstream, Nokia.
See Universal Communications Corp contacts at: http://www.gidabyte.com/catalogue/sat_rus/
(You will find much more extensive advice on finding a Russian partner in my book “Riding the Russian Technology Boom”, soon available on Amazon. For more information, please see: www.russia.futuretext.com).
Grand Russian IT Promenade: Outsourcing Cash Cows, CeBIT Lights, and Promising High Tech Start-ups
Are you interested in knowing who holds the keys to the future of IT? Me too! Consider this. According to the Moscow Times, in 2006 Google held its annual Global Code Jam, which brings programmers from all over the world to compete with the same problem online. And these tasks are not a joke, but rather made for die-hard programmers. What’s your guess about the winners? (True, I was a bit biased and thought that Russia would be among the top programmers.) And that’s exactly the case, a Russian programmer won the award. In fact, among the 100 finalists were 33 Russians. Other significant “youth powers” included twelve Chinese, seven Americans, six Germans and three Canadians. Surprisingly, not a single Indian made it there…
Given all that brain power, it’s no surprise that the results of IT market developments in Russia, most prominently outsourcing, are quite promising. According to Leonid Reiman, Russian Minister of Communications and IT, the growth of the Russian IT market overall grew to USD 13.6 billion in 2006, which represents a 17% growth y-o-y. 23 million PCs (33% growth) and 25.1 million users (15% growth) were recorded in Russia in 2006. Russia awaits a boost from digital TV, total Internetization of the school system and techno-park development, said the Minister. Techno-parks alone should bring production output worth USD 4 billion, while total revenues from IT sector should jump to USD 40 billion by 2010.
The true cash cow of the Russian IT sector has been its IT outsourcing (ITO) sector. RUSSOFT reported that Russian software exports grew by almost 54% and reached USD 1.5 billion in volume in 2006. During the past five years the Russian ITO services market grew 30-40%. Russia is just behind India and China in terms of best off-shoring locations in market volume. RUSSOFT singled out that over 50% of the market volume was generated by Moscow and St. Petersburg companies, with others located mainly in Novosibirsk, Nizhniy Novgorod and Yekaterinburg. NeoIT company estimated that this year the growth of outsourcing industry will reach 40-45%.
Intel Russia President Steve Chase recently was quoted by Reksoft IT Quarterly as saying that the outsourcing market “is going to reach a billion dollars this year. People know you have to be in Russia because it’s a very fast growing market." The US IT giant has invested $700 million in Russia in the last 15 years, while other companies like Boeing, Motorola, Google and HP added their R&D centers in Russia.
As the Moscow Times reported, Epam and Luxoft, the leading Russian outsourcing companies, employ about 5,000 people and their total revenues in 2006 reached USD 148 million, a 45% growth y-o-y. When compared to India’s 80% of global market share, Russia looks small with its tiny 3%, however the potential is strong, as it’s boosted by a growing number of IT graduates, strong education system and better infrastructure level.
All these major developments were conceptualized in the giant Russian presence at CeBIT, the annual IT trade show held in Hanover, Germany. This year Russia was the official CeBIT country partner. The Russian Pavilion showcased some 150 exhibitors including major Russian IT, IT consulting, outsourcing and information security companies. The Pavilion was supported by high ranking government officials, including Vice-Premier Naryshkin and Minister Reiman who proudly escorted German Chancellor Angela Merkel around the booths of participants. Minister Reiman was upbeat, announcing that Russian IT exports totalled USD 1.8 billion in 2006 and in the next three years would grow to USD 10 billion.
Of course, who’s without sin? There are a number of issues that inhibit faster development of the IT sector in Russia. Lack of marketing skills and global experience, high level of piracy and insufficient venture capital funding represent major obstacles. Let us look closer what is happening in the latter.
High Tech Investments Set to Grow
In Russia in 2006 some ten investment funds specialized in the high tech industry. Those IT companies that were favored by investment funds were mature and successful IT businesses, says CNews Analytics. Currently the situation has been changing, as more and more funds look seriously into smaller prospective companies.
In May 2006 the Russian Ministry of Economic Development and Trade announced the winners of its tender for management of five state and private venture funds that have been created in Russia. The state plans to co-invest in the funds managed by private companies. According to the tender terms, 25% of the venture fund capital will be federal funds, 25% regional, and 50% private capital. The winners of the tender are large Russian investment companies, including Alliance ROSNO Asset Management, Troika Dialog and Monomakh, reports CNews Analytics. These funds are aimed at increasing investments in innovation, lowering risks of private investors and creating venture capital in Russia.
Direct and Venture Investment Funds with significant investments in high tech companies
(Source: MEDT, 2006; CNews Analytics)
|
Fund |
Invested Companies |
|
Intel Capital |
Electro-Com, RU-NET Holdings, InfiNet Wireless, Akella, SWsoft, WiTel |
|
Baring Vostok Capital Partners I |
Golden Telecom, AirInSpace, Yandex, Ozon, InfiNet Wireless |
|
Mint Capital I |
Gameland, Pentacom, Parallel Graphics, INETX, ABBYY, 2B Studio |
| FINAM – Information Technologies |
Mamba, Begun, Novoteka, E-Generator, MoneyMail, Buka |
|
Russian Technologies |
Electro-Com, PTC Lasers, Ultra Motor, Wostec |
While interest in high tech companies is growing, many investment funds are somewhat cautious and start considering companies seriously only when a company’s turnover hits USD 5-10 million, and capitalization grows. Yet, local investors constitute a major share of those who invest in small and start-up IT companies.
Significant Investments in 2004-2006
(Source: CNews Analytics, 2006, www.cnews.ru)
|
Company, Sector |
Investor |
Approximate # of Investments, million, USD |
Year |
|
Eleksnet (payment systems) |
Mint Capital II |
10 |
2006 |
|
Electro-Com (telecom) |
Russian Technologies, Intel Capital |
4 |
2005 |
|
Reksoft (IT) |
Martinson Trigon Venture Partners |
2 |
2005 |
|
Buka (computer games) |
Norum, FINAM |
8-12 |
2005 |
|
Nival Interactive (computer games) |
Ener1 Group |
about 10 |
2005 |
|
Ŕkella (computer games) |
Quadriga Capital Russia, Intel Capital |
3-5 |
2005 |
|
A4Vision (biometrics, a start-up) |
MyQube, TAKO Ventures, Logitech, Menlo Ventures |
24 |
2004 |
|
Ultra Motor (innovative engines, a start-up) |
Russian Technologies, Flintstone Technologies (the UK) |
3 |
2004 |
|
KHIMRAR (chemistry and bio-tech, a start-up) |
Torry Pines Investment |
5 |
2004 |
“Hot” Advice: Make sure you are at SvyazExpoComm-2007 – Best Way to Find Your Russian Partner in ICT!
I just love trade shows. There is nothing better than that intoxicating atmosphere of an exciting carnival of new ideas packed in ubiquitous fliers and banners, sometimes ridiculous booth designs, models and mimes, loud announcements and never ending forums and conferences. In short, it is a street market of the industry, it is a Vanity Fair for techies, it is an instant success opportunity for the next generation of business thinkers.
Nowadays, living in Hong Kong where there are frequent ICT trade show events at the Hong Kong Convention Center, including the annual 3G World Conference, I often find myself amazed by how many top business contacts I get just in a range of three working days. No on-line alternatives can completely supplement the ability to personally meet with top managers of top operators, industry leaders, and hear their opinions on the most outstanding issues of the industry.
When COMDEX was at its height in the late 90s, it was an absolute giant and more often than not a disorganized chaos featuring an enormous amount of companies and technologies under the tempting Las Vegas skies. Many times when I was there, the atmosphere of the Venetian Hotel, and the luring lights of the Las Vegas Strip were enough for my delegation members to forget why they even came to the show. But yet, the event itself with all its opportunities delivered sufficient results for us to come again and again. COMDEX’s huge size was one reason for it being discontinued in 2004 – companies stopped coming due to many reasons, including a global decline of trade show interest, as well as organizational issues.
In Russia the institution of the “yarmarka”, an old fashioned trade fair that would feature an industry such as textiles or wood crafts, dates from the 16th century. Most were one day shows but many (about a third) lasted up to a week. By 1894 there were over 18,000 trade shows in Russia. On the global stage Russia took part in the Great Exhibition of 1851 in London, and the first Russian manufacturing exhibition was opened on May 15th of that year in St. Petersburg.
The SvyazExpoComm trade fair has taken place in Moscow for the past fifteen years, organized by the U.S. company E.J.Krause, and has been among the most popular modern day ICT trade shows in Russia. Yet the growing competition from another large trade show, InfoComm, which is supported by MITC, is gaining firmer ground with more companies adding their booths and boosting their presence at that event. InfoComm’s advantage is that it has a regional presence, while SvyazExpoComm holds two separate events in Moscow and St. Petersburg.
True, compared to the peak of ICT activity in Russia in 2000-2004, the trade shows are gradually losing their customers among large IT companies and telecom operators who more and more prefer to move to smaller corporate events. However, if you are a newcomer to Russia, there is simply nowhere else you could see a more clear picture of the industry. Take your interpreter, try to arrange some meetings in advance at the showground, and see for yourself the diversity of Russian IT business.
So, spend some time on the floor, talk to company representatives, take part in the industry media events, and don’t forget to make it for the regular ICT briefing by the US Commercial Service (open to US businesses). If you are lucky enough to get an invitation, don’t miss the US Ambassador’s reception (you can check with US Commercial Service in Moscow on this), or parallel events hosted by the Ambassadors of the U.K., Germany, Canada and others. Usually these events are attended by TOP Russian IT business representatives, as well as their Western partners. A good mix of people and potential!
Check the latest info from show organizers, E.J.Krause and ExpoCentr. You can find their contacts here: /events/.
I also advise you to get familiar with the trade show’s web-site: http://www.svyazexpo-online.ru/eng/.
And it’s not to late to approach GidaByte if you want to take part in the show or be represented there. Just send us an e-mail at: info@gidabyte.com.
General Advice on Taking Part in Trade Shows:
If you are looking to have a booth at the show, start your preparation well in advance. The sooner you contact the organizer, the better your chances that the best booth location and price await you!
Check with your Consulate’s Commerce Department whether the show is worth your time. If you can, visit it personally and see for yourself.
Check if you could be a part of a so-called Country Pavilion. This might save your budget and increase visibility. Always use the opportunity that your country Consulate provides in attending various seminars and receptions – networking is a part of being at the show.
When/if you are on the ground, don’t waste your time following the crowd. Figure out who/what your targets are, and focus on them.
If you are tight on budget, make your booth unique with a few strokes (lay a red carpet, offer a contest, be original).
Have your staff prepared for aggressive outreach.
While having a full schedule of meetings is great, make sure that you have time to go around for some fresh air to see what the Joneses are doing. They might just have a good idea you can use…
Read More About Trade Shows, Distribution Partners, Best Contacts in the Russian IT and telecom sectors, and much more in my upcoming book – “Riding the Russian Technology Boom” (www.russia.futuretext.com).
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