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The geopolitical crisis has not led to a crisis in the Russian software development industry

The crisis has affected software developers, but it does not have just a negative impact

Source: RUSSOFT
Sep 22, 2015
Thanks to adding to our survey a question on the impact of external factors (such as the economic crisis in Russia, Western sanctions against Russia and retaliatory counter-sanctions, ruble devaluation against dollar and euro), it has been possible to determine how all these factors have affected the Russian software development industry.

It has emerged that the vast majority of the surveyed companies suffered insignificantly or with no impact at all from external factors. On the whole, the respondents describe this impact as a bit more negative than positive.

An important objective indicator confirming that there has been no serious impact of external negative factors is that the total proceeds of enterprises in 2014 have grown not only in rubles, but in dollar terms too. External factors have only led to a slight slowdown in the growth rate.

In the survey, the respondents were supposed to select an option of the impact of external factors from −3 (very negative impact) to +3 (very positive impact). And zero meant no impact at all. For all three specified external factors, the final average score was −0.3 (that is, between "no impact" and "negative, but insignificant impact", but closer to "no impact"). Taking into consideration the importance of large companies (their relevance for the industry), which have been affected more than companies with a small turnover, the average score for the industry will be closer to −1 (approximately −0.75).

It should be noted that such a negative assessment of the impact of external factors occurred in spite of the fact that the majority of the surveyed companies have been able to increase their turnover (even in dollar terms). It looks like the large companies had hoped for a bigger growth in 2014 (which is also evident from our last year's forecasts).

The impact of external factors on the surveyed companies

economic crisis in Russiawestern sanctions against Russia and counter-sanctionsruble devaluation against dollar and euro
−3 very negative6%6.6%9.1%
−2 negative19%9.1%18.2%
−1 negative, but insignificant impact31%21.5%13.2%
0 no impact23%52.1%22.3%
+1 positive, but insignificant impact11%5.8%14.9%
+2 positive8%2.5%11.6%
+3 very positive3%2.5%10.70%
total negative55.8%37.2%40.5%
total positive21.7%10.7%37.2%
no impact22.5%52.1%22.3%
average score−0.5−0.4−0.1


The total impact of all three factors is approximately the same for companies with different location and different business models (software vendors and custom software developers). Significant differences can be seen when the surveyed companies are differentiated by size and by the proportion of export proceeds. It has been established that companies with a turnover of more than $5 million were negatively affected by the sanctions and by the economic crisis to a greater extent than smaller companies. The impact of the devaluation was almost the same for all.

Average assessment of the impact of external factors based on the turnover of the surveyed companies

economic crisis in Russiawestern sanctions against Russia and counter-sanctionsruble devaluation against the dollar and the euroon all three factors
companies with turnover of more than $5 million−0.8−0.8−0.1−0.6
companies with turnover of less than $5 million−0.4−0.30.0−0.2


The proportion of exports proved to be particularly important when the respondents assessed the impact of the devaluation and the economic crisis in Russia (in part, these two factors are interrelated). 55.3% of companies whose exports provide at least 50% of their total proceeds benefited from the devaluation of the national currency. This is obvious because their spendings are in rubles, but their main revenues are in dollars and euros. 15.9% of these companies still felt a negative impact of the ruble devaluation, but none of them described it as very negative.

For 53.6% of companies that are to a larger extent oriented towards the Russian market, the devaluation was a factor that negatively impacted their business. However, it very negatively affected only 13.1% of such companies. At the same time, 21.4% of respondents who are to a larger extent oriented towards the internal market felt a positive impact of the ruble devaluation (7.3% very positive). It looks like their gains from the export have been (or are going to be in the near future) higher than losses that they suffered from the work in the internal market if they had any losses at all, since not all segments of the Russian software market have shrunk even in dollar terms.

Average assessment of the impact of external factors based on export proportion in the turnover of the surveyed companies

economic crisis in Russiawestern sanctions against Russia and counter-sanctionsruble devaluation against the dollar and the euroon all three factors
more than 50%−0.1−0.41.30.2
less than 50%−0.6−0.4−0.7−0.6


The business of software developing companies was least affected by sanctions and counter-sanctions. 52.1% of the surveyed companies were not affected by them at all. Another 27.3% felt the impact, but it was insignificant. However, 37.2% of the surveyed companies still felt some (significant or insignificant) impact of sanctions. They had a positive impact only on 10.7% of respondents.

Software companies suffered from the economic crisis most of all 56%. The devaluation did not have any impact on 22.3% of the surveyed companies, whilst the rest of them divided almost evenly in two groups those who felt its negative impact and those who felt its positive impact.

When answering the question about the impact of external factors, the respondents did not probably take into account their indirect effect. Thus, for example, they were positively affected by the significant decrease in the rental rates, the cost of telecommunications services and the average wages in dollar terms.

Comparing the impact of the crisis on the industry in 2014 to the impact of the global crisis in 2008, we can say that, by various parameters, the 2014 crisis has had a lesser negative impact on the industry. For example, the proportion of companies that suspended the recruitment of new staff was significantly higher in the previous economic shock.