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31 January 2020
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What will the year 2019 be best remembered for in the IT industry?

In July 2017, Russia adopted the Russian Digital Economy Programme with an expected annual budget of $1.8 billion for the period until 2025. The programme is quite comprehensive. It focuses on both analogue and digital foundations of digital transformation as well as on the solution of legal, technical, organisational and financial issues. The year 2019 was significant in that we most often heard the following words from various sources: a digital and platform economy. Many manufactures do not quite understand the objectives, purpose and especially the types of platforms and their role in general digitalisation.

I will try to be brief:

Multi-sided platforms (MSPs) allow members of each party to interact with tools that facilitate matching, sharing and conducting transactions. The platforms, in turn, can be either internal to production processes and supply chains (allowing coordination of various suppliers) or multi-sided industry platforms where ’the platform leader combines external capabilities from participants’.

In respect of Russian strategic objectives, digital industry platforms should strive to unite various players in a particular industry into clusters or industry sectors. This is exactly one of the conditions facilitating and accelerating the digitalisation of the Russian industry as well as the promotion of R&D, innovation and technology transfer within a specific industry or company. The platform economy and digitalisation is a new trend that will keep shaping the future of the new ICT of the Russian Federation in the coming years.

Digital Ecosystems — Case Study of Digital Industry in Russia

Gartner defines a digital ecosystem as an interdependent group of actors (businesses, people and things) sharing standardised digital platforms to achieve mutually beneficial goals.

At the end of 2019, the industry is still playing a pivotal role in the Russian economy, providing over 38% of GDP and employing more than a third of the total workforce. The manufacturing industry account for 65%, the mining sector takes 27%, and the production/distribution of electricity, gas and water amounts to 8%.

While the overall level of digitalisation in the Russian industry is lower as compared to that on the world scale, Russian industrial leaders, such as Gazprom, KAMAZ, UAC, have already been outlined as they show good results, focusing on digital transformation. Moreover, they treat this as the strategic priority of their digital development rate.

GAZPROM estimates the potential of the digital industry platform market in Russia at $2.27 billion. In the near future, a transformation of the Russian industry will occur where digital platforms will be a key asset that ensures the efficiency and flexibility of production processes and seeks to achieve full integration of production and logistics on a network basis as well as B2B and B2C sales through the use of Industrial Internet of Things (IIoT), AI, data analytics, cloud resources and workforce with digital capabilities.

KAMAZ has launched a digitalisation programme, which includes the implementation of a corporate digital platform and the transition to digital design engineering: digital production, digital supply chains, digital sales and services, digital management, digital technology and information management as well as taking advantage of digital twins and data analytics.

The United Aircraft Corporation (UAC) is a good example of a corporation committed to implementing an integrated digital transformation strategy based on the ecosystem approach, which aims to complete a transition to a new business paradigm and transform ’traditional corporate thinking’. It is based on a platform concept for predicting and managing new incoming technology, which allows the corporation to be on top of constant innovation and on a hunt for new products and solutions.

UAC was one of the first to create a network of 13 higher education institutions with special UAC departments engaged in research and testing of new technology and solutions in relation to production activities. The result of these researches should be not just a new product, like aircraft, but an entire ecosystem. This will allow the corporation to extract and manage the data used for the continuous improvement of the production process.

The Russian Academy of Sciences has created a corporate platform sandbox to test the potential of new technology application in a risk-free environment. The goal is not only to maintain competitive advantages in the local aircraft industry but also to become a leading provider of data transfer technology and services that allow building factories of the future for the entire Russian economy as well as competing in the global market with companies such as Google, Tesla and Space X.

GAZPROM has launched EvOil, an open digital platform that connects all partners in supply, production and logistics to offer continuous production management and expand its share in the domestic and global markets. It initiated the launch of this platform in the context of piloting a digital plant at a bitumen plant in Kazakhstan.

The Russian group of companies CompMechLab has developed a unique CML-Bench digital platform to develop digital twins. It is an interdisciplinary platform that enables the virtual development and testing of competitive products worldwide. The platform is already applied in the automotive, aerospace, helicopter and motor industries, in shipbuilding, mechanical engineering and other sectors. It allows engineers, suppliers and customers to work in a collaboration environment distributed among different companies, countries and time zones.

I shall also mention Saint Petersburg where the Sredne-Nevskiy Shipbuilding Plant plans to create and launch a digital shipyard over the next three years. This will let the company boost its productivity and reduce time required for developing new products using advanced construction technologies such as laser cutting and welding. The machines will be linked together by an information management system to ensure accuracy and efficiency throughout the entire production cycle. The purpose of the digital shipyard is to double the plant’s production capacity, increase exports and production output and reduce production and maintenance time and costs. The project is planned to be completed by the end of 2020.

By 2021, the entire energy system of Kaliningrad and the region will be controlled by the Olimp automated operational process control system. The Digital Power Distribution Zone project has already been implemented in two districts of Kaliningrad Region resulting in a fivefold decrease in the average time spent on the accident damage control and a twofold decrease in power losses. AI elements determined to respond to emergencies in the event of a power outage. An automatic alarm system starts the line within 27 seconds. When the old manual system was used, workers spent about three hours per malfunction. As a result, operational costs reduced by more than 24%. This system is expected to operate across the entire Kaliningrad grid by 2020.

NPO StarLine LLC based in Saint Petersburg produces automotive electronic security systems of its own design on almost wholly robotic assembly lines. Its robotics index is 1.5 times higher than that of similar manufacturing companies in South Korea and two times higher than the level of the world leaders such as Germany, Japan and Singapore.

The Main Risks of Digital Transformation in the Russian Federation

To accelerate the digital transformation, the most advanced companies introduce new senior management positions, which include along with a CIO: a digital innovation leader, digital specialists and a top analyst of the company.

Unfortunately, this best practice is not applied consistently in the manufacturing sector where about 65% of industry players rely on legacy systems. Nevertheless, there are cases of patchwork end-to-end automation and partial digitalisation, the potential of which has yet to be reached.

Many Russian industries has not begun to introduce new technologies such as IoT and cloud computing. In 2019, for example, the number of industrial robots per worker in the manufacturing industry in Russia was 20 times less than in China. One of the significant reasons for that is the lack of a digital culture in the Russian industry, which makes companies unattractive to relevant specialists.

With no digital talent acquisition/development, companies do not get an opportunity to develop the necessary digital tools, products and services. This had a breaking effect on the competitive position of the Russian industry both in 2018 and in 2019.

Analysis and Opportunities: Russian Digital ICT Market

Based on expert estimates, the total population of the Russian Federation will reach 148 million people by 2025. Internet users and the internet economy of Russia (in total ICT spending) will reach $208.8 billion and will make up 6.0% of the country’s GDP. By 2025, every Russian will have three connected devices, while 79.0% of the total number of mobile connections will be made via smartphones. Russia will have the highest internet penetration rate among CIS and BRICS countries, with 500 million connected devices. By 2025, 90.0% of all mobile connections will be broadband.

Other important data for the ICT market is that retail sales in Russia will reach $29.2 million in 2025, which will be 4.0% of total sales.

ICT companies will generate work and services for over $10 billion a year. The government and state will become major customers, and orders for IT solutions will exceed $5 billion a year. As an incentive for ICT companies in Russia, the social tax for them is set at 14% (vs 30% for other businesses). 30 science and technology parks have already been established in Russia, including eight IT parks.

IT Software

A strong acceleration is predicted in the market with an expected CAGR (compound annual growth rate) of 7.6%; therefore, the software market is anticipated to reach $7.7 billion by the end of 2020.

IT Service Industry

The IT Service Industry is estimated as a combination of business process outsourcing (BPO) services, software for the service market and the infrastructure service market. With the current increase in industry productivity with a real CAGR (compound annual growth rate) of 3.7% for the five-year period of 2016–2021, the industry value will increase up to $4.6 billion at the end of 2021.

Cyber Security

The CS market has the strongest growth trend where the current market is $1,399 billion per year. In 2019, 41% of the Russian CS market was occupied by domestic solutions. Western solutions are under strong pressure, so, most likely, they will occupy a very small market share in the nearest time.

First of all, we will see the CS transformation in the banking sector over the next couple of years, especially as part of the strategy of the transition from SMS banking to mobile banking. According to forecasts, the mobile banking segment will reach $3.8 billion in 2025—this will be 39.0% of the total turnover of mobile payments.


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