While the exit of foreign vendors following Russia's invasion of Ukraine two years ago dealt a hard blow to some local industries, other sectors have benefited from the situation. One example is Russia's data management and storage industry, which is projected to triple by 2027.

Local vendors have been quick to step in to replace foreign solution providers, many of whom decided to leave Russia after the invasion, as Western sanctions against the country made their Russian operations difficult or impossible. However, the demand for handling the ever-growing flow of data accumulated by Russian customers didn't go away. Moreover, as businesses are moving towards a greater degree of digitalisation, the amount of data they need to store, enrich and analyse is growing exponentially.

 

Window of opportunity

The situation whereby foreign companies are prevented from operating in Russia due to sanctions, while the Russian government, in turn, insists on replacing foreign IT solutions with local equivalents, has created new opportunities for local firms.

As a result, the Russian market of data storage and processing has not only stabilised but also presents substantial opportunities for growth.

According to a report prepared by Russia's Centre for Strategic Research (CSR), 2022 was a bad year for the country's data management and processing segment, which saw a decline due to the departure of Western vendors. It shrank by 22% year on year, from RUB72bn ($785mn) to RUB56bn ($611mn). Simultaneously, its structure changed dramatically.

While in 2021 software supplied by Russian developers was responsible for just over one-third of the total market, by the end of 2022 local vendors' share had grown to 66%. For the first time ever, solutions supplied by domestic vendors began to dominate sales in Russia.

Experts say that Russia's market of management and data processing systems began to form long before 2022, enabling local software developers to gain sufficient expertise.

"There are analogues of foreign solutions in almost all segments," Mikhail Roshchin, deputy director of the project management and architecture department at major software firm IBS, was quoted as saying by Russian business daily Kommersant.

"Certainly, there are also areas for development, for example, hardware and software complexes such as Teradata or Exadata, in which the database works in close connection with the operating system and hardware," he went on to say. "But such developments are already underway in Russia, and we will probably see ready-made solutions in the near future."

 

Government incentives

In recent years, the role of the government in Russia's economy has been on the rise, and the IT segment is not an exception. Now, the government's initiatives and regulatory measures are likely to have a positive impact on the development of the database management segment.

One factor that is expected to boost demand for data management services in the coming years is the national project Data Economy. Under that project, initiatives aimed at more efficient use of data available to the state and private companies are to be supported, as well as development of local software for data management.

Another factor that is likely to play a role is a presidential decree issued last year, which envisages a ban on the use of foreign software in critical information infrastructure starting from 2026. Under that regulation, the largest consumers of database management systems, including banks, will have to ensure seamless migration from foreign solutions to locally developed software in cooperating with the largest Russian vendors.

"The register of Russian software has enough DBMS class products," Maxim Pustovoy, CEO of Arenadata Group, told Kommersant. "Of course, the issue of their maturity is heterogeneous. But there are already solutions capable of directly replacing Western products."

Incidentally, a number of large Russian banks have already migrated to data management solutions provided by local vendors, including VTB, Rosbank and OTP Bank.

Meanwhile, in addition to state-run firms and critical-infrastructure entities, which are subject to import substitution requirements, private companies are also switching to locally developed data management solutions, claiming that allows them to optimise the processes of working with data.

One example is major office and school supply company Komus, which migrated its corporate data warehouse to the VK Cloud platform last year. The company said the decision to switch was made in order to reduce costs, get up-to-date analytics tools and reduce time required for making important business decisions.

 

Overcoming scepticism

However, the process of switching to Russia-developed data management solutions is not always easy. Alongside large companies that have already completely replaced Western solutions with Russian products, there are also those which are only at the beginning of that process.

Sometimes the implementation of a solution requires significant changes to a company's entire IT infrastructure, which will require additional investments and employees who understand new technologies, plus local software developers still need to build a reputation as suppliers of reliable products.

"There is still distrust in the market in domestic vendors and software products," Arenadata Group's Pustovoy said. "But this is a misconception largely based on the past. Over the last five to seven years, many Russian developers have made a qualitative leap in terms of maturity of their products and are capable of directly replacing Western solutions."

Today, demand from private companies for domestic solutions in the field of data management and processing is just forming. The process of more active migration is expected to begin between 2024 and 2026, as the existing solutions gradually become obsolete, resulting in growing security risks.

 

Rosy projections

Since an urgent need to replace products supplied by Western vendors arose two years ago, Russia's data management segment has been developing at an accelerated pace. Local software firms are trying to satisfy customers' requirements for security, scalability and availability of applicable certificates.

According to the CSR forecast, Russia's data management and processing segment is likely to return to the growth trend this year, while by 2027, it is projected to reach RUB170bn ($1.9bn), a threefold growth relative to 2022.

Incidentally, the growth drivers, in addition to government import substitution programmes, are likely to be market factors. Due to expected growth in such areas as artificial intelligence technologies, the Internet of Things (IoT) and cloud computing, the volume of data that needs to be stored and processed, is likely to grow exponentially. As a result, demand for data management and storage solutions is also likely to grow. The more data is generated, the larger the market for data management and processing systems is going to be.

The future will tell whether Russian providers of data management solutions will be able to cope with this growing demand, and also meet requirements for scalability and reliability.