Human Resources and the Labor Market
In the United Nations Conference on Trade and Development’s Information Economy Report 2012, Russia’s software and IT services industry was said to account for about one-fifth of total employment in the ICT sector in the country while the software and IT services market — estimated at about $9 billion in 2011 — is considered relatively small compared to those of Brazil and China.
A look at the available labor pool and the expected growth in the number of programmers entering the workforce, as well as the quality of those workers, provides a picture of the overall health of the Russian software development industry, its competitive advantages and its ability to meet the demand for new projects. An estimate of the industry’s current capacity and prospects for long-term sustainability is arrived at by calculating the number of programmers currently in work industry-wide, and the number of recent IT graduates.
According to Russia’s Information and Computer Technologies Industry Association (APKIT) the overall number of IT specialists working in Russia is estimated at about 1 million. This number includes those specialists employed by IT companies as well as those working for IT divisions in other sectors. It is important to note that administrative and auxiliary staff (support services managers, financial specialists, sales staff) as well as those engaged in retail sales of software and hardware outside the IT companies are also included in this research. The last estimate that APKIT released on the number of specialists employed by the IT industry, as distinct from auxiliary staff, is 300,000 for 2012, which represents a modest growth compared to its previously available figures for 2009. The Russian Ministry of Education puts the number of engineers at 370,000.
The Russian Ministry of Communication, for its part, includes programmers, testers and system architects alongside system administrators and support technicians. Russia’s deputy head of the Ministry of Communications Mark Shmulevich said that “according to ministry data, the Russian IT industry currently employs 300,000 people and the volume of production of domestic IT products and services is 270 billion rubles ($7.58 billion) a year. By 2020, the number of people employed in the industry is expected to increase to 700,000 people and turnover could reach 620 billion rubles ($17.4 billion).”
Because there are no fixed professional definitions for the IT industry in Russia, it is virtually impossible to classify what constitutes a “true” IT specialist.
Research by the ANCHOR High Technologies recruiting agency finds that only about a quarter of Russian software developers are employed by software companies. Other developers work in various sectors of the economy (Internet companies, as system integrators, in banks, in the public sector and private enterprise). RUSSOFT figures for 2013 state that more than 400,000 software developers are believed to be in employment in Russia. This figure corresponds with data from Microsoft, which estimated that there were about 350,000 software developers in Russia in 2010.
|Source: ANCHOR High Technologies|
Because we are concerned mainly with outsourcing in Russia and the first group of IT workers — i.e. programmers, testers and system architects — we have attempted to eliminate systems administrators and other technical support staff. As a result, we have arrived at a figure of approximately 100,000 programmers working within the software industry nationwide with between 50,000 and 55,000 of whom develop custom software and software products for export (APKIT gives a more modest estimate of about 69,000). The remaining 30,000 to 45,000 service the Russian domestic market (APKIT gives a similar figure of 49,500). This estimate is based on an analysis of government statistics, which have then been cross-referenced with the findings of the 2013 RUSSOFT survey.
Unfortunately, the majority of state data on the number of IT engineers in Russia is at least two years old. There have been no considerable changes over the last year but up-to-date data is desirable for a better understanding of the situation on the labor market and in the sphere of IT training. Neither the Russian Federal Service of State Statistics, nor the various ministries involved in the sector have made relevant new information available despite the fact that such information is vital to make informed decisions when developing this sector of the economy.
Career.ru, a staffing research agency, estimates that an average of two people applied for each IT-related vacancy in the spring of 2012. This figure is extremely low and assumes that in some specialized areas there was no competition for a vacancy.
The ANCHOR report goes on to say that the number of software developers in Russia increased by 9 percent in 2012 (and by 11 percent in 2011) but their analysts considered IT staff in all companies and excluded staff located at Russian-owned offshore development centers.
As a result, an additional 9,500 to 11,500 engineers began working at Russian software companies in 2012. Recent university graduates accounted for 2,000 to 3,000 thousand employees. This data does not consider the staff at startups created during the last three years. The figure for startups is expected to be comparable to those seen at other companies considering the fact that the number of new startups increased several fold from 2010 to 2012.
Staffing Challenges and Opportunities
Data provided by Microsoft states that 19,000 programmers graduated from Russian higher educational institutions in 2008. APKIT states that at least 60,000 IT students graduate from Russian universities annually, one-third of which go on to work as software developers. The APKIT research suggests that about 75,000 new IT engineers are required annually to service market needs.
The availability of new programmers on the Russian labor market during the past decade was partly guaranteed by labor migration from neighboring countries (mainly from Belarus and Ukraine). However, the inflow of foreign engineering talent over the past three years has fallen slightly and may no longer have a significant influence on the Russian labor market.
In order to address this, Russia’s Commission on Legislative Activities approved a bill in March 2014 introduced by the Ministry of Communications that propose a 50 percent reduction in the minimum annual salary foreign professionals need to be paid in order to receive a Russian work visa from 2 million rubles ($54,808) to 1 million rubles ($27,404) a year.
Relatively favorable conditions now exist for the recruitment of a large number of foreign qualified personnel to Russia. Russia is currently seen as an attractive jobs market even by programmers from Western Europe, where big business is recruiting fewer engineers or reducing headcounts due to the prolonged effect of the economic recession. Salaries for programmers in Southern Europe are already lower than those paid in St. Petersburg and Moscow. It was often assumed that Western Europeans used to a certain level of comfort would not relocate to Russia. However, both Western and Eastern Europeans now hold top positions as managers and supervisors at Russian firms.
The Russian government has also begun to change the way that IT education is delivered in another attempt to address staffing needs at Russian companies. At the end of 2011, Vladimir Putin, then Prime Minister of Russia, approved a list of qualifications at higher educational institutions and a list of scientific areas that correspond to priorities for the modernization and technological development of the Russian economy. The list included about 100 different areas, approximately one third of which were connected to ICT. Since 2012, students and scientists who have chosen priority tracks will be eligible to apply for relatively large presidential and governmental grants.
In addition, the Ministry of Education approved a three-year retraining program for technical staff that is expected to retrain at least 15,000 people. This program will be implemented as a public and private partnership. The Ministry of Education is ready to finance up to 50 percent of employers’ expenses on the retraining of engineers. Up to $10 million is expected to be allocated annually for this purpose from the Ministry budget. This program provides professional training in Russia as well international work experience. Similar support measures are also expected to be taken on the regional level.
Unfortunately, the proposed program is intended for staff retraining based on existing university faculties and does not foresee the involvement of training centers that have been created by Russian companies or the training centers of foreign corporations located in Russia.
Experience shows that in terms of professional development and retraining, the efficiency of higher education institutions is lower than that of industry-owned training centers as the majority of university professors are not involved in specific development projects on a regular basis.
Considering this, it can be surmised that the existing education system is capable of only partially reducing the shortfall in IT engineer numbers and, in particular, software developers. It is especially true when taking Russia’s “demographic hole,” which will be observed until 2018, into account. In addition, any effect from changes in the education system will be seen only after 2 or 3 years, at best.
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Zelda Savage on IT Labor Market
It has long been known that Russian educational institutions produce high-caliber IT specialists, especially programmers, and the international labor market has taken full advantage of this. In the past, conditions and opportunities at home were not as appealing as those offered overseas, which inevitably led to the well-documented “brain drain.” However, the tide is now turning; while markets in the West slow and conditions in Russia continue to improve, both in terms of standard of living and appeal of opportunities, the brain drain is slowing and will hopefully soon become a “brain gain.”
As described in the article, the next few years are a critical time for the IT industry in Russia as high growth is expected but there will be labor shortages in key areas, particularly in software development. To counteract this, the government is targeting two key groups to increase supply. They are targeting homegrown talent by funding IT university programmers, and the foreign labor market by reducing the salary threshold for companies to employ foreign IT specialists to 1 million rubles.
In my opinion, both these measures are very timely and needed to keep this fledging sector on the path to growth. During my career in IT recruitment, the main challenge has always been to locate the right person for the job, as supply is low and competition very high. Once found, specialists whose skills are in high demand naturally expect excellent conditions to entice them to consider rival opportunities. This has led to a sector where salaries increase at a much higher rate than in other areas, and for clients who must budget for these ever increasing costs or risk losing the best talent. It is a constant challenge.
I particularly welcome the recent amendment to immigration law for the sector, as the procedure governing work permits has long been problematic. Until the highly qualified specialist (HQS) scheme was introduced in 2010, it was almost impossible to convince a foreign specialist to take up a position in Russia. Many had higher salary expectations than locals (which as mentioned, has naturally resolved itself as the local salaries have increased). The quota system and employer obligation to pay high social security rates for employees who were unlikely to ever see the benefits demanded considerable effort, time and cost. With the further development of the reduction in the salary thresholds to 1 million rubles for IT specialists in addition to the other advantages of the HQS scheme such as short processing time, 13 percent income tax from the start of employment and almost no obligation to pay into the social security fund, now foreign workers are viable and cost-effective for employers.
I understand that some Russians may feel concerned about this potential influx of IT professionals but looking at the predicted industry growth, we are still a long way from seeing an excess of candidates on the market (though I do hope to see more balance between supply and demand emerge). It should be remembered that qualities such as local knowledge, language and long-term commitment will always be valued by employers.
Overall, I think that the prognosis for the IT sector in Russia is extremely positive. Russia can now compete for global talent and is a choice destination for many skilled individuals. In addition, the excellence of homegrown professionals will attract more and more firms to the market.