Prospects for Import Substitution in the Russian IT Sector under Sanctions Pressure

Abstract

Since March 2022, the Russian information technology (IT) industry has been operating under unprecedented sanctions pressure, resulting in a profound transformation. The government and private sector entities must address the challenge of facilitating a rapid transition from products sourced from foreign vendors and foreign software to domestically developed alternatives. The objective of this study is twofold: first, to evaluate the potential for import substitution in specific sectors of the Russian IT market, based on an analysis of the progress made in the transition to domestic products and developments; and second, to identify strategies for overcoming the challenges associated with this transition.

The process of import substitution in the Russian IT sector is gaining pace driven by two key factors: the government’s stated objective of achieving technological sovereignty as well as private business’s development needs. However, the timing of the transition will vary significantly depending on the market segment in question. The highest rates of penetration of Russian products are observed in information security segment, reaching up to 80%. The lowest rates of penetration are observed in the segment of mobile operating systems, as well as in process management tools, reaching only 25–35%. In order to achieve the stated goals, it is necessary to maintain the state support measures and, in some segments, to expand them and develop new ones. This should be done with the consideration of the initial experience of market participants in import substitution. It is possible that the government may extend the timeframe for the complete transition to domestic products for the public sector and large state-owned companies, contingent on the progress in overcoming the existing barriers to import substitution. At the same time, the longer-term goals, set to achieve the required level of utilization of Russian IT products, will not be revised in a more conservative direction.