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San Jose Mercury News
February 21, 2003
Next telecom frontier could be on Russia's horizon, minister says
Hundreds Attend Tech Roundtable
By Aaron Davis
Mercury News

Before several hundred business executives in San Mateo, Commerce Secretary Donald Evans and a key minister for Russian President Vladimir Putin on Thursday said Russia could be the next big thing for telecom and information technology markets.

With three straight years of substantial economic growth, a sharp increase in consumer spending, and a technology market that's averaging more than 20 percent annual growth, Russia is proving it can be a high-tech nation, they said.

''It's a no-brainer, it's a growth market. VCs should get on the plane,'' said Mark Sanor, a partner at Ernst & Young, who has spent the past seven years studying Russia's fledgling tech market. ''The Russians are coming,'' he said, ''but in a good way.''

Thursday's meeting was the second gathering of the U.S.-Russia Information and Communication Technology Roundtable, born of a summit between President Bush and Putin nearly two years ago. The first roundtable, held last year in Moscow, focused on better cooperation between U.S. and Russian businesses.

Despite a sky-high software piracy rate and Russian laws that can complicate Western business, it was hard to find anyone who didn't expect growth in Russia.

John Chambers, chief executive at Cisco Systems, likened the potential in Russia to that of China in the late 1980s and early 1990s.

''We're taking a risk in Russia,'' said Chambers, who just returned from the country.

Cisco is expanding its operation there, Chambers said, largely because the Russian government is fostering the right kind of business environment.

''I see a government at the top that really, really gets it,'' he said.

Leonid Reiman, minister of communications and informatization for the Russian Federation, said he was proud and not really surprised by the country's technology growth of the past two years.

Estimates vary from 17 percent to 30 percent for Russia's tech growth last year -- a year when the worldwide technology market stalled. Reiman, speaking through an interpreter, called that contrast the ''Russian Phenomenon,'' saying his country has outpaced the rest of Europe in high-tech growth by a ratio of 2-to-1 since 2000.

He said the Russian government plans to increase Internet access to the public; drastically expand an initiative to move government operations online; continue rewriting the country's regulatory framework to help promote business and curb piracy; increase high-tech training and education and attempt to link rural regions outside Moscow to the Internet.

About 20 million, or 14 percent, of Russians have mobile phones and PDAs, and more than half were purchased by consumers last year, according to estimates from Ernst & Young. About 12 million, or 8 percent of Russians have personal computers. Russia's population is about 150 million.

Hundreds of U.S. companies appear to be trying to gain a foothold in Russia.

Companies that go to Russia to capitalize on lower wages for programmers find that Russian workers are different. They find innovative solutions to problems that are unique to anywhere else in the developed world, U.S. executives said.

''It's fascinating, really,'' Sanor said. ''You have a difficult problem, throw it at the Russians, they get it done.''

It may be the way the former Soviet Union had to be self-sustaining for so many years, said Alex Freedland of Mirantis, a sponsor of the roundtable.

Some at the conference compared it to the different ways the United States and Russia have gone about creating the technology for space exploration. While the United States relies on a fleet of highly sophisticated shuttles, each with about 2.5 million moving parts, the Russian Aerospace Agency uses ''dummy rockets,'' nicknamed for their simplistic, un-reusable style.

''They have been self-sufficient for so many years and now, in the world market, they are free to respond to what the world needs,'' said Freedland. ''The challenge for Russians is how to market these solutions. Russia has passed the first phase, they have proven technology. The question now is a matter of scale.''

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