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50th Anniversary of Manned Space Flight

BUSINESS REPORT in association with rossiyskaya gazeta, russia

...Marching towards a common future


Innovation The new card will blend a state electronic ID, driver's licence and replace all social cards; project to cost around $6bn DPA/VOSTOCK-PHOTO

Kremlin to roll out magic card that does it all

lion rubles, which puts the cost of one card at 265 rubles ($9), Nabiullina said. She promised that all investments would be matched by savings, as the new e-card will replace the Russian version of social security cards. Banks, however, are sceptical. German Gref, chief executive of state-run Sber-

President Dmitry Medvedev is examining a universal identitypayment card at a meeting of the Economic Modernization Commission last week in Moscow.

Space 500-day simulated mission to Red Planet raises hopes

That Gagarin moment: Mars dream gets real

It may take two decades for a manned mission to Mars, but we are getting there. DMITRY RODIONOV RIBR

The human race has finally set foot on the Red Planet. Kind of. In a unique 520-day experiment to simulate a mission to Mars, a six-man international team of researchers completed the first leg of the journey this month. Broadcast live on a giant screen at the real space mission control centre outside Moscow, two crewmen, Russian Alexander Smoleevsky and Italian Diego Urbina, emerged in space suits after eight months of isolation to stage a“landing”. “Today, as I see this Red

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Planet surface, I can already feel how inspiring it will be to do it through the eyes of the first human to step on Mars. I salute the explorers of tomorrow,” Urbina said in a radio link-up with officials, cosmonauts and media at the control centre. Smoleevsky also dedicated the sortie to the first human space flight made 50 years ago this April 12 byYuri Gagarin. Remotely assisted by Chinese colleague Wang Yue, they performed atmospheric, soil and other tests that Mars explorers will one day carry out. They then planted the flags of Russia, China and the EU. The team of male volunteers, which also includes two more Russians and a Frenchman, went into isola-

Russian Alexander Smoleevsky and Italian Diego Urbina stretch their legs on a fake Martian landscape after eight months in cramped conditions


Video at

tion last June as a part of the Mars-500 experiment to gauge the physical and psychological effects of a longterm mission. Before they rejoin life on Earth, their handlers will subject them to the claustrophobia, stress and fatigue that real spacefarers experience. The experiment is being conducted by the Moscowbased Institute for Medical and Biological Problems, in collaboration with the European Space Agency and China’s astronaut training centre. Their simulated craft comprises several interconnecting modules, including a greenhouse where fresh produce is grown, and with living quarters just around 20 yards long and less than four yards wide. There is a built-in Martian surface model for three planned space walks. During the simulated flight, the team has an internet link to Earth, but this is deliberately prone to the breakdowns anticipated during a trip to Mars. Depending on its orbit, Mars is located 35 million to 250 million miles from Earth. While the main condition of space travel – weightlessness – is missing, the crew sleep in bunks at a 12-degree angle to create a feeling of unfamiliarity. “Each crew member has the right to end the experiment and walk out,” said Boris Morukov, director of the mission. A similar trial at the institute 11 years ago broke down when a Canadian volunteer said a male colleague tried to forcibly kiss her. Two other team members came to blows.But there is plenty of time to get the crew dynamic right: experts do not expect a manned Mars mission until the mid2030s.


the project taking off, he said. "[We] will not wait till we create our own chip, otherwise it will never be made,” he said. While Medvedev promised that the new card "will improve the lives of tens of millions of people" by cutting the red tape and allowing Russians to do everything from paying their gas bills to making a doctor's appointment online, experts see ample potential for the card to turn from a magic wand into a weapon that can be

used against its owner through identity theft. Cases of fraud involving plastic debit and credit cards in Russia run as high as 1% to 1.5% of all cards, and not all of them are reported. The privacy debate should strike a chord in India, which is also in the process of introducing unique identity cards. Nandan Nilekani, an IT entrepreneur who heads the project, has assured that personal data will not be accessible to everybody, as the government gears up to roll

out 600 million cards by 2014. Medvedev has encouraged the government to think about ways to regulate tariffs on transactions for commercial/ state services, which are controlled by banks. Also, Medvedev has called for “fair and objective”discussion of the design of the new e-card and proposed that people make suggestions on the Internet. "I hope that it will seem fairer than the discussion of mascots for our (Sochi) Olympics," he said.

Race Emerging market stocks are getting expensive

Developed markets back in equity race money flooded into these markets that central banks in some, like Brazil and Turkey, have been forced to put up administrative barriers and capital controls to keep the unwanted liquidity out. The result sourced in part from the US decision to release another $600 billion of quantitative easing (QE2) in November, has sent inflation soaring around the world, a

Who will win 2011 equity sweepstakes? Time will tell. But for the first time in a decade, developed markets' stocks have outperformed those of emerging markets. BEN ARIS BUSINESS NEW EUROPE

And... they are off. Developed market (DM) and global emerging market (GEM) stocks are out of the blocks in the race for best returns in 2011. After an easy win in 2010, when the GEMs trouched the DMs, most of the big names in the sport - China, Brazil and India - have tripped, coming out of the blocks at the start of this year. GEMs took in over $100 billion in 2010 of fresh money, but some $13 billion flooded out again in the first month of this year on the back of rising fears that spiking inflation will derail the GEM story. For the first time in a decade, DMs have outperformed the GEMs: the MSCI World Index, has rallied 6.2% while the MSCI Emerging Market's index was up by only 2.8%. Pundits have been pointing to the better than expected economic performance of the DMs and there has been a flight to "quality", but what is really happening is a correction of overshoots. Since the DMs are so obviously screwed by their horrible debt and deficit positions, while most GEMs are back to double-digit growth, the emerging markets have become hot and so much hot

Of all the emerging markets, Russia has done the best, as it continues to take in the new money. problem made worse by the return of the food price crisis from 2008, which was temporarily suspended by the financial crisis that started that autumn. Investors have begun to sell GEM stocks, as they are clearly getting expensive. However, they are starting to buy DM assets, as

they have clearly gotten too cheap after being ignored for nearly two years. HSBC released a note on February 18 saying that DMs won't beat GEMs this year, "because the valuation of the MSCI Emerging Markets Index has become too attractive to pass up". Said HSBC's Hong Kongbased equity strategist Garry Evans, "We remain comfortable that GEM will outperform DM during 2011. Though GEM might continue to underperform for a little longer, it is highly unlikely to do so for the year as a whole. We fail to find a reason why the long-term structural outperformance of the EM universe should not continue." Of all the GEMs, Russia has done best, mainly, as it missed out on the rally in 2010: Russia alone took in new money - and was continuing to take in new money in the first two weeks of February, as its stocks caught up with the other GEMs.


Medvedev has promised the new card will improve lives of millions by cutting red tape.

CHETRA to manufacture tractors in India

The Russian engineering and industrial group Tractor Plants Concern plans to establish an assembly facility for its CHETRA branded industrial machinery in India. The new plant should reach its output target of 200 units annually by 2015.The company presented its best models of CHETRA bulldozers and pipe layers at the Mumbai exhibition last month. It has incorporated a specialised subsidiary, Chetra Machinery India Pvt. Ltd. (CMI), to serve as a channel for supplying innovative products to India. Another JV KAMAZ Vectra Motors Ltd is planning to introduce five new truck models to the Indian market. ITAR TASS

Building plant for ceramic nanomaterials Novosibirsk Electrovacuum Plant–Soyuz Holding Company (NEVZ-Soyuz) and India’s Carborundum Universal Limited (CUMI) plan to construct a large plant for manufacturing nanostructured ceramics for medicine, the military, industry and other applications on an industrial scale in the Novosibirsk region. CUMI is considering the opportunity to establish a joint venture with NEVZ-Soyuz as a co-investor for the development of ceramics production facilities. In 2007, CUMI purchased a Russian enterprise,Volzhsky Abrasive Works, the agency’s source said. At present, CUMI is reviewing NEVZSoyuz investment projects, which were developed under a joint project with the Russian state corporation, Rusnano. Investors are also investigating the marketing aspects of this collaboration and studying market capacities and possible action at promoting products jointly. RIA NOVOSTI

Leopard, Polar Bear, Bunny Sochi mascots



Imagine a piece of plastic that gets you a doctor's appointment, pays your bills, allows you to rent a car or buy a plane ticket and even get Moscow registration faster than the sham ads in the Moscow metro. President Dmitry Medvedev promised last week that three years from now all Russians will have this magic multi-purpose card. He set May deadline to the government to work out the funds required to introduce the universal electronic card, or UEC, for all citizens and urged banks to not to take advantage of card users at the meeting of the commission on modernisation and technological development of the economy. The UEC, which will be a kind of Swiss army knife of plastic cards and serves as a combination of a state elec-

bank, one of the three banks that will help finance the card's development said banks have so far been reluctant to provide funds for the project because it's "of little interest" commercially, Bloomberg reported. Another danger of introducing such a card is the potential for identity fraud, which often plagues countries that have introduced systems of electronic identification and rely heavily on cards similar to the UEC, experts say. This is especially the case in Western countries, said Timur Aitov, executive director at the Association of Russian Banks. Medvedev confessed that the government has not found a good answer to the question of protecting its citizens' data and he admitted that personal information often circulates on the Internet. But "on its own, the protection of such information should not be an obstacle to making the decision to issue cards," he said. The fact that the card will use a foreign chip should also not stand in the way of

A snowboarding leopard, backed by PM Vladimir Putin, has been selected as one of three official mascots for the 2014 Sochi Olympics.The leopard was chosen together with polar bear and a white bunny at the conclusion of a much-touted telephone and online vote of more than 1 million people, organisers said.The three swept more than 60% of the total vote, which started on February 7.The most popular mascot, with 28% of the vote, was the leopard, which Putin called a "mighty, fast and beautiful" animal in a meeting with students in Sochi just hours ahead of the announcement.The bear mascot was the favourite of President Dmitry Medvedev, Ekho Moskvy radio reported, citing Federation Council Speaker Sergei Mironov. The last name "Medvedev" stems from the word "bear." RIBR



tronic ID, driver's licence, car insurance and migration cards among other possible perks, should be available to Russians by 2014, according to the federal law. The five-year project to create the new e-card could cost the government as much 150 billion rubles ($5.2 billion) to 170 billion rubles ($5.9 billion), Economic Development Minister Elvira Nabiullina told reporters at the modernisation commission meeting. The cost of card issuance alone will be 40 bil-

Moscow to help build Chennai metro stations Gammon India Ltd. , along with Mosmetrostroy metro building company, has won two tenders for the construction of metro stations and tunnels in Chennai. The contract will cost around Rs 19.5 billion ($430 million). The project envisages building about 18 kilometres of underground tunnels and 19 stations.The construction process was divided into five lots, each of which was the subject of a separate competition. Gammon and Mosmetrostroy won two of the five competitions. The companies will construct seven underground stations and 6.4 kilometres of tunnel. RIBR


Russia is set to launch a multi-purpose universal identity card by 2014. The master card has, however, sparked anxieties about its potential misuse for fraud.


Every last Wednesday from March

.in www.indrus



New Horizons Rusnano signs pact with SUN group to develop promising sectors like nano materials and bio-tech


Dreaming big with nano-tech

BRIC and South Africa: prospects of integration

Indo-Russian high-tech collaboration has entered the nano phase with a deal between Rusnano and SUN group. The sky is the limit!

$30bn industry by 2015




In a major foray into India’s promising high-tech market, Russia’s state-backed nanotechnology corporation is mulling a joint venture for the production of solar batteries. The idea emanated when Rusnano CEO Anatoly Chubais flew from snowsodden Moscow to India early February to iron out the details for“nano-collaboration”with India.What he saw impressed him.“I hadn’t expected the nano-industry in India to be so well developed. And I’m not just talking about scientific research. I’m talking about the development of nano-industry related business in India.” “In all the areas we discussed, we met potential partners with experience working in vigorously developing business,”said an excited Chubais. Chubais, one of the heavyweights of the Russian market reforms of the 1990s, was appointed to head Rusnano a year after it was set up in 2007. Chubais signed a collaboration agreement with SUN Group, a private, Indian family-owned investment group active in Russia. The two companies will study the most promising sectors for business development in nano-technology. They will also be looking at expanding Indo-Russian collaboration

Rusnano CEO Anatoly Chubais (extreme right) with SUN group's vice chairman Shiv Khemka (second from left) and BrahMos Aerospace JV CEO Sivathanu Pillai (extreme left) in India

in global technological chains. SUN Group will help Rusnano’s engineering companies find Indian partners to set up joint ventures. Rusnano sees India as a rapidly growing region with an attractive domestic market. “We are interested in its size and drive to develop industries and technologies.There is successful work being carried out in India in technology and innovation, and we are interested in a number of them,” Chubais stressed.The most interesting areas for collaboration are solar energy, nano-materials and biotech. Rusnano has much to offer the Indian side.“For example, take a joint business

$220 mn plan for solar PV cells With India setting an ambitious target of 20,000 MW of solar power generation capacity by 2022, the Indian government and Rusnano are considering a $220 million joint venture to manufacture solar PV module-grade silicon ingots. This could involve building a manufacturing facility in Russia where ingots will be produced and then exported to India. India is looking at sourcing 2000 tonnes of silicon ingots from this venture. India has a slew of solar PV module manufac-

turers like Moser Baer, Tata BP Solar and IndoSolar, but there are almost no producers of silicon ingots. Officials of India’s department of science and technology are keen to include a strong research component into the joint venture which would enable Indian scientists to participate in further development of solar photo-voltaic cells. "There is a huge demand for silicon wafers as efforts are on to meet the 22 GW solar power target under the National Solar Mission," an official said.

model for an Indian company in optoelectronics technology. We can offer such a company the possibility of relocating its business to Russia while being based on Indian designs. We can find an engineering partner who will be able to develop it.We will also be able to develop the scientific and technical support needed.” He cited incentives like tax breaks and easier land permits for manufacturing to attract Indian firms to set up shop in Russia.“We can also provide access to capital and consider very long-term financing deals, such as for a period of ten years,”said he. Rusnano has also offered its

Rusnano is looking to create a viable nano-industry in Russia capable of achieving $30 billion worth of production on the open market by 2015. Around $870 million has been earmarked for a range of nano-technology projects in Russia. Russia is now fourth in the world (about $570 million) in investments in this sector, after the US ($3.3 billion), Japan ($2.6 billion and Germany ($800 million). Rusnano’s main areas of interest are solar energy, nanostructured metals, medicine and biotechnologies, machine building and metal processing, optoelectronics and nanoelectronics.

expertise in nurturing a market for innovative products. In the three years since it was founded, Rusnano has considered over 2000 projects. It is also financing the development of detectors for explosives and drugs. A quarter of the projects in Rusnano’s portfolio were initiated by foreign partners. Russia is already working actively in nano-technology with the US, Israel, Finland, South Korea and Taiwan. Chubais has no doubt that India will be added to its list of partners.“Give us five or six months and by that time we will have made some concrete decisions and signed contracts”.

Renewables Russian hydro design firm signs a pact for building 2,000 MW plant on Upper Subansiri river

Power panacea for North India the first large hydropower complex to be built on this river,” said Fink. The complex should come online in 2016. A concrete dam will cut across the river, and a 2,000 MW underground power plant will generate electricity. The Russian engineers advised the client to abandon the underground design in favour of a surfacelocated plant. Besides, Hydroproject is participating in creating a unique hydropower complex in neighbouring Bhutan. Called the Sankosh River hydropower complex, Hydroproject has already completed an investment feasibility study. A 285-metre high dam, to be built there, will be one of the world’s five tallest. The complex will have a 4,000 MW capacity, which will be transmitted into India’s heartland across West Bengal. Russia is also helping India establish its own complex hydropower project monitoring service. “Facilities start falling ill right after birth, just like babies. That’s why monitoring them is essential,”said Fink. India has asked Hydroproject to train their specialists, who have already completed courses taught by Russian instructors.


conomists often refer to Brazil, Russia, India and China (BRIC) as potential “locomotives”of world development. British financial analyst Anatole Kalecki considers that a steady development of the world economy depends on the vitality of large and larger nations — China and India, also Brazil, Russia, Indonesia, Egypt, South Africa, etc. This vitality will ultimately be determined by the ability of the ruling circles in the world community’s“new influentials”to effectively expand and increase the capacity of their domestic markets, stimulate solvent demand on the part of the population and turn the middle class into the driving force of social development. Brazil, Russia, India and China, while working together, are at the same time guided by principles of “sensible egoism”.Sensing daily the inability of the “traditional”centers of the world economy (the US, Western Europe and Japan) to cope with the growing swell of global problems (financial, industrial, security, ecology, climate, etc.), the BRIC nations are striving to create a space that is relatively free of the “turbulence”of global econom-


BRIC's economic space will account for 61% of world economic growth in 2014. South Africa is a sort of beachhead for expanding BRIC's engagement with the continent.


technical design for the plant to the customer,”Fink said. Hydroproject, part of the RusHydro holding company, is one of Russia’s oldest engineering institutes specialising in the development and VLADISLAV KUZMICHEV RIBR design of hydraulic engi“India captures your soul,” neering facilities. Hydroexclaimed Alexander Fink, project has a successful track director for international record of working in India. cooperation of the Russian In 2006, the Russians assistResearch Institute, Hydro- ed India in building its largproject. Late last year, Hy- est hydropower complex, the droproject signed a pact Tehri, in the state of Uttarawith KSK Energy Ventures khand located in the highly Limited K.A., under which seismic Himalayas.The 260Russian engineers will de- metre high rock and earthvelop a technical design for fill embankment dam houses the Upper Subansiri hydro a first-stage, 1,000 MW unpower plant on the Sub- derground power plant. Four ansiri river in India. more units at 100 MW each The new power plant will are scheduled for launch boast a 230-metre high con- later this year, with eventual crete dam. With 2,000 MW total capacity planned at capacity, it could supply 2,400 MW. The new hydropower to India’s entire north- power complex’s successful east and satiate the demand operation came as a surprise for cheap energy in West to many as the area is prone Bengal and other industrial to earthquakes. Engineers areas in Northern India. from Hydroproject used adHydroproject plans to com- vanced design software that plete paper work on the proj- has already kept the power ect in November this year. plant up and running suc“We have sent two geologists cessfully for five years now. there, and should complete The Upper Subansiri project exploration and engineering is no less complicated.“Substudies before the monsoon ansiri is a very full-flowing season strikes. By the end of river, a major tributary of the this year, we must submit a Brahmaputra. And this is Hydropower cooperation is set to scale new heights with a new power plant that can satisfy energy needs of India's northern region.

Andrei Volodin


RusHydro CEO: India has huge potential Yevgeny Dod CHAIRMAN OF THE MANAGEMENT BOARD

The RusHydro development model provides for entering international markets. Our main focus is clearly on hydropower and we are entering regions that have abundant water resources, are experiencing high demand and have a favourable investment climate. We have drawn up our roadmap: Southeast Asia and India, Latin America and Africa and Turkey. The most interesting thing is that we can develop vari-

ous cooperation models. We can act as the main construction contractor together with Tekhnopromexport, for instance. We can bid for equipment installation and engineering work, an area where the experience and expertise of our design and engineering teams can be useful. We can discuss equity investment. We can also limit our discussions to just management and energy transmission. We have a number of diverse scenarios to offer our partners. This gives us an advantage. We are considering interesting options in India.

From an interview with Kommersant newspaper

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The main thing is that we are not only looking at building just hydropower plants, but also water-storage, tidal and wave energy stations. India is a place where we are likely to work on completely new projects. It’s is a huge country with a growing potential, growing demand and has its own specific character. But it is also a country abundant in water resources. We should definitely go to India and work with our Indian colleagues.

ic processes. Given these aims, it is logical that member-nations would want to progressively expand BRIC’s economic space. History does not stand still: it is a “living, developing process”, as the German statesman Willy Brandt wrote more than two decades ago. The attractiveness of BRIC nations lies, evidently, not just in the possibility of creating one of the most capacious“domestic” markets in the world. According to the International Monetary Fund, BRIC’s economic space will account for 61% of world economic growth in 2014. Not surprisingly South Africa had to wait several years before receiving a formal invitation to join BRIC towards the end of 2010. At first glance, the South African economy, which is only a quarter of Russia and India’s GDP, does not look like a viable partner for BRIC. However, Brazil, Russia, India and China took a long-range strategic view. First of all, the depressed development of economies in the West and Japan continues, while their regenerative growth

in the wake of the global financial crisis refuses to turn into an energetic development stimulating the world economy. Under the circumstances, a “free geometry”of international economic relations will help both in the search for new “points” and spaces of growth, and in the modernization of national-economic complexes in the process of multilateral cooperation. It will also help lower the financial risks by diversifying the “pool”of world reserve currencies. Secondly, South Africa’s accession to the BRIC space reflects already existing foreign economic ties between it and China (the PRC is South Africa’s largest trading partner), as well as its close cooperation with Brazil and India, ties which have been developing on a solid intergovernmental footing for more than a decade. Russia will have to quickly rid itself of its distasteful status as an outsider in this strategically important field. Thirdly, South Africa has the most developed and diversified economy on the African continent. It is a sort of“beachhead”for expanding BRIC’s economic engagement with the continent whose potential for development has not yet been properly assessed. In its turn, South Africa is entirely aware that its joining BRIC may act as a powerful multiplier of its growth and development, as was the case with Australia, thanks to its close economic cooperation with China. Moreover, the BRIC countries have evidently not forgotten the fact that at least 90% of portfolio investments enter the economies of African states through financial institutions in Johannesburg. Fourthly, South Africa’s admission to BRIC may be just the bright beginning of a new process which will soon involve such “new regional leaders” as Indonesia, Iran, Turkey, Egypt, Argentina, Venezuela, etc.The leaders of these countries know that the regenerative growth of the world economy in and of itself does not turn into its ascendant and energetic growth. It’s clear that conscious effort will be required, and this effort will have to be made outside the space of the “traditional” leaders of the world economy. If this logic is translated into specific actions, then we may well become witnesses to the formation of a new “fourth world project”,to borrow the terminology of Egyptian economist Samir Amin. As you may recall, the three previous projects —“the state of general prosperity” (developed capitalist countries), “the Bandung project”(developing countries) and “capitalism without capitalists”(the world of socialism) — determined the dynamic of mankind’s development in the post-war period right up until the end of the 1980s. Who knows? Perhaps this “fourth world project” will prove to be one of long duration and will lead the world economy and humanity out of the current impasse? AndreiVolodin is Senior Researcher with the Russian Academy of Sciences’ (RAS) Institute of World Economy and International Relations. Website of the Embassy

of the Russian Federation in India





IT market back to pre-crisis glory days

Kaspersky, Yandex global innovators


“Extraordinary potential”– this is how California’s thenGovernor Arnold Schwarzenegger glowingly described Russia’s technological future during his visit to the country in October, encouraging investors to participate in the Skolkovo innovation hub. While the hub begins to form in the suburbs of Moscow, and may someday bring research and development dividends to President Dmitry Medvedev’s hoped-for diversified economy, the ongoing business of IT is returning to its pre-crisis glory. In 2010, Russia's IT market value was estimated to be $20 billion, according to International Data Corporation, a prominent international IT analytics firm. The US market is estimated at $531 billion, while China had $96 billion in IT business last year. Last year was“surprisingly good”for the IT industry, said Robert Farish, regional director at IDC for Russia and the CIS, adding that the 30% growth was nearly twice of what had been forecast. Though computer hardware sales returned to pre-crisis levels by mid-2010, and

Russian citizens are feeling the power of IT. PC and smart phone markets grew over 60% in 2010. cused on Skolkovo and President Medvedev’s innovation agenda was a highlight of 2010,”said Ron Lewin, managing director at TerraLink, a major IT services company in Russia and Kazakhstan. Skolkovo is trying to differentiate itself by focusing on research and development in science and technology, and not just IT. But the local view of the project is sometimes sceptical. Others call Skolkovo“a political project”and

refuse to comment on it, saying that in Russia, business and politics are best not mixed. Microsoft Russia head Nikolai Pryanishnikov called Skolkovo a long-term project with “good prospects”that might take dozens of years to create. But Skolkovo alone is not enough to modernise the economy. Hubs like it should be created across the country, Pryanishnikov said. Almaz Capital pledged $30 million to build a cloud computing incubator, the first project to be approved. Microsoft, Cisco, Siemens and Nokia have all announced intentions to participate in Skolkovo. Regardless of grandiose projects, the average citizen has felt the power of IT in the palm of his hand or at fingertips, as smart phone and personal computer sales boomed. “The PC market and smart phone market both grew in excess of 60% in 2010 in unit terms,”Farish said. The product offering has changed a lot between 2008 and 2010, and prices significantly dropped, not just for Russia.“Now there are products for a far-broader range of potential buyers than there were before,”Farish said.This brings out firsttime buyers — students and families buying computers for their children, analysts say. Many foreign IT manufactures until recently have

45-year old antivirus-software designer Yevgeny Kaspersky is one of the most successful businessmen in Russia

PC penetration 52% by 2011-end With an installed base of 69.1 million personal computers by the end of 2010, Russia has achieved a penetration rate of 43.6%. The Communications and Press Ministry estimates that it will grow to 52% by the end of 2011, while last year's 66.4 million regular Internet users will grow to 80.2 million. With the goal of increasing transparency, the government’s planned spending of 80 billion rubles ($2.6 billion) in 2011 on IT systems

to provide bureaucratic services to the people is a key element in the battle for efficiency and against corruption. As a part of this programme, called “The Informatization of Society”, the ministry is auditing and consulting on the IT budget of nearly every major federal agency. Last year, 227,000 citizens paid their traffic fines online, 177,000 created accounts in the pension fund and 100,000 received passports online.

been running an offshore business, in which they sell their products to Russian partners’ branches abroad, leaving them to transport the products and navigate the murky waters of customs. This resulted in vendors losing control over their pricing in the market because their products went through a lot

of hands before reaching the local market, analysts say. Shamil Shakirov, president of I-Teco, a leading systems integrator, pointed out unreliable delivery times by the vendors as one of the key problems in the relationship between foreign and Russian companies. One reason for the missed deadlines was

vendors' conservative estimates of sales for 2010 early on, which resulted in cutbacks in production capacities. Currency fluctuation is another factor. The government has been struggling to bring IT companies onshore for the last 10 years, as it would increase customs duty and tax revenues. Things began to change in 2006, when the IT market size began to become attractive to foreign companies, and the current boom helps them to want“to create equal opportunities for all”,Anatoly Karachinsky, president of IBS Group Holding, one of the country’s biggest IT companies, said. Some progress has been made, with Hewlett-Packard finally opening its local PC production facility, along with partner FoxConn, in St. Petersburg in April 2010, and Microsoft’s decision to switch to rublebased contracts last month. Market players unanimously call 2011 the year of cloud

computing — in which large corporations get their IT, or parts thereof, as a service, and don’t have to be concerned with where or on what platform the work is being done. “Everything is going cloud,” said Owen Kemp, president of Newclouds and former vice president of HP. Kemp says it has multibillion-dollar potential in Russia and more than trillion-dollar prospects worldwide. Cloud computing will allow companies to cut IT budget spending by 10% to 30%, said Alexander Galitsky, an IT venture capitalist and Skolkovo board member. "The share of IT services in the total volume of IT market in Russia is lower than the average in the world and is significantly behind Europe and the US. I think the time has come to change that,” explained Microsoft’s Pryanishnikov. Cloud services have, however, been slow to gain acceptance in the Russian market.

Retail Revolution Ozon blazes a new trail from Moscow to Vladivostok

Gadgets Pirates are killing the business, say publishers

Now, online malls entice two-tier cities

E-readers storm market, printed books threatened

Russia's online mall Ozon. ru's success has spawned a loyal clientele in big cities. Internet shopping is now set to storm the regions. RACHEL MORARJEE

Twelve years ago, a group of science fiction enthusiasts in St Petersburg figured out there was no place to buy their favourite books. So they set up, which over the following decade went from selling sci-fi novels to everything from DVDs to cutlery. It’s now Russia’s answer to US online giant, Amazon.The secret of Ozon’s success offers valuable tips to entrepreneurs in brickand-mortar companies who are hoping to tap the country’s growing consumer market.“Because Russia is so big, the delivery challenges are extremely complex,” says Ozon CEO, Bernard Lukey. Defying the financial crisis, Ozon’s orders grew by 2% in 2009, as more Russian shoppers decided to shun the country’s glittering malls and pick bargains from the comfort of their homes. Russia’s biggest markets remain in its two largest cities, Moscow and St Petersburg, but the demand in Russia’s regions has exploded, with Ozon’s business there surging 200% in 2009. About one-third of Russia’s increasingly wealthy 143 million consumers are online. Russia’s internet market is growing at a doubledigit clip, with users in spring this year going up 23% on 2009, according to Russia’s Public Opinion Foundation.


RIBR has struck a balance between fast orders and cheap delivery across Russia.

Online ads got 11% of $7.5 bn pie For online marketers, Russia offers two appealing qualities: It’s one of five countries in the world where Google isn’t the market leader, and Russia is now the second biggest online market in Europe in terms of users, having overtaken the UK last year. The total advertising market in Russia was about $7.5 billion in 2010, with about 11% of that going to online ads. The market is expected to grow to about $10

billion by 2012, with online spending increasing to 13% of total spend, according to Russian daily news provider Kommersant. Unlike oil, gas and many other formerly state-owned sectors, the online businesses, which have sprung up over the last 10 years have been able to set their own rules for doing business, free from the corruption and vested interests that sometimes are seen in other sectors.

Foreign investors are enthused. Russian internet group’s IPO was 20 times oversubscribed when it debuted on the London stock market, as punters

rushed to grab a slice of Russia’s growing online pie. So far, around 43% of Russians have internet access, many of them at their place of work rather than home,

but a disproportionate number of people online live in Moscow or St Petersburg, with more than 70% online in the former and only slightly less in the latter. However, Ozon’s numbers show that internet penetration in Russian second-tier cities and rural areas is likely to be the next frontier for growth. Lukey expects internet shopping to rise sharply in the regions as broadband becomes more available.“It will be a very big market and is growing all the time,”he said. Ozon has a sizeable market in the second-tier city of Tver, where its warehousing operation is situated, and is now focusing on building up its business in the Pacific port city ofVladivostok. It has continued to blossom by taking on delivery challenges head-on.“When people order online, because the ordering process is quick, they also expect their goods to arrive very quickly,”says Lukey. Ozon, therefore, has had to pioneer a variety of different delivery options, including setting up its own courier service, O-courier, so that orders can reach customers in major cities at a much lower cost. Ozon has also set up a network of collection kiosks in Moscow and St Petersburg where customers can collect their orders and pay in cash if they want a faster service than the Russian post can offer. Ozon’s own courier service delivers around 3,000 orders a day in the capital and another 1,000 orders a day in St Petersburg.

The eBook reader market in Russia has grown seven-fold in the last two years. The printed books have sadly suffered a cut in demand. ARTUR LOYANICH LOREMASER

The Russian market for eBooks and devices to read them (readers) is expanding exponentially.Whereas only a few thousand readers were sold in 2007, sales jumped to 60,000 in 2008, 250,000 in 2009 despite the crisis and recorded 470,000 in 2010. The market has grown over seven-fold in two years. The average cost of a reader in late 2010 was about 110

euro for a model with a TFT screen and 175 euro for a model with an E-Ink display. The cost of the latter declined by almost 30% over the previous year, says Marina Rozhkova, who analyses the Russian mobile gadget market. Pocketbook products are the most popular in Russia with a 40% share of the market, followed by Sony (29%), Lbook (12%) and other manufacturers. EKSMO, one of Russia’s largest publishing houses, reports the market for traditional books, on the other hand, shrank almost 15% in 2009, continuing a trend seen in previous years.

After registering 145,000 new books three years ago, the Russian Book Chamber recorded only 59,500 new books in the first half of 2010. The decline in overall circulation totalled 17.2%. But the readers are not the only ones to blame for the contraction in the book market, circulation and royalties. “It’s the pirates who are killing the book business, not the eBooks,” said Vladimir Obruchev, the director of the non-fiction group at EKSMO. “It’s virtually impossible to convict people who distribute illegal eBooks because their server could be located anywhere.”

Tie-ups QIWI retains control, targets Southeast Asia

Mitsui to power Asian dream of payment machine leader Japan’s Mitsui has become a co-owner of QIWI, Russia’s largest payment machine operator. They are betting big on Asian markets. SVETLANA SOROKINA RIR

Japan’s Mitsui & Co. recently bought 14.9% stake in the Russian company QIWI, which manages a huge network of payment machines installed at shopping malls, train stations and entertainment venues.These machines accept payments for mobile phone and Internet accounts, utilities, money transfers and other purposes a person may need without going to the bank and waiting in line.

Analysts guess it paid anywhere between $4m and $80m for the stake. QIWI management has retained a controlling interest with 63.7% of equity, with another 21.4 % held by Mail. ru Group.

Payments through terminals was close to $750 bn in 2010. QIWI controls 45% of the growing market. Around 80% of Russian mobile phone owners use payment machines. Payments through terminals should have reached around 750 bil-

lion roubles in 2010. QIWI controls upto 45% of this market. The tie-up with Mitsui is strategic.“In contemplating the transaction, we presumed that Mitsui’s assistance with our international expansion will open the broadest development prospects for us,” said QIWI Group President Andrei Romanenko.The Russian company is targeting primarily Southeast Asia for expansion.The region is ripe for the payment machine business: cash is popular and competition is all but non-existent, with scratch cards still the main tool for topping off mobile phone accounts.

Web-search companyYandex and anti-virus software developer Kaspersky Lab fly the Russian flag in a 2011 ranking of the world's most innovative companies. The Moscow-based companies are both new entrants in the list, released by US business journal Fast Company recently. The Russian pair sits proudly in The World's 50 Most Innovative Companies above global giants of the genre such as Microsoft, Cisco and Samsung. Yandex, which holds a 65% share of the Russian internet search market ranks at 26, with Fast Company praising it for being one of the few around the globe to have fended off US giant Google - which sits sixth in the list. Kaspersky Lab, the world's fourth-biggest maker of secure content management systems makes its debut at 32, with Fast Company admiring the way it harnesses Russia's legions of hackers to help it fight viruses. Nevertheless, the US domination of the rankings is evident, with Apple in top spot, followed by Twitter and then Facebook in third positions. RIBR

Online public debate of bills


many mid-sized projects were ordered and completed, major outsourcing deals — in which companies divest themselves of their IT departments and allow external service providers to do their IT — did not take off. This year, industry players expect continuing growth while the government prepares to spend big to provide Internet-based services to the people. Observers have consistently seen a direct link with Russia’s IT spending and the price of oil. So with black gold approaching $100 per barrel, the market looks good for 2011. “Certainly, the continued mobilisation of resources fo-

Russia's IT industry has bounced back. Medvedev's innovation agenda and the surge in PC sales will ensure the boom will last longer.


Trends Cloud computing set to be the next big thing

President Dmitry Medvedev has signed a decree under which he can oblige the state agencies to present the bills which they are developing for a public discussion on the Internet. Three months later, the federal agencies will have to report to the president on the discussion results. It’s possible that following the Law “On Police” and “On Education”, online users will see a new draft of the Law “On Government Procurement”. Some of the more significant bills will be subject to an online public discussion by the president.The decree was signed by Medvedev in early February. In accordance with the decree,“draft federal constitutional laws and federal laws, concerning the social and economic policies of the Russian Federation”may be presented for public discussion by the presidential decision. The draft laws will be published by the federal state agencies, involved in their development. RIBR

Facebook and Twitter for modernisation Rosnano and the Russian Venture Company, two corporations responsible for promoting the Russian economy’s modernisation, actively use Facebook and Twitter to work with scientists, startup owners and experts. Their social network groups have become discussion boards waiting to be transformed into a sort of venture project exchange, where investors and inventors will meet. Another example of using a “virtual focus group” to get insight into complex technological processes is provided by the Federal Grid Company (FSK manages Russia’s unified national electric grid). The company is using Twitter to gather ideas and suggestions for the upcoming roundtable discussion on next-generation intellectual networks at St. Petersburg Economic Forum in June. RIBR




News Tweets were the first to report Moscow airport attack. News agencies followed the blasts half an hour later!


Twitter challenges old media

When local brands outstrip global icons

While Russians in metros prefer twitter and blogs for their daily fix of news, it's premature to write the death of traditional media.

Social media around the world: Facebook dominates globally


MN or onefourth of adult Russians visit at least one social network no less than once a month. The number of people using social networks has increased by 22% over the past year.



MN is the daily number of users of the most popular Russian social network, 'In Contact'. 7.2 mn log onto 'Classmates' and 5.3 mn visit 'My World'. 1.2 mn use Facebook on a daily basis.


PERCENT and 257 percent were the growth of Twitter and Facebook users in Russia. They are Runet’s most rapidly growing social networks.


The old media versus new media debate has acquired a new piquancy in Russia in the aftermath of the terrorist attack at Domodedovo Airport in January this year. Official media outlets in Russia have faced little criticism from the public for their slow and unprofessional coverage of the recent emergencies in Moscow, such as the Moscow airport attack and the nationalist protests against immigrants at the Manezh Square in December. Thirty minutes after the Domodedovo bombing, my friend called me and asked “Are you ok? Are you at home?” I answered “Yes. What happened?”“Don’t you know what happened? Journalists never know what’s happening. Look at Twitter,” he said. The first messages about the terror attack appeared on twitter much earlier than in the official media. The popular Moscow-based business portal reconstructed the events in the airport on January 24. The first tweets about the explosion appeared on Twitter minutes after the bomb went off at 16.32. News agencies reported the bombing half an hour later. The Dozhd news channel and Kommersant FM radio were running reports of the event with eyewitness accounts at 17.30. The first amateur video of scenes of Domodedovo after the bombing, taken on a mobile phone, was posted on Twitter at 18.20.Ten minutes later this video aired on the RT television channel.The main Russian television channels, however, continued to broadcast soap operas and talk shows, while foreign media such as CNN and BBC carried live broadcasts from the airport and provided expert comments. Alexei Navalny, a popular



Russian blogger, described this as the death of official media in the country.“What happened at Domodedovo is horrible, but it is too early to comment on it. However, right now we are watching the final death of television and traditional media as a source of up-to-date information in an emergency,”he wrote.“News agencies, radio and television - they all are quoting messages from Twitter. I first thought about it when the events on Manezhn Square were broadcast there [on Twitter]; now it has become obvious. For the first hour and a half, there is only Twitter.” Other bloggers also pointed out that the coverage of the bombing at Domodedovo in official media was as slow as reporting on the terrorist attacks on the Moscow metro on March 29, 2010.When two bombs exploded in the Moscow metro, at 7:56 a.m. and 8:36 a.m., state TV channels reported the news much later, and continued to broadcast entertainment

programmes. Millions of people who live in Moscow and used the metro that morning did not have access to any information and could not understand what had happened or why certain stations were closed. A poll conducted by the All Russian Public Opinion Center (VTsIOM) found that residents of big cities such as Moscow and St. Petersburg trust well-established media sources less than their unofficial counterparts. Only 34% of respondents from these cities trust official media, while 45% prefer to get information from alternative sources. This may be because the number of Internet users per capita in Moscow and St. Petersburg is higher than the national average and most popular bloggers live in these cities. However, for most of those who live in small towns and villages in Russia, television and newspapers are still the main sources of information. The survey discovered a trend: the smaller a residen-

tial settlement, the more its inhabitants trust official media sources. Secondly, the credibility of alternative news sources has increased since 2008, while the number of people who trust official media has decreased. But despite this, it’s premature to talk about the death of the traditional media.“Recently, there has been a lot of talk about the death of traditional media. However, it is not yet time to lay it to rest,” said OlgaVdovina, the deputy director of the Internet portal, which focuses on the media industry. “New media can cover the news faster than television, radio, magazines and newspapers for several reasons. Bloggers do not need to wait for an editor-in chief or media owner to approve their posts.They are also not obligated to check the information they share with readers,”she said.“Most bloggers write anonymously using nicknames. Their posts are often very subjective. It seems the only benefit of new

media is the quick distribution of information. How can bloggers compete with top media corporations which have a large professional staff?”Vdovina asked. Paradoxically, even some popular bloggers agree . “We will not receive news from Twitter, either today or in ten years time. The mass media will find news on social networks and report it to us. That’s why it is called the mass media,” wrote Anton Nosik, one of Russia’s top bloggers. “Regarding television, it didn’t die when film crews arrived two hours late to Domodedovo. It died when it wanted to decide for us what we want to watch: news, soap operas or ‘The Big Laundry’ show. In 2011, it is the audience that makes such decisions.” "The question of what are the most popular and reputable media sources is also a generational question. While young people prefer the Internet, many middle-aged and elderly people trust television more.”

The blogging bug bites elite In 2010, Russia’s political elite became fascinated with Twitter. Besides President Dmitry Medvedev, about 80% of all regional heads opened accounts in the social networking site, as well as employees of the federal ministries, mayors, and deputies. New forms of communication with the public have also emerged: reports are issued directly from meetings, users are surveyed, and the public’s concerns are received via Twitter. “The flight is delayed by an hour and a half…" blogged governor of Kirov Region Nikita Belykh, while sitting at the Vnukovo Airport. For some, a micro-blog has been a means of mobilisation. “Today, at 16:00, Yabloko will hold a rally for interethnic peace near the monument to Griboedov. Join us,” said the party’s leader, Sergey Mitrokhin.

Virtual Reality Listen to Kishore Kumar on, Russia's answer to Facebook, that has 75 million users

Russia has only half of India's internet users, but blogging is more popular for airing views and dissent, especially among the youth. AANCHAL ANAND RIBR

India has a population of nearly 1.2 billion with a per capita real income of $810. Russia is home to 141 million people with per capita income of $3,970 i.e. almost five times the income spread over just 12% of India’s population. But at more than 40% internet penetration,

Russia has about 60 million users – significantly less then India’s 81 million at only 7% penetration. Despite these differences, both Russia and India are addicted to e-mail, search engines and social networking. The buzz that Russian President Dmitry Medvedev apparently learned of the Moscow airport terrorist attack overTwitter shows the power of social networking in Russia. In fact, Medvedev recently won the best Russian-language blogger award for his Twitter and Zhivoy Zhurnal (Live Journal) accounts.

Reaching over 200,000 followers and another 84,000 followers for the English page (@MedvedevRussiaE), the Russian president wishes the country on important holidays, comments on security issues and even posts pictures and answers questions by other Twitter users. Even if the Indian prime minister isn’t tweeting, plenty of others are. Shashi Tharoor, a former minister and UN diplomat, is one of the high-profile politicians using Twitter, creating quite a stir in India’s staid political class. Bollywood bigwigs


Why do Russians like blogging more than Indians do? Shah Rukh Khan, iconic film star Amitabh Bachchan and Aamir Khan post updates regularly. According to the Boston Consulting Group’s report ‘The Internet’s New Billion’, 75% of India’s most popular sites are international – the highest amongst BRIC countries – a phenomenon attributed to the prevalence of the English language. Brazil’s Orkut leads the

pack on the Indian network, followed by Facebook and Twitter. In Russia, however, due to the predominance of Russian language, local content and sites top the list. – a site modeled on Facebook – is the most popular site in Russia and some former Soviet republics with over 75 million registered users, some of whom likely maintain dual or multiple accounts. Inci-

dentally, when compared to Facebook, Twitter and Orkut,Vkontakte has other uses.Where else can one add Hindi music and listen to old Kishore Kumar numbers? Unlike India, Russia enjoys blogging more than social networking. In Russia, 33% internet users spend their time blogging vs. 15% on social networking sites.With the electronic media largely in the Kremlin’s grip, people find blogging an outlet for airing their views and challenging policies. With the increasing popularity of English, greater availability of content in local languages, and fatter wallets, the social networking phenomenon can only get stronger. India’s young population will ensure that it goes in the right direction. But Russia’s population is shrinking. Perhaps, it's time Medvedev started tweeting about population control. As for Dr. Manmohan Singh, we’d be glad to hear anything he wants to tweet!


ny Russian web technology conference is not complete without a debate over whether global portals will eventually squeeze out their local rivals and if so, when.What industry experts don’t argue about, however, is that Russia is in a one-ofa-kind situation. As Google and Facebook march victoriously across the planet, an outstanding trend in Russia’s Internet landscape over the past couple of years has been the growing strength of local companies like the search engineYandex and the social networks, Odnoklassniki (Classmates) and VKontakte (In Contact). According to LiveInternet, not only didn’tYandex lose its search market share in 2010, but increased it by 5.2% to 64.1%. Google’s share in Russia fell by 1.9% to 21.5% of total search queries.Yandex’s financial performance also improved, as revenue rose from $290 million in 2009 to $416 million in 2010. Rumours of aYandex IPO are getting increasingly louder. What is the secret behind the company’s success? In fact,Yandex has become an all-encompassing homepage for many Russians who use it as a starting point for surfing the Internet. The share of English-language search queries not being that large in Russia has also played a role. Besides, there are two more reasons that I believe explain a lot. If you compare websites of Russian companies with their American peers, for example, you’ll notice that Western websites are minimalistic. Russian companies tend to overdo it with design and embellishments, denting their sites’ functionality. Another reason is that Yandex opens hyperlinks in a new window, whereas Google adds new tabs to the same window, which slows down the search. These are small things, but they all combine into making Yandex the leader. Facebook made a giant leap forward in Russia over the first nine months of 2010. Some say it rode on the success of The Social Network movie, which is little more than a two-hour Facebook commercial. What’s important, while lagging behind its Russian peer VKontakte by the number of registered accounts (around 5 million in the Russian Facebook vs. more than 100 million in VKontakte), the global network boasts just 250% less traffic. Plus, the Russian Facebook users are perceived as the most advanced target audience by large advertisers. While back in March last year it seemed that Facebook had little hope of catching up withVKontakte in the medium term, Facebook managed to capitalise on mistakes made by


the Russian social networks. Russian users were quick to feel at home at the heretofore-unknown Facebook. Local fan pages have been growing at a pace their global peers can only dream of. For example, the Russian page of the Social Media Club (a community of web communication professionals) quickly became the largest among all global branche s o f t h i s n o n - p r o fi t organisation. There is, however, an opposite trend. Russian investors’ equity stakes in global web projects have exceeded the value of the entire Russian Internet. Russian expansion is not limited to content: it extends to investments, too. After consolidating domestic web assets, Digital SkyTechnologies (DST),a company owned by Russian entrepreneurs Yuri Milner, Grigory Finger and Alisher Usmanov, has been busy scooping up attractive assets worldwide. These include the promising group discount system Gruppon and the online game developer Zynga. And their share of Facebook in

Twitter helps Medvedev monitor public opinion by reading messages users send him.

Russian investors' stakes in global web projects exceed the value of the entire Russian Internet. terms of users (DST controls around 10% of Facebook with more than 500m registered accounts) is already ten times the number of Russian Facebook users. The company’s portfolio contains more than 20 large Russian and international projects, and judging by their ambitions, the trio won’t stop there.Yandex is the only major project in Russia not under DST control; this investment company, therefore, can grow only via global acquisitions. Some call DST a Web version of Gazprom, Russia’s gas behemoth with global ambitions. Russian investors are also eyeing Twitter, which is also growing rapidly. This has much to do with the personal participation of Russian President Dmitry Medvedev, Russia’s most prominent Twitter user. People close to Medvedev say Twitter helps the president monitor public opinion online by reading messages users send him. The president not only reads, but also responds. In December 2010, well-known blogger Inna Smbatyan twittered that she had a dream where she had dinner with Medvedev. The president jokingly replied that he didn’t have dinner at all because he worked late into the night preparing for his address to the Federal Assembly. Denis Terekhov is Managing Partner, Social Networks Agency.

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Mar 2011, Russia&India Business Report  
Mar 2011, Russia&India Business Report  

Russia&India Business Report is a monthly publication brought out by Rossiyskaya Gazeta, that is published in association with The Economic...