Digital transition challenges for manufacturing sector

The decision of Western IT vendors to exit the Russian market has created additional opportunities for transitioning to Russian-made solutions. For the manufacturing sector, it is especially important because its dependence on foreign products is still high and reaches 68%. In addition, the country’s critical systems are left without updates and support. What measures could speed up the transition to the Russian-made digital solutions for the production sector and will they be able to overcome obstacles to digital transformation? These issues were discussed by the participants in the Forum.Digital Industry 2022, organized by the Digital Economic Development Fund with the support of the Council for the Development of Information Technology and Digital Economy under the Russian Chamber of Commerce and Industry.

Staffing shortage

The staffing shortage is one of the key challenges for companies when transitioning to Russian-made software. The shortage of IT experts has been a problem for several years: in February 2021, the country lacked from 500,000 to 1 million workers. The current developments have made it worse.

“The demand requires a number of software developers that we do not have yet,” says German Klimenko, co-chair of the Council for the Development of Information Technology and Digital Economy under the Russian Chamber of Commerce and Industry, and head of the Digital Economic Development Fund Board.

In this regard, it is necessary to work with young experts at various stages; the long-term effect of investing in personnel development will be great, notes Alexander Rassomagin, deputy head of the Rosatom Center for Sectoral Digital Technology. He also believes that it is worth it to both retrain experts who previously used foreign products and improve the digital literacy of all those who work in the production sector.

At the same time, there is no shortage of IT solutions on the market: the unified register of Russian software for computers and databases has over 15,000 of them. However, the transition is complicated due to the level of equipment at production facilities: not all Russian software can work on obsolete equipment. According to German Klimenko, in such cases it would be viable to provide targeted loans for the equipment update.

The market could also use technology products that can be introduced with minimal adjustments; at the moment, the solutions for the production sector often require tweaking, for which there are not enough experts.

Digital dependence

Another challenge of transitioning to the Russian software for the manufacturing sector is that new solutions are often incompatible with the existing equipment; it also includes the excessively long term of transitioning, and high prices. But the most crucial obstacle is the principal ill-preparedness for digital transformation, regardless of which vendor’s products would be used.

Thus, most companies know about the prospects and advantages of digital transition, but due to numerous challenges, only half of them achieve it, said Ivan Kostin, strategy director at the Digital Technologies of Productivity autonomous non-profit organization. The process is hampered by market participants being unaware of vendors’ actual opportunities, which is only aggravated by the inability to obtain information on available software from official sources. There are few people who could actually justify the need for updating the IT infrastructure. The lack of efficient efforts to introduce domestic digital solutions is obvious as well: they often result in failures or at least incompletely implemented plans.

Reviving the market

The advantages of digital migration for industrial enterprises can be created through successful cases of switching to Russian-developed software that would highlight actual opportunities for greater efficiency, according to the discussion participants.

Double-digit efficiency indicators allow for overcoming conventional attitudes of industrial customers who have traditionally used software developed by Western companies,” says Sergei Yemelchenkov, General Director of Tsifra Group.

Based on the experience of their implementation in the metallurgical industry, AI-driven robo-advisors can increase performance by over 3%, while introducing unmanned BelAZ vehicles for motor transportation will allow raising the amount of daily cargo trips by 15%.

Products should also be developed aiming not solely at the domestic market but also with an eye to the friendly countries’ markets, including those in Latin America, Africa and Central Asia.

Procurement from major state-run companies could serve to support the domestic demand for Russian-developed solutions as well; in this regard, it would be reasonable to focus on working with small and medium-sized developers operating in the private sector, notes Alexei Mostovshchikov, Managing Partner of Globus IT Group and member of the General Council of the Delovaya Rossiya (Business Russia) All-Russian Public Organization. In particular, it would be important for the public sector to provide more prompt and transparent support measures.

Providing maximum support

Comprehensive support and clear guidelines provided at the state level are expected to remain an important driver for transitioning to domestic software. Such guidelines have existed for a while, with initial regulations developed back in 2015, recalls Ilya Massoukh, Director of the Russian Competence Center for Import Substitution in Information and Communication Technology. In particular, these efforts allowed the public sector to prepare for the Western vendors’ unprecedented exit from the Russian market this year.

Today, the scope of support measures remains extensive: instructional guidelines for digital transformation of state corporations, as well as of partially government-owned companies, were developed back in 2020 and updated in August 2022, reminds Alexei Dorozhko, Deputy Director of the Department for IT Industry Development of the Russian Ministry of Digital Development, Communications and Mass Media. These guidelines should serve as the basis for developing a digital transformation strategy, including for commercial organizations; they envisage that total expenditures for the IT industry should double in 2022-2024 as compared to 2019-2021. The overall spending on purchases of Russian-manufactured software aimed to develop the market of domestic IT solutions during the period is expected to amount to at least 80%, while investments in ready-made software should total 35%.

The plans also include increasing the number of state-owned Russian companies that operate in digital transformation and import substitution in the Information and Communication Technology (ICT). Measures to support Russian-developed solutions are expected during a project’s entire life cycle from hypothesis testing to scale-up, with an opportunity for developers and customers of IT solutions to receive preferential loans. The preferential mortgage program for IT specialists, launched in the spring of 2022, aims to support the IT sector in the current economic situation and create a comfortable environment for the industry employees.

By Olga Blinova

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