With this in mind, I spoke to Dr. Daniel Thorniley, President of DT-Global Business Consulting GmbH, a consultancy firm that provides advice and information on global business and emerging markets with a focus on the CEE-Europe and Russia-CIS region. Danny is a three-time author, one of the world’s leading authorities on Russian economic history and a former East-West affairs specialist for the UN. I wanted to find out how he perceives Russia’s digital trajectory, and how it compares to the rest of the world.
In the highlights below, Danny and I tackle the current state of Russian digitalisation, and the motivations of Russian businesses seeking to transform.
How Does Russian Digitalisation Compare to the Rest of the World?
Gennady: Russia has significant expertise in mathematics, software production and the development of Artificial Intelligence (AI). But while great strides are being made, it is still behind other countries when it comes to investing in digital technologies. Russia spends 2% of GDP on this area, versus 6% in the United States and 4% in Western Europe.
So, Danny – when you look at the development of Russian digitalisation, what are your thoughts on how it compares to the rest of the world?
Danny: I could talk forever about this. I think the Russian Federal Government would be marked 'not bad' on digitalisation. For example, the Russian Federal Tax Service is well known for being highly digitalised, using real-time tax data to boost transparency with taxpayers. A number of large-scale Russian enterprises are now also digitalising. Solid investment is being made by the West and the market is growing increasingly advanced. If there is an idea that Russia is primitive or backward on this, that's not entirely true.
However, if I’m being critical, Russia’s weak spot is a failure to support and incentivise SMEs. This is a systemic issue in Russia, and it’s becoming particularly pressing during the COVID-19 crisis. Across the world, SMEs are often responsible for developing many of the innovations that drive economic growth. But they’re not prevalent enough in the Russian economy, accounting for just 23-27% of GDP and the same proportion of employment. In Western Europe and the United States they make up 55-58% of the same measures. There’s a lot of room for improvement here.
Gennady: What do you think is attracting Russian businesses to digital transformation?
Danny: Our recent survey of Russian business leaders identified that 75% of businesses want to use digital transformation to improve customer relations, 73% want to improve internal productivity and costs and 52% to develop new business models and open revenue streams.
There is a difference in motivations between B2B and B2C businesses. If a business is consumer-focused, they’re more interested in using digital technologies to improve customer relations. If you look at a B2B business, such as a manufacturer with a smaller number of customers, they are targeting internal productivity, cost reduction and streamlining operations. There is a clear mix of driving factors. But I do see an increasing focus on analytics and big data to uncover competitive advantage, as well as technologies like remote working which are becoming especially important as COVID-19 progresses.