How SAP is winning in Russia when Oracle, Microsoft and Google have lost

Germany-based business software company SAP is doing well in Russia despite restrictive rules and mounting local competition, Reuters reported.

SAP is the leader in the business-planning software market in Russia. SAP is supplying its software to 53 of the top 100 Russian companies by revenue, according to a Reuters analysis of company filings.
SAP IndiaForeign technology firms including SAP are facing intense legal pressure, including a law requiring them to allow Russian authorities to hunt for vulnerabilities in their software, which has raised security concerns in Washington.

US-based technology companies Oracle, Microsoft and Google have lost market share in Russia.

Russia is one of SAP’s fastest-growing markets, with revenue rising by about a third to 468 million euros ($565 million) last year. Russia is a small market for SAP, representing 2 percent of its global revenue.

SAP’s software products are entrenched in running the biggest state firms in industries including energy, metals, transport and retail in Russia. The German firm has invested heavily in the market, even sponsoring top-tier Saint Petersburg football club Zenit.

Last month, Sberbank, Russia’s state-run bank, decided to shift to SAP’s human resources system covering 230,000 employees.

“The large state companies … all use SAP because of the long-term investment involved, the money already spent and because the software works,” said Moscow-based software analyst Elena Semenovskaia of global tech research firm IDC. “You would have to be insane to rip out SAP and install something else.”

SAP’s actions highlight the complications facing global technology firms operating in a world divided over national security concerns.

SAP has also hired Vladimir Vladlenovich Skorik, a former general from Russia’s FSB Federal Security Service, to manage its relationship with the Russian government and security services.

The company says it only allows Russian examinations of its products’ inner workings, or source code, to be conducted at a special “clean room” laboratory in Germany. SAP said it has complied on rare occasions with Russian software vetting rules while making every effort to ensure the security of products and customers elsewhere.

SAP is Europe’s biggest software company but number four globally behind U.S. rivals Microsoft, Oracle and IBM in terms of annual sales. It focuses on business-planning software while rivals are more diversified.

Microsoft faces a tough road in Russia because its accounting-focused software faces direct competition from the Russian market leader in that area, 1C. Database giant Oracle has also lost ground in the market over the past decade.

Google and Facebook have struggled with copycat rivals – Yandex in search and VKontakte in social networking – that put them in the unusual position of second-place players. Recent antitrust and data law changes have also increased pressure on both firms.

SAP and other companies have acceded to demands by Russian authorities, including the FSB, to allow military contractors to review the source code of some of their products.

Moscow says the reviews are necessary to detect flaws in foreign-made software used by Russian state companies which could be exploited by hackers.

Cyber security firms Symantec and McAfee no longer allow foreign governments to review the source code of their products because of security concerns. This shuts them out of parts of Russia’s state technology market.

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