Rising Concerns in Russias IT Sector Amid Potential Return of Western Competitors

Russia’s technology sector is increasingly apprehensive about potential renewed competition from international companies, which could severely impact local tech firms as discussions intensify regarding the possible return of Western businesses that exited following the invasion of Ukraine in 2022.

At the same time, foreign companies that chose to maintain a presence in Russia—albeit with significantly reduced operations—have recently reported their first profits since the conflict began.

The potential re-entry of foreign—primarily Western—companies that left Russia in 2022 became a topic of discussion after the initial communications between the U.S. administration and Russia earlier this year. Alexei Yakovlev, who heads the Financial Policy Department of the Finance Ministry, reiterated this notion in early April.

«It is clear that those interested in returning should be afforded that opportunity,» he reportedly stated to the state-owned TASS news agency. «Market conditions, taking into account specific sectors, are fundamental.»

Earlier, Deputy Finance Minister Ivan Chebeskov mentioned that his ministry was compiling a set of criteria for the return of foreign businesses, as requested by President Vladimir Putin.

Although it seems that relations between Russia and the U.S. are gradually improving, tangible actions to lift U.S. sanctions against Russia have yet to materialize. High-ranking Russian officials have consistently noted that the removal of sanctions would be a critical prerequisite for the return of foreign companies.

While companies that departed Russia are reportedly weighing their options for re-entry, few appear ready to take concrete steps. An independent news outlet, The Bell, recently surveyed 60 Western firms about their intentions to restart operations in Russia, receiving feedback from only 21, with none expressing a clear desire to return.

In light of the uncertainty around the potential influx of Western firms, Russian IT companies are worried that increased foreign competition could complicate their already fragile situation.

Three years after the mass withdrawal of international tech companies from Russia, it has become evident that the local IT sector has failed to leverage this chance effectively. Even when competition was minimal and the government offered certain incentives, domestic IT firms achieved only modest growth.

As government support begins to wane, early indicators of trouble are becoming apparent. Starting in late 2024, major Russian IT companies have begun laying off workers, with some large firms, including Sber, VK, and MTS, reportedly disbanding entire development teams. The market is contracting, and few new ventures have shown economic viability.

In an article for the RBC business daily, Valentin Makarov, president of RUSSOFT, an association representing Russian IT firms, stated that international tech companies are keen to return to Russia, as their absence leads to significant missed profits. Makarov suggested that some firms might return indirectly by partnering with intermediaries, which would pose challenges for local competitors.

«Most Western IT companies did not truly desire to exit the Russian market in 2022,» he noted. «They realized that, given their extensive experience and established operations in Russia, doing so was not in their best financial interest. Consequently, this decision stemmed from external political pressures alongside primary and secondary sanctions imposed by Western nations, mainly the U.S. government.»

Makarov emphasized that while a full restoration of the pre-2022 conditions—when foreign IT companies had virtually unrestricted access to the Russian market—seems unlikely, local firms still require protection from returning Western competitors.

«Any shifts could jeopardize the advancements made over the last three years—something we cannot permit, or we risk losing the progress already achieved,» he asserted.

Although Russia’s initiative for import substitution in the IT sector has seen some success, Makarov pointed out that the transition remains uneven, with certain segments still experiencing a significant technological gap. This gap, he indicated, could create conditions favorable for the return of foreign vendors, yet any such return must align with national priorities and be accompanied by a swift development of domestic alternatives.

«The focus should not only be on replacing imports but also on enhancing the export capabilities of Russian IT firms,» Makarov stated. He highlighted successful instances of technological autonomy that have drawn interest from friendly nations, eager to adopt Russian innovations or glean insights from its approach to self-sufficiency.

Nonetheless, the prospective re-entry of foreign software companies poses considerable risks to the local IT industry. Makarov cautioned that their return could lead to renewed anti-Russian sanctions and raise security issues, particularly risks of cyberattacks facilitated by foreign software interfacing with critical infrastructure.

«Safeguarding technological sovereignty is vital to protecting the achievements of the Russian IT sector,» he concluded.

Simultaneously, foreign tech firms remaining in Russia have reported profits for the first time since 2022.

In a surprising development, Sony announced a net profit of 111.7 million rubles (approximately $1.3 million) from its Russian operations in 2024, marking its first profitable year in the country since 2021. This financial report originates from the company’s primary Russian subsidiary, which had previously posted losses for both 2022 and 2023.

Despite returning to profit, Sony’s revenue in Russia plummeted by a staggering 75.9%, falling to just 202.5 million rubles ($2.4 million), as indicated by the Federal Tax Service. This sharp decline followed the company’s March 2022 decision to suspend the supply of gaming consoles, accessories, and games to Russia, along with halting operations of the PlayStation Store in the country.

By 2024, Sony had sold off its remaining inventory in Russia, but it continues to generate some income from warranty services and administrative support. Notably, the company stated that it has no plans to close its legal entity in the country. Meanwhile, a separate Russian subsidiary owned by Sony Mobile Communications has been in the process of liquidation since October 2023.

On another front, the Russian division of U.S. tech giant Google reported a net profit for the first time since 2020, with earnings amounting to nearly 900 million rubles ($10.7 million) based on filings with the Federal Tax Service. This marks a significant recovery from 2023, when the company recorded a loss of 3.12 billion rubles ($37.1 million). The last time Google’s Russian unit turned a profit was in 2020, with earnings of 1.73 billion rubles ($20.6 million).

Revenue data for 2023 and 2024 has not been publicly disclosed, but the subsidiary was officially declared bankrupt and has been in the process of liquidating its assets since October 2023.

As part of the liquidation process, Valery Talyarovsky, the court-appointed manager of Google in Russia, has initiated multiple lawsuits against advertising companies. Since early 2024, he has launched at least 13 legal actions within the Moscow arbitration court, seeking claims totaling around 10 billion rubles ($119 million). Several of these lawsuits have already been ruled in favor of Google.

This article originally appeared in bne IntelliNews.