Can Moscow Overcome A Tarnished Tech Reputation?

Innovation and ease of business aren’t necessarily the first concepts that come to mind when thinking about the tech environment in the Russian market. But in this week’s installment of PYMNTS’ Weekly Tech Center Roundup, we take a look at how Moscow is working to change its perception in the global tech space.

Before we jump into the post, here are a few quick facts about Moscow and its tech scene:

  • The estimated population of Moscow is 12.2 million.
  • Russia’s GDP is $2.022 trillion, which makes it the seventh-largest economy in the world. The country’s GDP has been growing steadily over the past decade.
  • Moscow maintains a reputation for being one of the most expensive cities in the world to live in.
  • The 2015 Global Startup Ecosystem Ranking listed Moscow as the 13th best city in the world to launch a startup.
  • Moscow is considered to have the largest eCommerce market potential.
  • The country has the largest online market in Europe, with an estimated 66 million Russians accessing the internet.
  • Russia has ambitions to be a leader in the blockchain space and currently has 500,000 blockchain users.

Russia is known for many things, but being a breeding ground for startups and tech innovation isn’t necessarily at the top of the list.

Despite the country’s rich history of innovation — inventing the first satellite (Sputnik 1) and even sending the first human into space — finding a place in today’s market and fostering globally successful companies has not been a strong point.

Though Moscow is working to change that narrative, it could very well be an uphill battle.

Political conflict has wreaked havoc on the country’s financial health over the years, which has, in turn, caused many global venture capitalists to look elsewhere and talent to drastically exit in search of better opportunities.

“The crisis and shortage of finance in the country has made it very difficult and competitive for startups to obtain investment,” Victoria Zavyalova, science and technology editor at Russia Beyond The Headlines, said earlier this year.

Last year, Moscow was ranked as the 13th best city in the world to launch a startup by the Global Startup Ecosystem Ranking, which is based on performance, funding, talent, market reach and startup experience. Though there’s still work to be done in Moscow’s tech ecosystem, it seems as though progress is being made.


Blockchain On The Brain

Russia has ambitions to one day be considered a world leader in blockchain.

A renewed focus has been placed on researching and testing blockchain applications, as well as pushing the development of information and financial technology within the country, The CoinTelegraph reported.

“It is of no less significance than the creation of the internet. If today we attract all the main technologies and investors in the sphere of the blockchain and cryptocurrencies, having all the resources, both geographic and human, we would advance to take our place among the leading countries of the world, not only in this sphere but in general,” Russian politician and businessman Boris Titov said.

“We are in opposition to the current economic policy adopted by the government and the Central Bank. Unfortunately, so far, the president backs them, but we hope it will change soon,” he added.

With the U.K.’s recent exit from the EU, Moscow may throw its hat into the race to replace London as the FinTech capital of the world.

Earlier this year, at the Blockchain and Bitcoin conference that took place in Moscow, representatives of foreign blockchain companies enthusiastically shared their vision for developing the technology in Russia.

“Our mission is to reinvent finances, make them adequate to the era of the financial technology revolution and provide people with better access to financial services,” Paul Szurek, head of strategy and partnerships at Blockchain, told The CoinTelegraph.

Szurek also noted Russia’s strong potential to deliver innovative payment solutions on the basis of blockchain that will allow fast, secure and confidential transactions.


Changing The Approach To Innovation

At the Russian government’s annual flagship tech event, called the Open Innovations forum, more than 13,000 entrepreneurs and investors gathered to discuss the pace of technological advancements in the country.

What was brought to light, Russia Beyond The Headlines reported, are the many challenges still facing Russia’s tech infrastructure — ranging from low demand for new technologies to diminishing investments in early-stage startups.

“There is not enough mutual trust in the local business environment,” Pekka Viljakainen, adviser to Skolkovo Foundation’s president, said in a speech during the event. “Companies are afraid to lose control under the current situation.”

But this top-down approach to innovation could actually result in startup founders being less likely to take risks and accept responsibility, Russia Beyond The Headlines pointed out.

Unfortunately, many large corporations in Russia are not equipped to work properly with startups, which could lead to many entrepreneurs moving abroad and taking their innovative ideas with them.

Though the Russian government is taking steps to foster an innovation process throughout the tech landscape, Ruslan Musin, the founder of SpeakUS, said the infrastructure for startups remains in the early stage of development.

“It seems that window dressing gets more attention than deeper processes,” he told Russia Beyond The Headlines.

“There are favorable conditions for starting a tech business in Russia, but the issue is further development,” Musin said. “The venture capital market in the country is almost nonexistent, and startups need financial ‘venture vitamins’ for growth. Of course, something is happening, but innovation can’t be developed separately from other industries.”