Ukraine learned the meaning of the term “outsourcing” comparatively recently. Now, after a decade in the market, this branch, responsible for developing software for IT products, sophisticated solutions for their testing and promotion, has become one of the leaders in the country, and not only in terms of growth rate, but also in terms of its contribution into the nation’s balance of trade. Experts forecast that by 2013 the proceeds from IT outsourcing will have reached 1.5 billion dollars. This volume is ensured by the knowledge of only 30,000 persons, employed in this sector.
The customers of Ukraine’s outsourcing are West Europe and the USA. They access the prospects of the industry as quite attractive, said recently Dmytro Kushnir, vice president of Luxoft and managing director Luxoft Ukraine. According to Gartner, a consultancy, the global programing services market today exceeds 250 million dollars. Interestingly, this year it will grow by 2 percent, whereas the Ukrainian programing market will grow ten times faster, by approximately 20 percent. “This means that Ukraine is increasing its share of the global market,” emphasized Kushnir. If such rate prevails, in 10 years (by 2023), the capacity of Ukraine’s market will comprise no less than 10 billion dollars, with more than 200,000 experts employed in this promising export-oriented industry.
“So, Ukraine’s IT outsourcing industry can be described as one on the level with the developed economies. It is creating new jobs and developing rapidly,” says Kushnir and adds: “Gartner includes Ukraine among the top 30 global leaders.” Asian nations take the top of the list, India being number one, with its multi-billion market of IT services, followed by China and Philippines. Other Asian and Latin American countries are also active on the global market, taking part in all the bids worldwide. “We are successfully competing with other countries on the global market. Of course, there are problems related to the absence of conditions, which would be competitive on the global market,” states Kushnir and goes on to expound his idea: there are no obstacles stopping Ukrainian experts from moving to any of the competing countries and working there.
However, there has been certain progress. If last year the number of vacancies for experienced employees doubled, for novices it grew by 2.7. “Our sector has a great demand for young experts,” says Kushnir. “We are prepared to give them jobs and opportunity for further training. Education for us is the basis for business. Back in 1998, we launched a retraining program for university lecturers.”
Kushnir argues that outsourcing companies should be engaged not solely in service, but also in developing their own IT products and high technology solutions. There is great demand for this sort of product worldwide, in particular, for research laboratories. Kushnir related that past year on the premises of the Odesa Polytechnic University his company started a laboratory for developing automotive electronics. One of the students made a 3-D navigation map of Odesa. On a recent visit to Ukraine, one of the leading German experts in this branch highly appreciated this work and suggested a new joint research project.
Thus, one of the challenges for Ukrainian IT outsourcing is to create such working environment for both novices and experienced experts, which would entice them to stay and work home rather than emigrate. And, conversely, which would also lure foreign experts to come and work here. How could this be done?
Viktor Valieiev, CEO, Association “Information Technology Ukraine,” believes that it is necessary to restore fiscal incentives to the mechanism of government support for IT, which were excluded from the Law “On State Support for the Development of the Software Industry,” which came into effect on November 7. According to Valieiev, Ukrainian IT companies insist on further well-reasoned dialog with the government concerning the incentives, which would allow the IT industry to develop and transform Ukraine into a regional center of software development. He believes that the sector has great demand for young specialists.
“IT companies are well aware that the president has a lot of challenges on government level in the current political and economic situation, which demand for more attention than an individual industry,” says he. But the arguments, prepared by the president’s Administration, which served as the basis for amending the law, had never been discussed with the industry and thus should be revised. Meanwhile, the expert notes that the very fact of passing this law also has a positive effect, since the problem of stimulating the industry was brought up at the top official level.
“The industry urges the government to engage in a reasonable dialog and a thorough analysis of its needs,” says Valieiev. IT ensures stable earnings in hard currency (its trade deficit has reached 8.1 billion dollars over the last eight months). He believes that the IT industry should be entitled to more material assistance than the formal development procedures, endorsed by the new law. Incentives, analogical to those offered in India or Belarus, could transform Ukraine into a regional software outsourcing center. Inconsistency in this question does not help create an attractive image for Ukraine, to put it mildly.
Serhii Yevtushenko of the state-run company InvestUkraine is convinced that Ukraine’s IT sector will inevitably attract big transnational companies as investors. He described Ukraine’s IT outsourcing as “an extremely smart industry” with good dynamics and “sustainable growth,” even in comparison with our closest neighbors. In his opinion, Ukraine is now number-one exporter of IT products in its region, second only to Poland in the market. But in Ukraine IT industry accounts only for 1 percent of its GDP, whereas in Poland it is 1.4 percent, in India 5 percent, and in Estonia 16 percent GDP.
Yevtushenko sees our major drawback in the fact that out of 14,000 university graduates, more than half leave the country due to a lack of jobs. Besides, the productivity in the IT sector is not really high at the moment. If 30,000 Estonian IT developers earned 3.7 billion dollars for their country, in Ukraine 200,000 earned only 1 billion. This can indicate that a large proportion of deals are implemented behind the scenes. Besides, outsourcing in itself is a “sign of an immature market,” since today it only means the capitalization of a difference between labor costs in Ukraine and, say, Ireland or Estonia. A mature market, according to Yevtushenko, involves domestic production of end-user product. He adduces an example of a small Ukrainian IT firm, which has been active only for three years, but its capitalization now amounts to a billion dollars – which is quite comparable to the worth of a metallurgical enterprise like the one in Yenakiieve, with thousands of workers and staff.
