Ukrainian software exporters want to end their semi-legal status and be openly represented in the international IT market, much like they were at the world’s largest annual high-tech fair CeBIT held in Germany’s Hannover in mid-March. The Ukrainian IT industry will again exhibit its products at a nationwide Ukrainian outsourcing forum this November.
Outsourcing, or farming out certain types of work to outside subcontractors, originated as a cost-cutting measure. Intellectual labor is very expensive in the West, and software developers earn hefty salaries, which is a colossal cost for large corporations with their own IT divisions. To cut costs, companies hire a smaller staff of programmers and farm out some of their work to overseas companies (offshore programming). The outsourcing business is based on the difference between labor costs inside the company and overseas.
A distinguishing feature of the Ukrainian outsourcing market is that a large part of it is not in the open. As a rule, only large companies seek publicity. According to Ukrainian Hi-Tech Initiative president Viktor Mazniuk, they account for a third of the market. The second largest group consists of companies that keep their business out of the public eye. The third group of market participants is made up of small software development teams and individual developers. Given such a market structure, available market statistics are clearly underreported. According to a survey conducted by the venture company TechInvest, in 2004 software exports from Ukraine rose by 57% from 2003 to reach $110 million (official statistics on software exports are close to zero). In 2005 the export growth rate will remain at 50%, and the export volume will exceed $165 million. The total number of specialists working in the Ukrainian IT export market reached 15,000 by late 2004, a 50% rise over 2003.
According to a regional breakdown, Kyiv has the largest share of the outsourcing market, followed by Kharkiv, Lviv, Dnipropetrovsk, Odesa, and southern Ukraine. However, this business is not concentrated just in large cities. According to Mazniuk, in many raion centers there are skilled, young programmers who work directly for foreign companies, earning three times the average salary in oblast centers.
“It is definitely a plus that people earn decent wages and don’t depend on the government for survival. But on the other hand, huge financial flows are bypassing state coffers, which is a minus. For this reason, the forum is designed to bring as much of this business as possible into the open and show the government a major source of economic growth,” Marketing Communications Agency director Serhiy Kostiukov told a news conference in Kyiv.
The organizers of the November forum believe that ensuring the effective development of the Ukrainian economy requires the creation of a communication space for Ukrainian professionals and representatives of Western companies that are in the market for our intellectual resources. “Ukraine has many interesting projects, but the people who are involved in this business are reluctant to publicize them because of certain collisions in Ukrainian legislation (Ukraine has yet to elaborate the legal aspects of intellectual exports — Auth.),” Kostiukov said.
This agency owner says that so far this business is developing on its own. If the government starts responding to its needs, it will grow even more dynamically. Kostiukov believes that government support is needed to create business parks and techno-parks. The government can also finance overseas marketing centers to secure contracts for Ukrainian specialists. In this business both the company’s reputation and the government’s policy on outsourcing are very important. India, the world’s leader in terms of external outsourcing contracts, has a special committee that oversees offshore business. It has developed into a large industry, which is why the dynamics of IT exports from India are so impressive: its IT exports are poised to top a staggering $50 billion per year by 2008.
According to Kostiukov, outsourcing is even more attractive because it is linked not so much to a country’s technical resources as human resources — the level of education and professional training. Ukraine faces many opportunities in this respect. Fifty thousand IT specialists graduate from Ukrainian universities every year. Indian programmers outstrip the competition in program code writing. Therefore, the forum’s organizers believe that Ukraine should gain a foothold in a different niche that requires a higher level of skills and offers higher earnings. There is a growing demand in the West for custom software, i.e., software products designed for specific companies or tasks. This should become a market for Ukraine.
