Two industry reports were released earlier this week, bringing fresh data and analysis about the software development industry in Ukraine and three other Eastern European countries.
The first report was issued by a consortium of leading local investment firms (AVentures Capital, Aventis Capital, and Capital Times) in partnership with IT service provider Intellias. It covers four countries: Belarus, Poland, Romainia and Ukraine, in which the authors see “a rapidly growing, highly competitive, and attractive source of talent for the global IT industry.”
Among the key findings of the report are the following:
- The growth of the IT service market is driven by a long-term upward trend which involved the world’s increasing economic interdependence, the transfer of jobs offshore from the most developed countries, and the growing needs of corporations for digital transformation. Each of these three factors is interrelated with the imbalance in tech talent supply and demand.
- Eastern Europe can bring a significant contribution to address this imbalance at the global level. While Ukraine, Belarus, Poland, and Romania taken individually accounts for just a fraction of the Chinese or Indian software development capacity, these four countries make up “an enormously competitive hotspot exporting $13 billion worth of services in 2018,” says the report.
- The four countries covered by the report are home to “more than 700,000 professionals” who serve “470 software development companies employing at least 50 people.” The salaries in the industry have been “constantly growing” during the past decade, ranging from $500 for a junior developer to up to $5,000 for a team lead, according to the report, while “over 200 universities and colleges graduate over 60,000 IT specialists annually.”
Also analyzed in the report are the investment attractiveness and the M&A facts and trends in the region. Thus, the report notes that the IT outsourcing industry in the region tends to grow “much faster than the global average: “around 20-25% yearly vs. 5% globally.
“Coupled with superior profitability, this makes the sector a hot spot in M&A activity,” believe the authors, who identified over 70 M&A transactions completed over the past four years (2015-2018).
A Norwegian report “to optimize outsourcing decisions”
Released almost simultaneously, but dedicated to the Ukrainian market exclusively, another report was commissioned by the Norwegian-Ukrainian Chamber of Commerce (NUCC) in order to “help Norwegian companies optimize their outsourcing decisions.”
Conducted by uSupport and Ukraine Digital News, the study includes the results from a survey and interviews with Ukrainian and Scandinavian IT-providers, as well as a few of their customers.
The report reminds important market facts and number: IT services account for Ukraine’s third largest export industry, placing Ukraine among the top 3 exporters in Central and Eastern Europe. Meanwhile, most of the service export goes to the Western European or North American market. No less than 58% of the Ukrainian IT-providers which participated in the survey have customers in Scandinavia, while 83% have customers in Western European countries outside Scandinavia and 78% have customers in North America.
IT services are important for the Norwegian-Ukrainian bilateral trade, notes the NUCC report, accounting for about two thirds of the service export from Ukraine to Norway, according to official statistics.
The report sees “quality, variety, pricing and proximity” as the main strengths of the Ukrainian IT outsourcing and software development industry.
Business climate and political instability are seen as a serious disadvantage for the country’s image. “Even though the IT-service industry is less affected by these issues than some other sectors, foreigners’ perception of Ukraine is impacted,” note the authors.
Still in growth phase, the Ukrainian IT service industry is “not fully mature yet,” concede the authors: “The level of management and marketing skills, but also customer service offered by some providers, may not be as high as the quality of technical implementation as such.” However, an increasing number of companies are “getting used to deal with customers in Western Europe and Scandinavia, which tends to raise the overall level of service.”
“You can find very good Ukrainian IT-companies with substantial experience from the international market, including the Scandinavian market,” concludes the report.
NUCC has made a summary of the report available publicly. You may receive the full version by sending your request to nataliya.sjovoll[at]nucc.no.
Notable previous reports
Among notable recent industry reports were:
- The “Tech Ecosystem Guide to Ukraine” factbook, released in January 2019 by innovation park Unit.City and the Western NIS Enterprise Fund. This report estimated the volume of Ukraine tech service export at $4.5 billion in 2018.
- “IT Research 3.0,” a research covering the IT industry in Lviv (Lvov), a major city of Western Ukraine. Released in December 2018 by Lviv IT Cluster, the report identified 317 local IT companies and estimated that they generated “more than $1 billion in direct and induced revenues in 2018.”
In 2015, an in-depth study by Ukraine Digital News and AVentures Capital highlighted the potential of the Ukrainian IT service sector in an unusual way. While noting its high quality-price ratio, the report suggested that exports of IT goods and services could grow more than 30-fold from its current levels, should corruption be eradicated and IP rights better protected, according to international expert Phillip Hatch.
This article also appeared in Tech.eu, a syndication partner of Ukraine Digital News
