Ukraine’s information technology industry is coming back to pre-crisis levels, with double-digit growth expected in coming years.
Perhaps more important than growth, however, is the transformation under way – from being based on the outsourcing of menial functions to producing innovators.
In 2011, Ukraine’s domestic IT market was estimated at Hr 14.5 billion ($1.8 billion), the same nominal amount as in 2008 before the crisis hit, according to PMR, a market research company.
Four years after the hryvnia’s sharp devaluation in 2008, the sector remains below its zenith in dollar terms. But it is expanding rapidly, both in the direction of traditional business process outsourcing and more elaborate business solutions.
Driving the diversification is the appearance of new organizations, a maturing market and the need for more challenging, and rewarding work, felt by the programmers themselves.
Bored by the traditional IT jobs available, a small group of Lviv-based programmers decided to set up Vertaline, a boutique agency that grabbed headlines in the U.S. earlier this year by creating the first ever Twitter-profanity map. Showing the curse words used by Twitter users, it allowed Americans see which city was the most foul-mouthed.
“Here we can do not just outsourcing but something that can affect the world,” Oleksandr Bondar, co-founder and CEO of Vertaline, said.
Their main business is prototyping and developing ideas, Bondar explained, in essence taking individuals and businesses ideas for programs and applications and showing them what they would look like in reality. The added benefit, he said, is that it allows the programmers to work on interesting projects, not just the outsourcing that still accounts for almost 95 percent of the market.
Vertaline is by no means alone in their quest for innovation. Other recent Ukrainian success stories include a face recognition platform called Viewdle, bought by Google for $30 million, and gloves that translate sign language into speech and vice versa – the recipient of a prestigious Microsoft award.
But despite the promising state of Ukraine’s IT industry, solving Ukraine’s traditional headaches – investment climate, macroeconomic/political stability and property rights protection – remains a barrier to growth.
More than any other industry, IT has the potential to pack up and leave at the first whiff of trouble. While the investors in a steel mill have to deal with raiding or corrupt officials, an IT outsourcing firm can shift its contracts from Ukraine to Bangladesh in a matter of days.
This may be one of the reasons behind the recent government moves aimed at creating a special environment for IT sector firms, most noticeably reducing corporate taxes to five percent and introducing value-added tax exemptions. But with most programmers already working under the private entrepreneur scheme and paying low taxes, such methods can only go so far.
Ukraine’s success depends on the ability to attract talent by providing good working conditions and quality of life. Competing for the traditional business process outsourcing destinations, like Poland and the Czech Republic — both regular names on the global top 10 lists — will be difficult. Ukraine lacks the modern office space, transport infrastructure, and world level educational institutions. Quality of life is an even bigger problem.
Just how much this matters can be seen on the example of Estonia, from where the international communication platform Skype originated and which is home to NATO’s top cyber-warfare center. One of the reasons it has been able to attract or keep the people necessary are the immense efforts to make it a pleasant place to live and work – liberalizing regulations, cutting red tape and making all functions of government accessible online.
So far in Ukraine, the only city with a chance to compete is Lviv, where a progressive local administration has sought to work with business and academia. Tax breaks are helpful, but the key is bringing the institutions and people together, says Bondar, who hopes to work on setting up an educational institution one day.
“I want a place where people come and see all the tools they need – and then create something,” he said.
Kyiv Post editor Jakub Parusinski can be reached at [email protected]
