Ukraine’s booming IT sector makes it an outsourcing nation

The country may have the largest information technology labor force in Europe, and it exports billions of dollars worth of software to the world every year.

In 2015, Ukraine earned about $2.5 billion from exports of the country’s software and IT services. And the figures produced by Ukraine’s tech industry indicate accelerating growth, year after year.

“The IT sector in Ukraine experiences 25 percent growth annually, and if you add it all up, it has risen by ten times on the amount it was ten years ago,” Olena Minich, director of Ukrainian Economic Ministry’s department of innovations and intellectual property, told Radio Liberty on Feb. 8. “It’s estimated by IT specialists, companies and associations that export volumes in 2015 were the equivalent of $2.5 billion a year.”

Statistics published by Ukrainian online tech journal DOU on Feb. 1 show that some of Ukraine’s IT companies, or global ones that have big research and development offices in the country, are expanding so quickly that they already employ 2,000 to 4,000 programmers.

3 percent of GDP

Over the last half year the total number of employees in these companies has increased by 2.5 percent, writes DOU. The top 25 tech companies in Ukraine together employ more than 30,000 programmers.

And the top five on DOU’s list are all outsourcing companies or, as some of them call themselves, product developers – SoftServe, Luxoft, GlobalLogic, EPAM and Ciklum. The United States, according to Ukraine Digital News, is the main importer of Ukrainian software and IT services, buying an estimated 80 percent of Ukraine’s tech exports.

Industry estimates show that IT now accounts for some 3 percent of Ukraine’s gross domestic product – and could rise to 15 percent by 2020. “IT is in third place after the agriculture and metallurgy industries, and is on a par with the volume of chemicals exports,” Minich said.

But while Ukraine is currently reaping benefits from selling its intellectual property, dependency on outsourcing could have a downside, according to Vladimir Liulka, the CEO of the BrainBasket Foundation, a non-profit dedicated to developing IT education in Ukraine. Ukraine won’t be able to make use of its intellectual property to develop its own IT industry if it’s all being sold abroad, he says.

Outsourcing risks

“Everyone tries to outsource, because it’s the easiest way to earn money,” Liulka told the Kyiv Post. “But when a country depends on outsourcing too much, there’s a risk of it just becoming a source of raw materials.”

Ukrainian tech companies offer various software services, including software development, web and mobile development, quality assurance and testing, business process outsourcing, dedicated team outsourcing, research and development services, IT consulting and IT security management.

“The Ukrainian IT sector is still at a relatively early stage,” Yevgen Sysoyev, an AVentures Capital managing partner, told Ukraine Digital News. “However, it has already established itself as a hotbed of innovation, driven by the largest group of software engineers in all of Europe. So it’s no coincidence – hundreds of global tech companies have been outsourcing software development tasks to Ukraine, and have opened R&D centers here.”

Ukrainian tech outsourcing companies are frequently lauded and awarded by the world’s top tech players. In 2014, four Ukrainian IT companies and the five international companies with the biggest R&D offices in the country appeared on the annual Global Outsourcing 100 and World’s Best Outsourcing Advisors lists.

24th rank globally

This year, according to the Global Services Location Index, which is compiled by U.S. consulting firm ATKearney, Ukraine ranked 24th in the global outsource rating. That was 17 places up in the ranking compared to the previous year.

Ukraine’s tech specialists and their abundant intellectual potential have every chance to transform the country and lead it through the “fourth industrial revolution,” Ukrainian Prime Minister Arseniy Yatsenyuk said at the official opening of a hackathon for open-source tech startups organized by the 1991 Open Data Incubator in Kyiv on Feb. 6.

“Only powerful brains, talent and sanity can help develop other things,” Yatsenyuk said. “The world has changed. And in this modern world, those who have ideas drive the Earth.”

Kyiv Post staff writer Denys Krasnikov can be reached at krasnikov@kyivpost.com . The Kyiv Post’s IT coverage is sponsored by Ciklum, Steltec Capital, 1World Online and SoftServe. The content is independent of the donors.