Ukrainian Outsource Market

Main Advantages of Ukraine as the Outsourcing Destination
Ranked among the countries best suited for outsourcing, and offering affordable, top notch IT specialists, Ukraine has already earned solid reputation as a provider of innovative technology skills and ideas.

One of the main things that make Ukraine so attractive as an outsourcing destination is the availability of a highly skilled IT talent pool. The country’s strong emphasis on education – especially

engineering and sciences – is supported by the fact that it boasts the highest public expenditures on education in the CEE region. This ensures that every industry segment in Ukraine reaps the benefits of highly qualified and trained IT workforce.

Ukraine also has a distinct advantage in software quality. Talented IT specialists with in-depth knowledge and experience, and a creative approach, guarantee an extremely high quality of developed software.

The affordability of the IT workforce is another prime reason why businesses consider outsourcing their IT services to Ukraine. By locating their core IT development in Ukraine, western European and U.S. companies can expect to save 40% to 60% on their total in-house IT spending.Reasonable cost combined with a reliable and well-developed infrastructure, telecommunications, legal system and simplified tax structures have created extremely favorable conditions for conducting business in Ukraine.

A similar culture and shared business values has led to historically close ties between Europe and Ukraine. These cultural similarities, and a favorable geographical position with insignificant or no time differences, make communication and mutual understanding much easier for foreign companies that do business in Ukraine.

Ukraine’s IT outsourcing industry demonstrates stable growth over the past several years.
Compared to other CEE countries, Ukraine reports the highest rate of market growth. In fact, Ukraine’s growth dwarfs that of other CEE countries in exported IT outsourcing services.

Ukraine, with its extensive IT talent pool, reasonably low labor costs and established business infrastructure is attracting Western European and North American companies as the preferred
destination for outsourcing IT work.

Advantages of Ukraine as the Outsourcing Destination

• Mature IT / BPO market that continues to develop rapidly
• Large pool of highly-skilled specialists, top-notch technology talent
• Strong educational system, large number of universities, scientific schools and R&D centers
• Good command of the English language
• Advanced infrastructure
• Economic and political transformation oriented towards Western business models
• Cultural and geographical proximity to Western Europe
• Significantly lower costs, including labor costs

Since the year 2000 Ukraine has been a leading player in the software development space, and has been ranked at the top of IT outsourcing service providers in the global market. More and more companies come to Ukraine selecting it as a preferred destination for their R&D offices.
Strong engineering education, popularity of  engineering professions among the youth, and rich history of the software development industry make Ukraine one of the most attractive Europe destinations for the IT outsourcing and software development businesses.

The history of Ukraine’s software development industry is deeply rooted. Officially, December 25th, 1951 is considered as the beginning of  the computer science era when the Ukrainian academician from Kyiv, Sergey Lebedev, introduced the first computer in the entire Continental Europe. A rapid growth of the industry was recorded in the middle of 1990s, when a large number of independent software development companies emerged.

Based on a 60  plus year history of  the extensive network of  educational and scientific institutions, the Ukrainian software development and  IT outsourcing services  industry  is rapidly developing into one of the most important sectors of the Ukrainian economy.
The Ukrainian government actively supports  industry growth through tax exemptions,and provides public financing for development of  IT and  innovation parks. Governmental support will promote  industry growth and further expansion of  the software development and IT outsourcing service ecosystem in 2012–2013.

During the last decade Ukraine has been the leading provider of software development and IT outsourcing services in the Central and Eastern European region (excluding Russia).
Ukraine is ranked first in the volume of IT outsourcing and software development servicesprovided, in the number of  IT  specialists working  in the  industry, and  in the number of IT graduates;

The post crisis effects have been overcome, the  industry  is developing at a rapid pace of 20 %-25 % growth a year while new companies are opening their R&D offices in Ukraine.
After the recent tax exemption legislation for software development companies has been accepted, such global  vendors as Google, Microsoft, Samsung, and Huawei expressed interest in establishing R&D centers in Ukraine;

Human Resources for IT Industry

Highly qualified personnel is at the core of the software development business. The presence of  educational  institutions for  IT  personnel training and preparation plays a  very  important role in the industry development.
Ukraine has a long standing reputation as a major technology region, with a well-developed cientific and educational base:
In terms of IT services outsourcing, Ukraine primarily places emphasis on its deep IT talent pool. With 16,000  IT  specialists graduating from Ukrainian universities each year, the country holds the fourth position in the world in the number of certified IT specialists, following the USA, India, and Russia. On top of that, the experts recognize both quantitative and qualitative potential of the Ukrainian specialists.
In 2011  the number of  IT  specialists working  in the  industry reached 25,000  people with 20 %  growth. The successful development of  IT  outsourcing services  industry  in the country depends a lot on its deep IT talent pool. The presence of strong science schools, universities mainly focused on engineering specialties fuels the industry. In Ukraine, of  16,000  IT  specialists graduating each year from universities only 4,000–5,000 are employed in companies that provide professional IT services. This number might easily double because of the initiatives of Ukrainian government aimed at the creation of favorable conditions for IT outsourcing business development.

In order to improve the quality of IT professionals and to strengthen cooperation between businesses and educational  institutions to sustain further development of  IT  outsourcing industry in  Ukraine, a working group under the leadership of  Deputy Prime Minister, Sergey Tigipko, and  an  IT  Committee partnered together with IT associations, IT companies, leading technical universities and the Ministry of  Education. Their work led to  a  decree intended for  the  improvement of  IT  education, attraction of  youth to the  IT  industry and  bringing of  education to the needs of  IT  labor pool. A decree of  the Cabinet of  Ministers “On  approval of  the agenda to  identify the priority areas in the IT education development for the years 2011–2013” aimed to  support IT  education in  Ukraine, was signed by a Prime Minister Nikolay Azarov on September 21st, 2011.

• Ukraine was ranked 32nd in Education on the 2009 Legatum Prosperity Index of 104 countries — ahead of  India, China, Indonesia, Malaysia, Mexico, Brazil, Chile, and  other popular outsourcing destinations. The literacy rate  in Ukraine  is almost 100 % while about 70  percent of  adult population has secondary or higher education.
• Ukraine has more than 800 higher education institutions and in 2010 the number of graduates reached 654,700 people.

Quick Facts:

• Number of Educational Institutions
  Schools — 20047 Colleges — 990 Higher education institutions — 861
• Number of graduates: 654,700(2010 year)
• Number of graduates per 1000 people: 14
• Number of graduates of IT specialties with bachelor degree — 16,000

History of Ukraine’s Software Development Market:

1952-1970: Formation of computer calculations
1951 – first computer in Continental Europe.Computer codes.
1960-1980: Use in science, military technologies.FORTRAN, PL1, COBOL, C
1980-1990: Use of software in business
1980: Emergence of PC
1980-1990 – automation of the largest industrial enterprises of the Soviet economy. COBOL,FORTRAN, PASCAL, Palma.
1990-1999: Emergence of market society in the SOFTWARE DEVELOPMENT industry.
1989 — establishment of company Mirasoft.
1990 – Emergence of the first independent software development companies. Accounting. Automated workstations for industrial enterprises. Clipper, DBase, FoxPro, С/С++.
1999-2002: Dot-com bubble and the industry growth
The active use of Internet
Projects for Dot-com startups
The volume of offshore projects exceeds the volume of onshore projects
2002-2003: The period of uncertainty. Global recession and orientation of software development market towards offshore customers caused the market slowdown and separate bankruptcies (Novatek, Tessart, UkrSoft).
2003-2006: Rapid growth of the industry at the cost of offshore projects. With the recovery of global economy, the demand for the Ukrainian programmers increased.
2006-2008: Market Stabilization
Large players such as Luxoft, EPAM, Dataart, StarSoft entered the market
In 2008 — 800 IT companies with 14 000 employees.
2009-till now: Post-crisis growth

Industry Acknowledgement

Many experts agree that Ukraine’s many competitive advantages such as  its unique geographical location, the  availability of an extensive pool of  IT  talent, its strong scientific legacy, and lower costs make Ukraine a natural choice for outsourcing. Ukraine’s IT outsourcing service  industry, as well as several specific Ukrainian outsourcing companies, have been recognized many times by global research organizations and  national industry associations in their reports, listings, rankings and via awards and various nominations. Here are just a handful of the achievements that support Ukraine’s reputation as one of the  world’s best locations for outsourcing:

Central and Eastern Europe IT Outsourcing Review

Ukraine was ranked the  first among 16  countries of the  CEE region according to  volume of IT outsourcing services provided, by the number of IT outsourcing companies operating in the market, and  by the  number of  IT  specialists  involved  in  the outsourcing  industry  in  the “CEE  IT  Outsourcing Review” in  2008, 2009  and  2010. This research  is  conducted annually by the Central and Eastern European Outsourcing Association (CEEOA). The reports are located at:
“CEE IT Outsourcing Review 2007” http://itonews.eu/files/f1223022181.pdf
“CEE IT Outsourcing Review 2008”http://itonews.eu/shared/files/CEE_IT_Outsourcing_Review_2008.zip
“CEE IT Outsourcing Review 2010”http://ceeoa.org/assets/Uploads/CEEITOReview2010.final.pdf

TOP 30 Outsourcing Destinations

Ukraine has made the list of the TOP 30 Outsourcing Destinations as ranked by Gartner Group since 2007. Every year Gartner, the  world’s leading research organization, examines 72  offshore locations according to ten criteria and lists the top 30 outsourcing destinations. The criteria used by Gartner are language, government support, infrastructure, political and economic environment, cultural compatibility, educational system, labor pool, cost, global and  legal maturity, data and  intellectual property security and  privacy. See Gartner’s 30  Leading Locations for Offshore Services.

TOP 50 Countries for Locating Outsourcing Services — Global Services Location Index

Ukraine  is  included The  Global Services Location  Index, a  report by global management consulting firm A. T. Kearney that analyzes and ranks the top 50 countries in the world for locating outsourcing activities. This includes IT services and support, contact centers and back-office support. The report has been published since 2003. For more details see the Global Services Location Index reports.

Ranked 49th in the World’s TOP 100 Countries

Ukraine was ranked the 49th best country in which to live in the ranking of the world’s top 100  countries by Newsweek Magazine. Among low-income countries the  Newsweek Magazine Study found Ukraine has the best quality of life in terms of health, education, economy and politics. For more details see World’s TOP 100 Countries.

Outsourcing Destination of the Year

In  2011, Ukraine was recognized by outsourcing experts as the  top destination for  IT  outsourcing, and  was also nominated as the  “Outsourcing Destination of the  Year” by the European Outsourcing Excellence Awards at the European Outsourcing Association Summit. More information about the awards can be found on the EOA Summitwebsite.

City of Lviv a TOP 30 Emerging Destination for Outsourcing

In 2009, the Ukrainian city of Lviv was named a TOP 30 emerging destination for outsourcing in  the report “Exploring Global Frontiers” by KPMG. The  30  cities  in  its analysis are “emerging,” in that they are lesser known alternatives to more established cities for IT-BPO operations in three regions: South and North America, Asia, India, Japan and Australia (ASPAC), Europe, the Middle East and Africa (EMA). For more details see Exploring Global Frontiers.

TOP 50 Emerging Global Outsourcing Destinations

Ukraine’s capital Kyiv was ranked among the  TOP 50  Emerging Global Outsourcing Destinations by Global Services and Tholons in 2009. The rankings were based on an analysis of In 2011, Ukraine was recognized by several outsourcing experts as the top destination for IT outsourcing, and  was also nominated as the  “Outsourcing Destination of the  Year” by the  European Outsourcing

Excellence Awards: 47

the following categories: Scale and Quality of Workforce, Business Catalyst, Cost, Infrastructure, Risk Profile and Quality of Life. For more details see the TOP 50 Emerging Global Outsourcing Cities listing.

TOP 20 Leading Countries in the area of IT Outsourcing and High-Tech Services

According to the 2010 Global Services 100 list, Ukraine is 11th among 20 leading countries in the area of  IT  Outsourcing and  High Tech Services. The  GS 100  list  is  compiled annually by Global Services  in  association with NeoAdvisory, a  consulting and  advisory company. The  2010  Global Services 100 list can be accessed online at http://www.globalservicesmedia.com.

TOP 10 countries with the Most Certified IT Professionals

Ukraine was ranked among the  10 TOP countries with the  most certified  IT  professionals,coming in just after the United States, India and the Russian Federation. For more information seethe Global IT IQ Report.

Gaming Industry’s TOP 12 European Countries

Ukraine was ranked 8th in the Gaming Industry’s TOP 12 European Countries by The Global Gaming Industry Network in 2009. Ukraine was among the  10  TOP countries with the  most certified  IT  professionals ranking just after the United States, India and the Russian Federation. For details see the Global IT IQ Report.

Market Volume

One of the primary unbiased indicators of growth in the IT outsourcing market is the volume of the  services provided. The  volume of the  services provided in  the software development and  IT outsourcing service market is  growing at  a rapid pace. The  most significant leap was recorded in 2004–2005 when Ukraine underwent an extensive liberalization of foreign economic relations and visafree travel was introduced. The growth in the volume of the services provided jumped 51 % in 2005 and 56 % in 2006, respectively. In 2008, the market growth slowed and market volume decreased by 2–3 % due to the global recession. But in the post-crisis year 2009, the market rebounded to turn in 25 % growth. This proves the resilience of Ukrainian software companies and their ability to weather adverse global economic factors. The  significant growth  in  2009  confirms that the  management of Ukrainian companies can successfully navigate a contracting market situation and actively grow demand. By 2011, the  volume of the  software development and  IT outsourcing services provided in  Ukraine reached a  healthy US$1.1  billion. The  software development and  IT outsourcing service industry is the most rapidly developing sector in the export oriented economy of Ukraine.

Overview of Ukraine’s IT Outsourcing Service Industry

Ukraine’s software development and IT outsourcing service industry is the largest in Central and Eastern Europe. Ninety-percent of the industry is oriented towards external markets. The large number of highly skilled  IT  professionals fuels a  robust  industry focused on  delivering quality, reliable IT services to global markets. Strong experience and  qualifications, and  a client-oriented approach, coupled with their relatively low cost, have created high demand for Ukrainian programmers. The deep involvement of Ukrainian developers in a client’s projects allows the client to more easily and cost-effectively achieve the results desired. Ukraine’s  IT  outsourcing services industry boasts numerous advantages over competitors. An abundance of stories exist about foreign companies that successfully set up their R&D centers in  Ukraine after unsuccessfully attempting to work with  Indian companies. A  majority of our clients note that the main differences between working with Ukrainian developers, as  compared to those  in  India, are the  results-oriented approach of Ukrainian developers, the  depth of their involvement in projects, and their strong mathematics and technical backgrounds. In terms of cost-to-quality, these competitive advantages make Ukrainian programmers the  most effective in the outsourcing industry. Due to the  strength and  depth of our  IT  talent, the  Ukrainian outsourcing  industry has enjoyed exceptional growth. During last 2–3 years, many Ukrainian IT outsourcing companies set up corporate training centers to train, prepare and better use the pool of 16,000 IT professionals that graduate annually from area universities. Most companies have more than 10  years of experience, smooth, efficient production processes, solid marketing and  training programs for staff. Over the last eight years, the volume of software development and IT outsourcing services the Ukraine has provided has grown by a factor of ten. Experts agree that the  industry will continue to grow rapidly for the  foreseeable future. In fact, according to the optimistic estimates of experts, the Ukrainian market will grow tenfold, and the volume of software development and IT outsourcing services may reach US$10 billion by 2020.

Snapshot of Ukraine’s IT Outsourcing Industry

• Ukraine represents the largest IT outsourcing industry in Eastern Europe
• IT outsourcing industry growth rate for 2011 — 20 %
• More than 1,000 IT outsourcing companies
• 25,000+ specialists involved in the IT outsourcing industry
• Ukraine has more than 800 universities and colleges
• Majority of Ukrainian IT specialists (est. 70 %) work for American or European customers
• A  number of government  initiatives  introduced to support and  promote the  Ukrainian IT industry

Number of IT Specialists

The  industry of software development and  IT outsourcing services  is  service-oriented, therefore the  volume of the  IT outsourcing services provided  is  closely related to the  number of the personnel working in the industry. The number of the employed IT specialists is the second important indicator of the state of the industry. The  quantitative estimation of the  industry was first made in  2007  when the  Ukrainian Hi-Tech  Initiative issued the  “CEE  IT  Outsourcing Review 2007.” The  data on  the number of personnel working in  the market for 2008–2011  was taken from the  research report “CEE IT Outsourcing Review.”
The growth in the number of IT specialists engaged in delivering the software development and IT outsourcing services recorded in 2011 was more than 4,000 people. This figure shows that the  industry has completely recovered from a  temporary dip caused by the  financial recession and resumed its growth. Graduates from Ukrainian universities were the main source of personnel for the IT outsourcing and software development industry. Each year, roughly 16,000 IT specialists graduate from area universities. Such a  high number of annual  IT  graduates gives the  Ukraine a  strong foundation for the further potential industry growth and development.

Key Regions for Services Export

Since 2000, the  traditional leader among consumers of Ukrainian services  is  the United  States. During the last 2–3 years European consumers have become more active. Currently, the share of service consumption by EU countries is increasing. This is primarily influenced by the geographical and cultural proximity of Ukraine and the European countries, and the potential for more easily developing sales networks in Europe.

Top Clients of Ukrainian Outsourcing Companies

The majority of clients of Ukrainian companies are small-and mid-sized firms. This has been the case historically since times when the market was fragmented and there were no large players who could provide clients with large pools of talent resources. With the adoption of a range of laws in Ukraine designed to support IT service providers and software developers, global companies began exploring the Ukrainian market and setting up R&D centers here. Below are numerous examples of name global companies that work with Ukrainian software development providers.
Here is cites from “Central  and Eastern Europe IT Outsourcing Review 2010” performed by Central and Eastern European Outsourcing Association (http://ceeoa.org)

Market Volume

The  general  volume  of  IT  outsourcing  and  custom  software  development  services  exported  from the  CEE  region  reached  USD  $4  billion  in  2009.  The  largest  growth  took  place  in  Romania and Ukraine.  These  two  leaders  invariably  show  high  rates  of  market  growth  and  leave  other countries far  behind  in  terms  of  the  volume  of  IT  outsourcing  services  exported.  Hungary, Poland,  Belarus, Czech Republic and Bulgaria close out the list of  leaders. The share of market export volume f or all other  countries  in  the  region  combined  is  just  17%.  The  trend  of  decreasing  market  export  volume shares  in  these  countries,  which  has  been  noticeable  f or  the  last  three  years,  will  most  likely continue in  2010 as well.

Note:  To  calculate  the  market  volume,  two  independent  assessments  were  used.  To  determine thefirst  assessment, sources used includedthe number  of specialists involved inthe  industry  of software  development  and  IT  outsourcing  services;  the  average  rates  by  country;  staff workloads;  and  the  specific  amount  of  offshore  projects  in  the  general  revenue  structures  of companies  as reported through the surveys.The second  assessment of market  volume is based on  market  volumes  from  CEEOA’s  2008  research,  and  the  growth  index  of  the  IT  outsourcing services export market in 2009.

Number of companies

The  number  of  companies  operating  in  the  market  describe  the  existing  ecosystem  of  the industry  in  a  given  country,  and  the  ease/complexity  of  setting  up  a  business  in  the  IT outsourcing  industry.  In  2009,  the  growth  in  the  number  of  companies  reached  16-17%  in Slovenia, Bulgaria, Slovakia  and Romania.  A growth rate  of 10-12%  was  indicated  in Serbia  and F.Y.R.,  Ukraine,  Croatia,  Belarus  and  Hungary.  In  other  countries  the  growth  in  the  number  of

companies ranged between 3% and 6%.

Number of specialists

In  2009,  the  number  of  specialists  slightly  increased.  This  f act  led  to  a  prediction  of  positive growth  in  the  number  of  specialists  for  2010  as  well.  In  2009,  almost  95,000  IT  specialists  were involved  in  the  IT  outsourcing  and  custom  software  development  services  industry  in  the  CEE region.  The  leading  countries  (Ukraine,  Romania,  Belarus,  Hungary,  Poland  and  Bulgaria) accounted f or 75% of  all specialists inthe region. Strong engineering schools and large numbers of students inIT specialties have created good prospects f or further market development against the backdrop of the recovering global economy and rising demand for outsourcing services.

Top Clients of Ukraine IT outsourcing industry

Alcatel Genesys, AstraZeneca, Atos Origin AG, Autodesk, Inc., Avid, BEKO International, Bloomberg L.P, BMC Software, BNP Paribas, Boeing, Bombardier, BOSCH, CISCO, Comoto, Dell, Deloitte and Touche, Deutsche Bank, DHL, eBay, EDB Business Partner, Electronic Arts, Enviance, Hewlett Packard, IBM, IKEA, Jaguar, Kodak, Kyriba Corporation, LandRover BMU, Mersedes Benz, Microsoft, Mobile TeleSystems, MTV, NamcoNetworks, Nokia, Nokia SiemensNetworks, Novell, ParexelInternational, Quest Software, Rabobank, SEB bank, Sky,

Skype, SonyComputer Entertainment, Sopera GmbH, SymantecCorp., Telcordia, Trend Micro, T-Systems, USAID, USP networks, VAB Bank, Volvo, Volkswagen, WincorNixdorf GmbH