Outsourcing To Ukraine: 2006 Results And 2007 Expectations

    The Information Technology market in the Ukraine has been growing stably during the last five years. Although internal customers still cannot afford to order large IT projects, Ukrainian IT products are progressively more desired in western countries. The United States and western Europe are unalterably the well-established importers of software development services from the Ukraine.

    The growth of IT industry export totaled 60% and rose to $280 million in 2006; the growth of IT market totaled 25-30%. According to the IDC forecast, Ukrainian Information Technology market is expected to grow 15-17% and reach $2.4-2.5 million in 2007. This means that the outsourcing service market is going to maintain stable growth.

    The successful development of Information Technology Outsourcing Industry in the Ukraine results from a number of advantageous factors in the country.

    Despite the increase in developer's salaries and general price inflation in 2006, software development costs are still highly competitive and attractive for western customers. The attractive prices are accompanied with progressively improving quality of products and knowledge of developers.

    Still, offering low costs is the priority only for small and medium-sized western companies when they choose outsourcing service provider. These are the kind of customers who will be critical for maintaining Ukrainian IT services export volume in 2007. In order to attract big investors, governmental programs stimulating country's IT industry development and making up positive image of the Ukrainian developers in the world need to be conducted. The majority of U.S. and western European big business owners still consider risks of IT outsourcing to the Ukraine to be very high. Several years are needed to attract them to the country.

    Nevertheless, small and medium-sized customers are good prospectives. IDC forecasts the increase of small and medium-sized businesses' (SMB) role for providers searching for new markets.

    Another factor which is expected to contribute to the development of the Ukrainian Information Technology market is the unstable political situation in the Middle East. The permanent threat of war conflicts in the region leads to the surrender of cooperation with the traditional outsourcing market leaders: India, Israel, Pakistani and other Middle Eastern countries. The reallocation of orders will start in the near future, providing Ukraine with a good chance to present itself as a reliable and prospective service provider at the global market level. Because of the political instability in the Middle East, interest from eastern and central European countries has increased.

    The similarity of cultural code, traditions, and religion are an important advantage for outsourcers to work with the country. U.S. and western European customers like the western mentality Ukrainians offer and small time-zone differences. Thus, a new trend called "nearshoring" is a prospective direction for the Ukraine. Nearshoring is an offshore outsourcing to countries situated near the customer's country. It is popular in developed western European countries like Germany. The former USSR republics which include Ukraine are within eyeshot of customers who may start exploiting nearshoring

    Numerous Information Technology conferences and forums evidence the increased interest to the Ukraine around the globe. Ukrainian Outsourcing Forum, which is one of the most important outsourcing events, has expanded its borders and hosted participants from the U.S., Europe and Asia in 2006.The Ukrainian showcase at the international outsourcing exhibition CeBIT 2006 was another important shift.

    Due to all of these factors, the Ukraine was included into the five most attractive outsourcing directions for some western countries in 2006.

    The progress of the IT outsourcing decentralization process is an obvious trend. Regions develop dynamically and compete with the capital, Kiev. It helps to keep prices down along with improving the services quality. Regional companies are traditionally small with the staff of no more than 100 employees, however, these are the companies making up the basis of the Information Technology Industry in the Ukraine, where big players can be counted on the fingers of one hand presently.

    That is why swiftly developing medium-sized companies determine the development of IT outsourcing industry in the Ukraine now. From TechnoPark Corp. Management, the company's profit has grown by 70% in 2006. TechnoPark Corp. is outsourcing software development company. Software development center is located in Dnepropetrovsk, Ukraine, and company's headquarters is based in the U.S., Florida. Due to the U.S. based office, it is easy for the company to find and contact western clients. A number of successful projects implemented by TechnoPark Corp. evidence that there are mature companies able to provide reliable and stable cooperation in the field of offshore software development outsourcing in the Ukraine.

    Due to growing interest in the Ukraine, the number of articles devoted to the country as an attractive IT outsourcing direction increase in the U.S. and European mass media. "The country is quickly becoming a home for offshore development, with outsourcing turnover apparently growing at 200 to 300 per cent annually. Locations that buck the downward trend will provide competitive sourcing solutions for IT directors. Ukraine might well be one of such centres," writes British online magazine .

    A publication devoted to outsourcing to Eastern Europe published at reads that "The attractive offshore work centers in eastern Europe include Russia, Ukraine, Poland, Belarus and the Baltic. These markets not only offer low cost skilled labor forces, but also an attractive regulatory environment with a close proximity and cultural ties to western Europe."

    The Ukrainian Information Technology Outsourcing Industry will continue growing. Even though experts foresee the general decrease of IT outsourcing needs in the global market, the Ukraine has good chances of fidning its niche and developing outsourcing services due to political stability and great intellectual resources.

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