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 IDC forecast, Ukrainian Information Technology market is expected to grow 15-17% and reach $2.4-2.5 million in 2007. It means that outsourcing service market is going to maintain its stable growth.
The successful development of Information Technology Outsourcing Industry in the Ukraine results from a number of advantage factors in the country.
In spite of the increase in developers’ salaries and general price raising 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, low cost is the priority only for small and medium-sized Western companies when they choose outsourcing service provider. It is the kind of customers which will be critical for 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 US 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 the good prospective. 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 instable political situation in the Middle East. The permanent threat of war conflicts in the region leads to customers’ surrender of co-operation with the traditional outsourcing market leaders: India, Israel, Pakistani and other Middle Eastern countries. The process of 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. Because of the political instability in the Middle East, interest to 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. US and Western European customers like western mentality of the Ukrainians and small time-zone difference. Thus, the new trend called nearshoring is a prospective direction for the Ukraine. Nearshoring is an offshore outsourcing to the countries situated nearby the customer’s country. It is popular in the developed Western European countries like Germany and other countries. The former USSR republics which include Ukraine are within eyeshot of customers who 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 USA, Europe and Asia in 2006. Ukrainian showcase at the international outsourcing exhibition CeBIT 2006 is another important shift.
Due to all these factors Ukraine was included into the five most attractive outsourcing directions in some Western countries in 2006.
The progress of 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 USA, Florida. Due to the US-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 co-operation in the field of offshore software development outsourcing in the Ukraine.
Due to the growing interest to the Ukraine, a number of articles devoted to the country as an attractive IT outsourcing direction increase in the US 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 ITWeek.co.uk.
Publication devoted to outsourcing to Eastern Europe published at Global-outsourcing.blogspot.com 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 force, but also an attractive regulatory environment with a close proximity and cultural ties to Western Europe.”
Ukrainian Information Technology Outsourcing Industry will continue growing. Even though experts foresee the general decrease of IT outsourcing needs on the global market, the Ukraine has good chances to find its niche and develop outsourcing services due to the political stability and great intellectual resources.
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