Ukraine is best known for its iron age industrial base concentrated in the eastern Donbass region that has churned out huge amounts of steel, aluminium and allied metal products for most of the last century. However, the cutting age arena of IT outsourcing is fast growing into a success story to rival the might of the Soviet-era mega plants. One of the major resources supporting this sector is an educational system that still values the basics of physics and higher mathematics.
Many of the best and brightest Ukrainian students are still channeled into fields that had strategic value during Soviet times and find practical economic value in the post-Soviet hi-tech world. Software outsourcing had an interesting development curve in Ukraine, starting with the 1991-2000 period when there were large numbers of bright young students turned out by universities and institutes who at the time could find only relatively poorly paid employment in Ukraine. Thousands of those who gained experience and had the potential to go further were recruited by market leaders in Europe and the United States at what seemed to them at the time to be princely salaries, some starting as high as USD 40-50,000 a year. Some of the better prepared of those who emigrated are now industry leaders in the West. However, there were others who found that the high salaries on offer were not enough to overcome the cultural differences and returned to their homeland.
Although the IT sphere is by definition one of the most global of industries, the reappearance of these returnees in Ukraine sparked a boom within the domestic IT economy and has became a major factor in the development of small Ukrainian software development companies, some of which have turned into relatively large, profitable and growing businesses. Even with worldwide software development demand leveling off amid much greater competition, Ukraine remains well situated to maintain and expand its growth in the industry.
With USD 400 million of income in 2006, Ukraine’s outsourcing industry remains somewhat concentrated in Kyiv, but with living costs growing in the capital city at a much greater rate than in the rest of the country, outsourcing companies in other cities are finding their recruiting easier. Industry sources say that Kyiv now boasts 53% of the Ukrainian outsourcing market, followed by Lviv with 18% and Kharkiv with 13%. Other outsourcing centers include Dnipropetrovsk (5%); Vinnytsia (4%); Odessa and Donetsk (2% each).
Domestic start-ups growing
A number of foreign companies have moved their software development operations into Ukraine, but homegrown start-ups are still a major factor in the sector. For example, SoftServe began as an idea in the heads of a couple of recent Lviv University graduates in 1993. Beginning with only three employees, including the founders, the company has grown to become one of Ukraine’s largest in the field, and expects to expand its current 900 employees to over 1,000 by the end of 2007. Taras Vervega, executive vice president of SoftServe, told Business Ukraine: “We expect growth to continue at over 40% a year for at least the next two years. Building on our base in Lviv, we now also have development facilities in Rivne and Dnipropetrovsk and have recently launched new centres in Ivano-Frankivsk and Chernvitsi. In addition to our Ukrainian operation, we also have sales and marketing offices in Boston, Massachusetts; Santa Ana, California and Kyiv.”
Vervega also explains how the company is investing in human capital as part of their growth plans. “Rapid expansion requires great human resources; that is why SoftServe intensively invests in the education of its personnel. To increase the professional level of prospective co-workers, we launched SoftServe University, a full-scale educational institution giving students the opportunity to receive the latest practical and theoretical education.”
According to Global Skills Report 2006 published by Brainbench®, Inc., an internationally acclaimed skill-assessment company, “…eastern Europe, specifically the former Soviet bloc, has become a fascinating study in social and economic change.” Highly-qualified, veteran managers and developers will surely get your project done in time and on budget, while a seemingly less-expensive workforce is likely to incur future costs through ill-documented processes, lack of upward compatibility or bug-ridden builds.
Handing down the experience
The nature of software development is such that it requires high levels of dedication from workers who are mostly individualists and, according to employers, some who are downright prima donnas. Alexander Timanyuk, president of the Technical Writers Club of Ukraine, explains that his organisation has been successful through its interaction between more experienced technical writers and the less experienced in bringing general skill levels to a higher plane.
Timanyuk points out that often the desires of managers to keep a project on schedule and on budget comes into conflict with the work habits and mentality of the typical Ukrainian programmer. “Most, probably 99%, of Ukraine’s developers are perfectionists. In other words, they are likely to go beyond the call of duty to write the software that would meet the industry’s highest standards, even if it means putting the deadline at stake,” he says. “It requires really skilled managers to match this programmer desire for perfection with the stresses and strains that come with meeting customer demands, particularly when the customers are often thousands of miles away and usually only conversant in another language.”
One of the greatest hurdles for employers and employees has been differences in language proficiency. However, in recent years a growing number of Ukrainians have successfully overcome the English-language barrier, a very important development. “What might seem like an insignificant communication issue in everyday life poses a real risk when it comes to written specifications. Incorrect comprehension by a programmer might result in ambiguous requirements, and, subsequently, inadequate software or outright project failure,” Timanyuk adds.
The consensus among programmers might be summed up as “room for improvement, but much to be viewed with pride.” The Global Skills Report 2005 Country Skill Rankings states that Ukraine ranks among the top five countries well-versed in project management. According to the latest 2006 report, Ukraine now shares fourth with the United Kingdom.
It is estimated that there are currently around 500 private firms and startups, with an average workforce of four to seven each. Also, there are about 45 larger corporate operations developing software for the world’s heavy-hitters, like Adobe, Inc. (the makers of Acrobat and Photoshop) and other household names.
According to Timanyuk, the most serious problem, and maybe the only one, currently plaguing Ukraine’s outsourcing sector is a growing lack of human resources. Timanyuk says this was reflected in a controversial agreement struck among 10 outsourcing companies, binding each of them to inform the others if an employee of a group member sends their resume to another member of the group. Some programmers consider this agreement as highly negative, almost a form of virtual slavery. However, the reporting agreement was still in effect as late as the end of 2006.
Luckily, those people who started their programming careers as early as 1988 for as little as USD 40 per month have by now grown into a highly organised, well qualified workforce with a strong sense of camaraderie, blacklisting those companies involved in the above-described agreement, and resulting in those firms eventually loosening their human resource retention policies.
Stiff competition for the best talents
With no letup in the headhunters’ cut-throat competition for prospective employees, software development costs are unlikely to go down anytime soon. However, in spite of being higher than those in India and lower than the ones offered by Russia, the price for choosing Ukraine remains extremely competitive, which plays a major role in securing the country’s leading role in today’s outsourcing market.
As a representative of the programmers, Timanyuk believes that, unable to match India in costs, Ukraine’s only way to cement its current success would be via a process of branching out into long-term, elaborate and highly specialised projects. He concludes by noting that the country is definitely not a venue if you are looking for a lucrative call center or 24/7 support, but, with the populace’s keen interest in programming careers, steadily growing numbers of computer-science university graduates and unparalleled expertise in complex software projects, it will is likely to remain one of the most cost-effective destinations for high-end outsourcers for some time to come.
