Ukraine

Basic information

Capital: Kyiv
Population: 46.3 mio
Large cities: Lviv, Dnipropetrowsk
Currency: Hrywnja
Language: Ukrainian
Government: Semi-Presidential Republic
Time zone: UTC+2, UTC+3
GDP: $ 82.36 bn.
Dialling code: +380
Internet TLD: .ua

Overview Ukraine

With ist size of 603,700 square kilometres, the parlamentarian-presidential Republic Ukraine is the largest country in Europe (second only to Russia). Ukraine has 46,615 mio. inhabitants. The national language is Ukraininan, but Russian is used as the lingua franca. As a general rule, people in the west of Ukraine tend speak Ukrainian, wheras people in the east and the south tend to speak Russian. 

After a disappointing year 2005, which only showed an increase in 2.5 %, in 2006 the economy grew by 7.0 %. The highest growth rates were achieved in the trade, transport and construction sectors. The GDP was ca. EUR 83.1 bn. in 2006; due to a substantial shadow economy, however, the actual GDP is estimated to be much higher.

Overview IT provider market

Ukraine is among the top 10 countries on the IT provider market. More than 20,000 Ukrainian specialists work in the outsourcing sector, the mjaority of which are highly qualified staff. Ukraine’s contribution to the outsourcing market at present amounts to US $ 500 mio., while the world-wide demand for outsourcing services currently lies above US $ 60 bn. 

The export growth of the Ukrainian IT industry amounted to ca. 60 % in 2006, when it reached US $ 280 mio. At the same time, the entire IT industry grew by 25 – 30 %. A growth rate of 15 – 17 % (IDC) is predicted for the Ukrainian IT industry in 2007. For the outsourcing market, this prognosis signifies a steady growth in the areas of software development and IT services. The share of these two sectors lies at 8 % of the entire IT market volume (US $ 2.5 bn.)

In the past five years, the Ukrainian IT market has been characterized by a steady growth. Regardless of the weaknesses of the domestic demand for IT services, the demand for Ukrainian IT products is very high on the Western market. The US and Western Europe are still the main clients for Ukrainian services in the area of software development.

SWOT Analysis

Strength

• Staff qualification– As the training in schools and vocational training institutes focussed strongly on natural science during Sowjet times, and as this „tradition“ was maintained, Ukraine – like the other ex-USSR states – disposes of a large pool of highly qualified IT specialists.
• Regardless of rising wages and general price increases in 2006, the prices for software development are still competitve in Ukraine. At the same time, the quality of IT products and the qualification of IT specialists is increasing. However, this advantage that lies in low prices is a decisive factor only for small and medium-sized enterprises when selecting a suitable supplier for IT services. It is exactly those SME who will shape the development on the Ukrainian IT export market in 2007. Analysts judge the development perspectives of the market with representatives from SME to be very positive. 
• Low transaction costs – Similarities in culture, religion and traditions of Ukraine as well as the favourable geographical situation in relation to Western European countries play a positive part for the development of the outsourcing market. US American and European clients value the western mentality of Ukraininas and, last but not least, the small time difference.
  Weakness
• Government support – The involvement of major investors in the market is only possible with government support for the development of the IT industry and the formation of a positive image of Ukrainian software developers on a worldwide scale.
• Intellecutual Property –  After China and Russia, Ukraine is counted among the countries with the gravest copyright violations worldwide by the US coalition “International Intellecutual Property Alliance” (IIPA). The Alliance estimates that the share of pirate copies of the entire DP technology of installed software lies around 90 %.

Opportunities

• The instable political situation in the Middle East contributes to the positive development on the Ukrainian IT market, as various companies search for other locations resp. establish a branch office.
• Thanks to the small time difference and geographical proximity to Western Europe, a niche on the outsourcing market is opening up for Ukraine. Ukraine, along with the other ex-USSR countries, is now among Western Europe’s most popular nearshore suppliers. This is true especially for Germany.
• The continuing decentralization of IT outsourcing in Ukraine seems to be of great importance for the positive market development. The active development in the regions has now led to a competition against Kiev, leading to price dumping along with an improvement in quality. Companies in the region (Kharkiw, Lviv, Dnipropetrowsk, Donetzk) rarely employ more than 100 staff, and it is exactly these SME which now form the foundation of Ukraine’s IT industry, where the number of large companies is limited to a dozen.

Threats

• Economic stability – Apart from political instabilities, the main risk for the economic development can be seen in a drastic fall in export prices, particularly steel prices. It would be fatal if this phenomenon were to coincide with a price increase for imported energy, e.g. due to a decline in relations with Russia. As long as political relations between Ukraine and Russia remain stable, Ukraine is at least partly protected against increases in energy prices.
• Political stability – As the new political leaders in Ukraine also intend their country to join the EU, foreign politics in the country can be expected to remain comapratively stable. As far as the political situation within the country itself is concerned, it would be extremely important for Ukraine to carefully balance the European interests of Western Ukraine and the Eastern Ukraine’s orientation towards Russia.
• General conditions – On a regional as well as on a national level, various „lobby groups“ are present in parliament, in the courts and in public adminstration. The Ukrainian government is therefore subject to the influence of lobbyists, particularly regarding questions concerning tax, customs and other charges and levies. As laws are frequently changed, and often retroactively so, many general conditions are hard to plan or fairly instable.