The impact of the Ukraine crisis on its IT Market

By Aviram Eisenberg, Israel & Germany: “I have done business in Ukraine for quite some time now and I must confess I saw the country’s great potential, took a bet and won. Nowadays, the rapid developments in Ukraine, including protests that pushed out Ukrainian president Victor Yanukovych and Russia’s subsequent moves in Crimea, have drawn international attention to the region…but didn’t manage to scare me off.

As fears have risen that the conflict between Russia and the West over Ukraine could shift into a military confrontation, I think there is little risk of global financial contagion or of major blowback to Western economies. So, how does the thriving Ukrainian IT market cope with the “Great Depression”?

The general atmosphere around the IT market in Ukraine fits the turmoil all over the country, as the winds of depression keep blowing in. However, what’s becoming clear is that Russia has finally come to the end of its oil-driven growth model. It needs a new investment driver and needs to attract more foreign industries to diversify its industries and Ukraine fits the plan perfectly. Thus, is the crisis a genuine risk to the thriving Ukrainian IT market or is it more of an opportunity?

So like I was taught in a basic marketing course, I made a small SWOT analysis for myself of the Ukrainian IT industry:

The Strengths

Demand for developers on the rise – it’s a sure fact that the worldwide demand for developers is on a constant rise. The Bureau of Labor Statistics projected a 30% job growth in the coming years and that doesn’t strike me as a surprise, since the mobile demand exceeds all expectations. Critical to this increase has also been the more focused phenomenon of employees bringing their own devices to work, popularized by the playful acronym BYOD. From what I see, things will only tend to escalade in the near future.

Healthy business environment-the Ukrainian IT market boasts an impressively healthy environment as the industry has proved itself strong, on a constant development and walking on legal “grounds”, which clearly makes the difference between Ukraine and its competitors. There’s no wonder the estimated Ukrainian IT industry exports, leverage more than 3 billion $ a year!

Best offshoring destination – the recent near shoring and offshoring (among US) trends, established Ukraine as one of the most sought after destinations for software developers. As I also mentioned in one of my previous articles, in terms of IT outsourcing, Ukraine mainly highlights its deep It talent pool .Boasting over 16.000 specialists graduating from Ukrainian Universities every year, the country holds the fourth position in the world in the number of certified IT specialists.

The Weaknesses

Fragmentation of the Ukrainian IT market – Giving some thought to the unsolid grounds the Ukrainian IT market is walking on, the first thing that comes to my mind is the fragmentation of the IT market. Although there are over 1000 IT companies on the Ukrainian market, most of them are quite small companies that struggle to get decent projects but lack the marketing and sales resources and professionals to reach the great projects out there. And that’s how most of the Ukrainian talent pool is wasted.

The “brain drain” issue – this started to hit in pretty hard, as there is a constant flow of developers fleeing abroad in search of a better life. The East European mother country is left behind especially for Germany and Canada, as both countries are on a software talent “fishing”, easing the relocation procedures and granting access to decent jobs.

Unfavorable government policies – the government doesn’t seem to encourage the IT economy, as it constantly sets unfavorable policies. Not only that the Ukrainian government is not assisting this great IT economy, but it seems that it’s trying hard to find better ways to burden this industry as hard as it gets. This can be very disappointing and frustrating.

Overheated market- last but not least, Ukraine IT zone started turning into an overheated market. Following the 2008-2009 crisis, the Ukrainian IT market imposed itself as a leading industry, developed on a constant basis while boasting wage rises by more than 10%. Furthermore, some locations like Kiev and Lviv became overheated and started scaring the investors away.

The Threats

Fake war propaganda - I witnessed the negative impact of the Ukrainian crisis spreading all over the IT market, as the outright anti-Russian lies and war propaganda are constantly being scattered in an attempt to manipulate world opinion regarding the genuine situation in Ukraine . The Russian invasion is actually a fake threat that certain political parties have interest to inflame so they can achieve their goals. After glimpsing behind the curtain, you get to realize things are far from being as “apocalyptical” as depicted. Unfortunately not too many eyes are “wide open” to acknowledge that.

“Brain drainage” - going back to the “brain drain” issue, I have to admit that the current crisis in Ukraine has already started fueling it and here’s why: last month, two of my key people left to U.S – “We like Ignite, we like the project but we want better lives”. Can anyone blame them???

Recession - indirectly, recession managed to spread its tentacles over the IT market as well. Even if the market keeps strong, the developers are faced with the harsh reality around them: families or relatives losing their jobs, houses or lacking the means to provide food for themselves! This is really tough to deal with.

The Opportunities

However, the final arguments of my article are the decisive ones… and those are definitely favorable to the Ukrainian IT environment. … in spite of the so called crisis.

Fall of the Hryvna – the most striking one is the fall of the Hryvna which is making the EUR and USD currencies coming in to this industry stronger. This proves to be a great opportunity, especially since the local currency will continue its downfall.

Low attrition – this is a great opportunity finally taking place on the Ukrainian IT market stage: developers will stick to their jobs and hesitate to switch projects as the insecurity kicks.

IT market Consolidation – IT market consolidation at a national level is required to prevent brain drain. . With the continuous crisis in Ukraine and the fact that raising credit in Ukraine becomes impossible, local IT companies, (especially small or midsize companies) will not be able to raise credit for operational working capital . Consequently, they will be consolidated into bigger international IT companies, which are active on the Ukrainian market and have no problem raising cheap credit in Europe or US and move it to Ukraine. From what I’ve seen this is already happening.

Joining the EU – the fact that the EU will engage with its Eastern neighbors is just a given today as the European Union has made a significant political investment in Kyiv over the years. Ukraine is definitely not ready for this change yet, but it’s bound to happen. At least there’s one good thing Putin has left as a legacy to Ukraine”: Every Ukrainian now realizes that the Russian bear hug is far from triggering good things upon their country.

Change from IT to High-Tech – The country will leap from its cheap work labor reality, directly into a smart and thriving high-tech market. The free minded, independent and entrepreneurial mentality of Ukrainian developers will start thriving as they finally gain access to the EU VC money they need in order to change the face of the industry. It maybe the fall of my IT company, but the rise of other great opportunities. I would advise anyone to join in, as a little bit of risk and suspense is definitely a part of the game.”

The author: Entrepreneur and acclaimed speaker, Aviram Eisenberg is the Founder and CEO of Ignite – a global software development company that specializes in Agile R&D. Under his leadership, Ignite is recognized as an Agile leader in Israel and Europe, introducing innovative methodologies and enhancing the R&D excellence of industry leaders such as NokiaSiemens Networks, Microsoft, VMWare and AT&T.

Acting as Ambassador of Agile, Aviram is an avid promoter of this school of thought. He speaks about Agile and its’ impact on the dynamic, complex world of R&D and is frequently spreading the word in professional conferences and meetups worldwide.

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