EXPERT VIEW:Ukraine is set to benefit most from the new value chain in IT services

EXPERT VIEW:Ukraine is set to benefit most from the new value chain in IT services

This chapter outlines the expert estimations of IT outsourcing market in
Central and Eastern European countries.

Analytical Survey by Christian Berner

CIO’s in Western Europe, especially in Germany, Austria and Switzerland are facing a serious challenge. In 2007, for the first time since the peak of the internet bubble in 2000, the demand for IT specialists exceeded the supply. The last BITKOM survey indicated that 43% of the German companies encounter serious difficulties in finding appropriate IT staff.

Some background information about this situation:
The first reason is simple, it’s demography: the first generation of IT-experts who started their career in the 60ties is already starting to retire.

The second reason is spply of young IT specialists is not up to the demand: In 2007 only 29.000 new students started higher education in IT, compared to 38.000 in the year 2000. And not even 50% of them will graduate because many do not finish their studies for multiple reasons.

Now, one could think this shortage of resources leads to higher prices for IT services…but on the contrary!

New sourcing options from Asia, Eastern and Central Europe are more and more influencing the definition of tariffs and rates in the outsourcing industry. From a historical point of view, this picture is not unknown. Look at the situation of the automotive industry in the 80’ties: low standardization of components and processes. Global competition appeared: Japanese manufacturers introduced “lean production”: standardized processes and components allowed to outsource a lot of production activities to specialised suppliers which can realize economies of scale and innovations easier because they have a higher degree of specialisation. We can observe the same situation in the IT services industry today with the development of multiple global sourcing options and innovative value chains.

At the same time the main tasks of CIO‘s are changing fundamentally. CIO‘s have to concentrate their resources on selected core competencies because the insourcing of commodities, such as IT infrastructure services is not economical anymore. On the other hand, outsourcing options are multiple and attractive. The classical IT value chain plan, build and run is being replaced by a new one: make, buy or re-use and deliver. It is obvious that this new value chain is also a result of the increasing importance of offshore outsourcing as a sourcing option.
Germany is the biggest market for IT services in Europe. It is also among the late adopters of global sourcing options, because German customers like to deal with local partners. What does this mean for the Ukrainian outsourcing industry?

The supply of IT skills from countries with overheated IT labour markets like Czech, Poland, Hungary, Slovakia, Latvia, Estonia or Lithuania is not an option to increase the competitiveness of the German IT service providers facing competition from India and China.

Economically, it is obviously not in the interest of the German IT services industry to deal with outsourcing companies from Eastern EU member states like Czech, Hungary or Latvia which will themselves subcontract parts of the work to outsourcing companies in Ukraine or Belarus. Thus, Ukraine may become for the German and Swiss IT services sector what Slovakia is already today for the German automotive industry: An integrated part of their cross-border value chain. These delivery models combine nearshore and onshore service components and go along with a high organisational maturity level. As an example, Ukrainian outsourcing market leader Infopulse with their partner REVACOM from Germany deliver software management services “Made in Ukraine” to customers around the globe.

Successful worldwide projects uniting IT engineers from Ukraine and delivery managers from Germany have already become reality and it mainly depends on the direction of the educational policy of Ukraine if the country will become the leading Eastern European supplier of outsourcing services to the German-speaking markets.

Christian Berner,
founder & managing partner of CBP Cross Border Projects

Source: Based on

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