Ukraine: Will the Orange Revolution Boost the IT Outsourcing Industry?

KIEV, Ukraine -- The impact of the choice for democracy Ukrainians made in late 2004 spreads far beyond politics. This article elaborates on how the Orange Revolution can help the Ukrainian IT outsourcing industry to gain momentum.

The victory of democratic presidential candidate Victor Yushchenko came as a result of the continuous nationwide protests of millions of Ukrainians, outraged with the forged results of the presidential elections. The voice of the IT industry was also heard among the voices of millions.

In early December 2004, more than one-hundred Ukrainian IT companies sent their representatives to the "Hi-Tech March" to show their support for the democratic presidential candidate. About 3,000 IT workers marched the streets of Ukrainian capital Kiev (Kyiv) wearing orange bands and waving orange flags. The participants of the march had not only the future of their country, but the fate of the rapidly growing IT outsourcing industry at stake.

Now Ukraine has a new, more appealing global image that contributes to turning the country into a new European business hot-spot. As Eastern Europe emerges as an outsourcing alternative to Asia, Ukraine now has all the chances to broaden its portion of the outsourcing pie. "This may be just a coincidence, but it is right in the first months of 2005 we signed several long-awaited contracts with strategic customers such as Philips and Siemens," says Kutsyy.

The country currently has over 300 outsourcing companies that export ITO services. Analytical company MarketVisio, together with Gartner, estimated ITO services from the Ukraine to reach $150 million in 2005, which represents 50 percent growth in comparison to the previous year.

The current industry size is far below its potential. Among the factors that have hampered its development in recent years are the legislation and business climate. Ian Marriot, Vice President and Research Director at Gartner, still calls for caution when dealing with the country, as "Ukraine has been divorced from the international business community for a continuous period of time."

Already, big foreign companies are rushing to explore Ukraine's pool of talent. Flextronics, a major global electronics manufacturing services provider, has placed around 1,500 of its 7,000-strong engineer force in the Ukraine.

The size of the labour pool, quality of education, and the labour cost base are all major criteria of offshore outsourcing decisions. Now Ukraine has high scores across all these dimensions. The country's population (47 million) is the sixth-largest in Europe, and its capital Kiev is a mere two-hour flight from major European cities such as London, Amsterdam, or Paris. To make the trip to Ukraine even simpler, its government has introduced a visa-free travel for the visitors from the EU, US, and several other countries. There is no wonder that this year the country expects to at least double its revenues from the incoming tourism.

Indeed, Ukraine has historically been strong in education and science; there are almost a thousand colleges and 600,000 students. The National Academy of Sciences, whilst reduced in the course of the 1990s "brain drain," employs almost 30,000 engineers and researchers. Today the Academy supports 170 scientific research institutes, including the internationally-renowned Glushkov Institute of Cybernetics, and eight techno-parks which address the challenges of innovation.

Since the Orange Revolution, the new government has demonstrated its intent to transform the country. Despite a Ukrainian economy heavily dependent on Russian oil and gas, Yushchenko is firm in his commitment to develop strong ties with the West. At the summit of NATO foreign ministers in Vilnius, Lithuania in April 2005, Ukraine was invited to begin an intensified dialogue on membership aiming to enter NATO in 2008-2009. It is also expected to enter the World Trade Organization by the end of 2005, and looks set for eventual membership in the EU.

On the opposite side of the news spectrum, the country's political and economic environment is far from stable. The fall out between President Yushchenko and his Prime Minister Julia Timoshenko led the President to dismiss the Cabinet in September, which posed a question mark over the political stability in the country in the face of parliamentary elections that will take place in spring 2006.

But even if the government succeeds in sustaining stability and economic reforms, there are other factors crucial for the establishment of the solid outsourcing expertise in the country. Marriot asserts, "Once the large captive operations are established in Ukraine, it will raise its profile. This will increase the skill level and allow people to move into the IT industry more easily. It would have a knock-on effect on existing providers. Ukraine needs to have a strong value proposition, the right focus on skills, and the right type of organisations and marketing."

The outsourcing industry is already raising its profile by organising the country's second Ukrainian Outsourcing Forum on the 29-30th of November, 2005. For entrepreneurs, reaping the benefits of the Orange Revolution is just a question of time.

Source: AlwaysOn