Ukraine offers highly skilled IT specialists at a low cost for organizations looking to develop projects within Europe and North America. But while the honesty of Ukraining people appears to be key selling point, problems of corruption and the possibility of social unrest remain.
When UK companies consider the option of offshoring, India tends to be the first port of call, due to its technical expertise and the cultural ties between the two countries. But this trend is changing, with nearshore locations such as Ukraine gradually winning larger and larger share of the outsourced IT market.
Figures from the Ukrainian Hi-Tech Initiative, the country's outsourcing software development alliance, reveal the Ukraine's outsourcing industry is estimated to have grown by 20% in 2010.
Ukraine is set to compete with India head-on, with software development being the most popular outsourcing service, followed by software testing and application maintenance.
In Ukraine, 18,100 IT specialists worked in the outsourcing industry in 2009. That figure is estimated to have risen by 2,400 in 2012.
Max Ishenko, founder of an online community for the country's developers, says Ukraine previously had a large number of programmers but relatively low domestic demand for them.
Ishenko is frank about the pros of cons of outsourcing in Ukraine. "One of the problems we have is English language skills, which on average are quite poor. Also, people can often be stubborn, although in a good way. If they are given a task that is wrong, they will argue with you and say it is a short-sighted thing to do, but it means people are thinking before doing. The other good thing is that programmers usually have a good education in Mathematics or Physics, so they can tackle problems that are technically complicated."
Christophe Lemoine, chief technology officer at the UK-based mobile application company Chartsnow, outsourced its software development work to Ukraine several years ago. Lemoine agrees that a collaborative approach is the only way to succeed. Lemoine spends around 70% of his time in the country overseeing project work.
"Originally I was completely against the idea of going out of Switzerland [where I was based at the time], as I'd heard so many stories about projects going wrong. But as the company was starting up, nearshoring provided the best value for money with our limited resources." Lemoine says he decided against developing in Asia because he wanted people who shared a similar culture and were based nearby. Instead he opted towork with Ukraine. "Including transport costs, we spend nearly half of what we would back home for these services," he said.
Torben Majgaard, CEO of the Danish outsourcing company Ciklum, says the key to success is seeing the customer as the project leader. "The responsibility of the success of a project lies entirely with the customer, but we are aware that if the customer messes up they will be leaving us. So our employees guide the customer with a firm hand. But the customer has the final say," Majgaard said.
Majgaard believes Ciklum's unique selling point is the honesty of the people he works with. "We offer the customer transparency, [a lack of which] is a classic problem with an outsourcing businesses."
Majgaard says he chose to base Ciklum's main outsourcing operations in Ukraine after considering other options in Eastern Europe. "Labour is so much cheaper here. I looked at the Baltic states but decided they were too small and would join the EU, which would inflate costs. And while there is a lot of resources in St Petersburg and Moscow, they are already too expensive," Majgaard said.
At the same time growing technical expertise and demand for developers has led to labour costs gradually increasing. According to the European Business Association (EBA), monthly earnings of IT specialists in Ukraine has risen by $300 to $1,500 since 2010. In 2005, a typical monthly salary of a software developer was merely $500.
With increasing demand for developers, wages are likely to continue to rise. And wage reduction is not an option, as it could lead to a brain drain, with developers moving abroad. According to figures provided by EBA, Ukraine currently has a shortage of 6,000 jobs for IT professionals. All of which could lead to Ukraine becoming a more expensive IT outsourcing destination in the next five years.
Howevr, the demand for Ukraine's technical expertise is clearly increasing. Dmitry Pretayev, a senior developer at Ciklum, says he has had around 30 job offers over the past four months, at three to four times his current salary. "I didn't want to go abroad because this is my home and my wages are comfortable here," he said.
Rising costs are not the only consideration for countries looking to move development to Ukraine. Michael Borg-Hansen, who has worked as the Danish Ambassador in Ukraine since 2009, said: "There is a running battle every day between the old system and the new. Official corruption is part of the culture here. The best way to combat that is for Western businesses to come here to invest."
Change is brewing, he says. "I wouldn't exclude the possibility of social unrest, similar to what happened in North Africa and the Middle East - those situations are being watched very carefully by the government here."
But the country's biggest asset remains its educated young people. "Many speak English and are internet literate. Companies employ these youngsters, and that's why they thrive," Borg-Hansen said.
With highly skilled labour that is still far cheaper than in Western Europe, Borg-Hansen says that there are big rewards for companies looking to do business in Ukraine: "You have to be really resilient in business to make it here, but it's the same case in a lot of emerging economies."