Ukraine follows trajectory from IT outsourcing to product development – media

12:30, 18 January 2018
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Ukraine is now switching from IT outsourcing to product development, according to the BBC.

REUTERS

"Horizon Capital's Vasile Tofan believes that Ukraine is now following a trajectory from IT outsourcing to product development, similar to those China and Taiwan took from tech manufacturing hubs to development giants," the BBC wrote in the article titled "Ukraine's economic secret: 'Engineering is in our DNA,'" published on January 18.

"These used to be literally sweatshops, producing low-end electronics, and having a very low margin of added value," the BBC quoted Tofan, a partner at the Kyiv-based venture firm Horizon Capital, as saying.

Read alsoExports of Ukraine's IT services 20% up in 2017, to $3.6 bln"But as they started building more sophisticated things, at a certain point you end up with Lenovo, which used to be a contract manufacturer, buying IBM."

Although not all of those developers will succeed in their quest to build the next tech giant, inevitably some will succeed, Tofan adds, and continue to solidify Ukraine's spot on the global tech map.

The IT industry has proven to be one of the country's only economic engines, expanding dramatically over the past decade-and-a-half.

"It was a little above $100 million in export in 2003 and had grown to $3 billion in 2016, in a country with a nominal GDP [gross domestic product] still under $100 billion," Tofan says.

A recent report from the consulting firm PwC shows that from 2011 to 2015, the share of Ukraine's annual economic output coming from IT outsourcing grew from 0.6% to 3.3%.

"Indeed, the industry is now the country's third-largest export sector, behind the traditional titans of agriculture and mining," the BBC wrote.

There are now 100,000 to 150,000 engineers, and around 300,000 others, working in Ukraine's IT services sector.

Ukraine already outpaces its competitors in the region, including Poland and Hungary, and PwC believes the number of IT professionals will double again by 2020.

The growth in the sector has had some interesting benefits not only for Ukraine, but also for consumers worldwide.

The country is now churning out start-ups like Looksery, which pioneered the now ubiquitous real-time selfie filters and was bought by Snapchat for $150 million, as well as Grammarly, an artificial intelligence start-up which recently raised another $110 million.

Read alsoUkraine becoming next startup nation - mediaThose companies, and others in Ukraine now attempting to follow suit, have the IT outsourcing sector to thank for parts of their success, says Yaroslav Azhnyuk, the 28-year-old Ukrainian co-founder of PetCube.

His company has raised more than $10 million to connect people with their pets through technology.

"The whole IT outsourcing sector is very fertile ground for any product companies," he says. "Outsourcing fuels everything."

It is almost a farm system for product start-ups, says Azhnyuk, where entrepreneurially-minded developers can learn how to programme, work in teams and earn good money – before leaving to take their shot at building their own firm.

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