Eastern Europe’s Surprising New Tech Hub
WHY YOU SHOULD CARE
Because it’s not the Middle East.
By Dan Peleschuk
Racked with corruption, political troubles and a devastating war that’s claimed thousands of lives, this European country would probably be one of the last you’d expect to have a burgeoning information technology industry. Yet despite its challenges:
Ukraine is a top global exporter of custom IT services. It’s also a startup incubator.
According to the IT Ukraine Association, an advocacy group, the nation has the world’s fourth-largest number of certified tech professionals (those who are specially trained to work with custom software). With around 100,000 specialists and more than 1,000 IT service firms across the country, the industry generated a whopping $3.2 billion in revenue last year, according to Oleksandr Kubrakov, the director of IT Ukraine. “It’s growing faster than all other industries,” he says.
For overall IT outsourcing, Ukraine ranks within the top 25 globally, according to auditing firm PricewaterhouseCoopers. It’s beat out by countries such as India and the Philippines, where labor is cheaper and drives other crucial facets of IT, including administrative support and hardware development.
While IT outsourcing has been the traditional focus of Ukraine’s tech scene, a broader startup culture has also begun to take root.
The Ukraine government may be struggling to meet popular expectations for reform, and there’s the ongoing deadly war with Russian-backed separatists, but the country has a particular set of circumstances that makes it uniquely competitive as an IT outsourcing hub. First, it enjoys a rich Soviet legacy of top-quality education in science, mathematics, and technical fields such as computer science and engineering. Second, the country offers foreign firms — including the likes of Google and BlackBerry — an attractive balance between labor cost and quality.
The booming business has led to the rise of a new socioeconomic class of mostly urban, educated Ukrainians who earn decent salaries and help to stimulate the local economy amid tough times. “A significant part of that $3.2 billion includes the salaries of specialists who work in the industry, and they spend this money here in Ukraine,” Kubrakov adds. They’ve played a key part in fueling the gradual transformation of the country’s largest cities into increasingly cosmopolitan hubs of culture and nightlife.
While IT outsourcing has been the traditional focus of Ukraine’s tech scene, a broader startup culture has also begun to take root. Big names that were born in Ukraine include Petcube, Grammarly and Looksery, which was bought in 2015 by Snapchat. But countless other small projects — both IT-focused and beyond — are in the making. According to Alexander Soroka, the founder of Startup.Network, which helps grow entrepreneurial projects in the region, the country’s startup community grows by around 500 new entrepreneurs each month.
But adverse economic conditions means local investors have dried up, prompting these businesses to look abroad for cash. Soroka compares Ukraine’s current trajectory to that of Israel’s before it became a world leader in startups. “The internal market is very small, and you need to go and be international,” he says. “I think the same situation is happening here in Ukraine.”
Proving its global mettle, however, won’t be easy for Ukraine’s tech industry. Bureaucracy and corruption, which hamper both local business development and foreign investment, are still major concerns. The country is still the second-worst in Europe on the World Bank’s Ease of Doing Business index. That won’t change overnight, but with the right combination of local savvy and government support, the future could be even brighter.
- Dan Peleschuk, OZY Author Contact Dan Peleschuk