The growing IT sector in Ukraine

As in most countries, the health crisis has been a major drag on Ukraine’s economy. As lockdowns disrupted local markets and global trade ground to a halt GDP contracted by 4.4 percent in 2020 and exports fell by 4.6 percent.

But for many in the country’s bustling tech hubs of Kyiv, Lviv, Kharkiv and Dnipro business has been better than ever. The country’s rapidly growing IT industry saw exports grow by 20.4 percent in 2020 crossing $5 billion for the first time, according to figures from the National Bank of Ukraine.

And the boom shows no sign of easing off, says Alex Chubay, the chief technology officer of SoftServe, one of the country’s largest IT companies with HQ’s in Lviv and Austin, USA “There is a huge acceleration,” he says. “Traditionally we are growing fast at 20-30% year over year, but this year has seen that increase to 40-50% growth.”

SoftServe is one of the country’s largest IT companies / Photo: SoftServe

The pandemic has forced an unprecedented shift from the physical to the digital world as entire workforces go remote and the bulk of commerce shifts online. Companies across the world have had to undergo rapid digital transformations leading to surging demand for IT services.

Ukraine’s tech industry was well positioned to capitalize on this opportunity thanks to the dramatic evolution it’s undergone in recent years. Since the first IT companies appeared in the mid-1990s the sector has experienced a meteoric rise. Today it accounts for 4 percent of GDP and employs roughly 200,000 people, boasting some of the country’s highest salaries.

Much of this growth has been built on outsourcing. But while in the early days the main sell for international customers was the ability to hire competent programmers at lower prices, as the industry has matured the value proposition has shifted considerably, says Chubay

“It's not about the cost anymore, it's about the expertise and ultimate outcomes,” says Chubay. “We have moved up the value chain. We have become more holistic, and we are gaining more and more responsibility over bigger chunks of our client’s businesses.”

Sigma Software Group team / Photo: Sigma Software Group

Over the years Ukraine’s leading companies have expanded from the basics of software development to higher value work like systems architecture, business analysis and experience design. At SoftServe, Chubay says they are no longer simply supporting customers’ engineering, and IT initiatives, they are in the boardroom helping CEOs transform their businesses to be more competitive in an increasingly digital world.

“We see an increasing role for companies like ours to help them capture value upstream before it becomes a set of engineering projects,” he says. “We see more demand on the disciplines able to deliver organizational level change not just product level impact.”

Counterintuitively, much of the credit for this rapid expansion in capabilities goes to the country’s Soviet past, says Valery Krasovsky, the CEO of Sigma Software Group, which is based in Kharkiv. That might come as a surprise considering the USSR was more often associated with bureaucratic inefficiency than entrepreneurial dynamism.

But a long-standing focus on high-quality education, particularly in technical disciplines like maths, physics, and engineering, laid the foundation for a workforce naturally adept at the most challenging technical roles such as designing system architectures or managing entire IT infrastructures, says Krasovsky.

“This ingredient is very important as it gave us the possibility to show that we are not just an affordable country where you could order basic software,” says Krasovsky. “If you are well educated in these disciplines, you have much better ability to design the big computer systems. Not just program them, but design and create the architecture.”

This flair for creation has also seeded a flourishing start-up scene. Last year, a record $571 million was invested in Ukrainian or Ukrainian-founded tech companies and the country has produced several unicorns - start-ups valued at more than $1 billion - including software development platform GitLab and online writing assistant Grammarly.

ucode IT academy / Photo: UNIT.City

The IT sector has played a vital role in this ecosystems development, says Krasovsky. The expertise, contacts and capital built up within the industry over the past couple of decades has laid the groundwork for a new generation of entrepreneurs to strike out on their own, he says.

Krasovsky sees enormous potential for synergy between the IT industry and newer start-ups. That’s why his company has set up an incubator called Sigma Software Labs to help nurture new talent and he has also teamed up with senior colleagues at Sigma to start a venture capital fund called Inspirium Laboratories.

“We are the perfect gateway for them to get into the markets where we have a presence,” he says. “It’s win, win. We help our customers to find innovative ideas and we help our start-ups to find customers.”

This combination of plucky start-ups and experienced IT services companies is creating a vibrant ecosystem that is drawing a growing number of major corporations, including Google, Samsung and Oracle, to set up R&D centre’s in the country. It’s also catching the eye of investors looking to get in on the ground floor of one of Europe’s most dynamic tech hubs.

Cover image (ucode IT academy. Photo: UNIT.City)