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Журнал «Business Ukraine», volume3, №5, may 2009

Global downturn outsourcing upturn

Ukraine to benefit from new wave of outsourcing expansion as recession-hit firms look to cut costs

Outsourcing has in recent years trans­formed from a niche management tool to an instrument of mainstream strategic plan­ning, and with companies all over the world looking to cut costs it is being touted as one of the few sectors which might benefit from the current global recession. The sector was worth an estimated USD 90 billion in 2008, and this figure is expected to grow a further 8% in 2009. These optimistic fore­casts have most recently been explored in a report issued by leading global professional services firm KPMG, which listed a total of 31 attractive locations globally. Ukraine, with its cheap and highly-skilled labour force, is seemingly well-placed to benefit from this relative boom, and the KPMG report highlighted Lviv as one if the cities likely to benefit most, while other Ukrainian destina­tions such as Kyiv and Kharkiv already have fast-maturing outsourcing sectors.

Ukraine's outsourcing appeal
With many of the traditional outsourcing markets such as India and South East Asia already experiencing overload, new outsourcing options are being investigated in other parts of the world with Ukraine coming out as a strong contender in this renewed search. In terms of education, Ukraine inherited countless higher educa­tional institutions which concentrate on educating students in the traditional sciences and mathematics. Ukrainian IT specialists are certified, a strong incentive for foreign corporations. Brainbench in its 2006 global skills report noted that Ukraine ranked 4th in regards to the number of IT certifications received by Ukrainians. Ukraine has a high literacy rate of about 99.6%, while English competency for niche specialisations is also high. At the same time the cost of living in Ukraine is lower than in Western Europe, as are the salaries expected. Ukraine is also well-positioned in relation to the rest of the world logistically and only a few hours away from most European capitals by plane. Brain drain in Ukraine is quite low as Ukraine is not part of the EU and so the country's labour force is not highly mobile, while immigration processes to other continents are generally long and cumbersome.
At present the biggest single area of outsourcing growth in Ukraine remains SME level software projects. Whether it be Lviv or Kharkiv, Odesa of Dnipropetrovsk, lower salary levels, a skilled labour pool and proximity to clientele base allows them to each bite off a chunk of the business being thrown to Ukraine.
One of the markets which Ukraine as a whole needs to attack is CDMA testing, development and network support, as at present only Poland, Ukraine and Romania have the requisite knowledge and expertise to support CDMA technology. Local Ukrai­nian IT companies can use their expertise to support the 200 million strong CDMA subscriber market in the United States and Western Europe. Certain steps have been taken already with a local Ukrainian company selling CDMA services launching a web-site dedicated to attracting foreign investors and clients.

Dentistry and gaming
Another niche market which Ukraine is very well set to exploit is the embedded system programming market, the technology of which is applied primarily in the PC, telecom, medical and automotive sectors. Today, this market is worth more than USD 80 billion and Ukraine, with its strong engineering and electronics grounding, has all the prerequisites to tap into this huge worldwide market.
A less traditional outsourcing market which has fallen way below the industry's radar for some years, but one which is never­theless growing in strength and validity in Ukraine, is the medical industry outsourcing market, specifically dentistry. In this regard Lviv is the country's most progressive and advanced centre of cosmetic, implant and reconstructive dentistry. Slowly but surely Lviv is building bridges with Western Euro­pean dental clinics which are more than willing to outsource high technology works to a lower cost but high quality external party. This remains a risky and uncharted direction with many legal, quality control and administrative pitfalls, but Lviv none­theless is starting to take a courageous bite out of this multi-million dollar industry.
Another overlooked but growing market where Ukraine is moving forward strong is the game development industry. Centres of this industry include Kyiv, Kharkiv, Dniprop­etrovsk and Odesa, while Lviv, interestingly enough, remains quite dormant. Ukraine's game development labs work closely with large game development companies based in Canada, the UK and elsewhere and their game developers are in-demand on the international game development market.

Lviv remains first among Ukrainian equals
Looking at the overall positives exhibited by Ukraine, it is not clear on the surface why Lviv was chosen by KPMG as the premier outsourcing hot spot above other cities vying for supremacy. Both Lviv and Kharkiv, for example, boast large pools of highly educated people and house leading educa­tional institutions. Both Lviv IT specialists and their Kharkiv colleagues expect lower salaries than in Western Europe or Kyiv. One point for Lviv over both Kyiv or Kharkiv is the fact that it is well-connected to the rest of the world logistically and only a two-hour flight from most European capitals, while the progressive Lviv City Administration is looking to find ways to support outsourcing initiatives. Cultural factors also play a role, with Lviv seen as the most European of Ukraine's cities, suggesting a work ethic and approach to employment closer to that of many West and Central European companies.

Bright outsourcing future in a crisis
The outsourcing market worldwide and in Ukraine is growing from year to year. This points to the fact that outsourcing providers in Ukraine are maturing and delivering good products, with more and more clients inclined to take a chance on the country. No doubt Ukraine still remains a risky destina­tion in many people's eyes and the key now is to take advantage of the opportunities the current crisis presents and turn Ukraine into an outsourcing powerhouse.