Ukrainian IT industry during the war: relocation, resilience, and unprecedented export volumes
In April, we published the current state of affairs on Aimprosoft’s delivery during wartime. Since that time, many things changed: the Ukrainian Armed Forces conducted a successful counteroffensive operation, and Ukraine returned under its control almost the entire territory of the Kharkiv region (which is a native to many from our company); Aimprosoft entered into new contracts and contributed to the record $3,74 mln of Ukrainian IT export services. Now it’s time for the latest updates about the Ukrainian IT industry operation during the war and our participation in it.
Ukraine now: the military counterattacks, the IT sector works
Due to the successful powerful operation on the liberation of the Kharkiv region in early September, the situation somewhat stabilized, bringing hope to widespread for the rest of the territory of Ukraine for the upcoming months. The situation is encouraging that the active war phase will end soon since the counteroffensive slowed down and weakened the invader.
Sad to say, the war is not over; it is moving into a longer-term conflict. By good fortune, there are preconditions to believe that its active phase will end by the end of this year and that there will be room for productive political negotiations in 2023.
Ukraine fights on all fronts. And the IT industry is developing at a slower pace supporting the economic front of the country. In this update, we would like to take the current role of the IT industry as one of the largest suppliers of software development services in Europe and the U.S.
Global ITO market overview: the U.S. needs more talent, India can’t respond in full
The U.S. is suffering from overheating. There are 27 million software developers in the country, but they are not meeting the rapidly growing demand for technology talent, with IT jobs opening of 5.4 million fixed in March. Historically, the U.S. has been a leader among technologically advanced centers, constantly needing to replenish its workforce pool.
In India alone, thanks to active startups and, as a result, enormous technology investments, more than 4.5 million techies were employed in the IT-BPM sector in FY21, according to a Nasscom strategic review. Clearly, India is not without its struggles to meet the domestic demands of the tech market, leaving offshoring needs out of the picture. The U.S. was the main customer for software development services in the region. Now the gap is getting wider.
Europe seeks to reduce operating costs caused by rising inflation. Thus, affordable prices for the most demanded services can enormously lighten the burden. To achieve sustainable growth and cope with inflation, Europe took the course of embracing the potential of digital technologies and decreasing digital polarization among European firms. Approximately 60% of the post-pandemic European manufacturers rely on artificial intelligence to improve daily operations, design products and plan their future operations. 83% of organizations feel promising about automation as mainstream in the upcoming decade. Launched in 2020, when the trigger was the transition to a remote and hybrid work format, the digitalization of business has just begun to gain momentum.
Russian and Belarusian IT companies are falling down, Ukrainian companies continue to deliver
In February, the conflict in Ukraine started a rapid reconfiguration of the outsourcing industry throughout the entire CEE region. 2022 was meant to be another year of favorable trends.
Because of the war, over 1,000 western companies have closed their offices in the aggressor countries of Russia and Belarus. As a result, IT specialists from those countries can no longer access various tools and services like AWS, Docker, Red Hat, Slack, and others. But sanctions affect not only aggressor nations; their clients also suffer from missed projects and elevated risks associated with IT outsourcing.
On top of that, 20% of the entire Belarusian IT market has left since 2020. The remaining 100 000 outflow now or are clutched in the vise of circumstance staying in the country. Since the start of the war, 70 000 Russian IT specialists have gone abroad, and it is expected that the number will reach 170 000 by the end of 2022, which is 10% of the total.
The total number of exposed to be out-of-work IT specialists is approximately 1.8 million, which also results in an additional huge tech for European countries and the United States requiring it to be filled urgently. Although foreign customers are wary of working with Ukraine, the Ukrainian IT sector, in particular, demonstrates resistance to challenges by effectively running a business under war.
Ukrainian IT sector overview during the war
The world was shocked by the events unfolding at the end of February 2022. Many countries predicted with a high probability that the Ukrainian economy would fall into a colossal decline. Contrary to everyone’s surprise, some Ukrainian industries, particularly the information technology sector, have shown remarkable resilience, becoming the economic pillar of the country at its most difficult time.
The Ukrainian IT sector is the most stable industry and the only one showing growth in indicators, which share in all services exports amounted to 46%.
Today’s world community treats Ukrainians with respect and admiration because of our strong character, largely inherited from our ancestors. An example of a stronghold reflecting the strength of the spirit of Ukrainians themselves is the Ukrainian IT sector turned out.
We have toiled in the sweat of our faces year after year, earning a reputation as reliable partners. And today, when conditions have become tougher, the qualities we have gained over the years, which are inherent to the European mentality and the whole civilized democratic world, help us, Ukrainians, stand in this difficult struggle for our freedom and identity and fight for common values.
Proven resilience of the industry means resilience of the people behind it.
The Ukrainian IT sector demonstrated its resiliency in the face of unrest and elevated risks in March 2022 by maintaining 96% of IT services exports which is $522 million compared to the same period the previous year $546 million.
The number of vacancies for developers in Ukraine, which at the beginning of the year declined sharply, after two quarters showed growth, demonstrating that the demand for personnel from foreign customers continues. As stated by Konstantin Vasyuk, Executive Director of the IT Ukraine Association, 77% of IT companies feel optimistic about returning to previous volumes and, even better, having contracted with new customers during the war.
We live, love, work, pay taxes, and do not intend to give up
In April 2022, 91% of IT professionals returned to work, according to the DOU survey, which shows that the Ukrainian IT industry has maintained productivity and has become a potential driver of the Ukrainian economy.
In the first half of 2022 later, the figure of $3.74 billion in the export volume of IT services showed that the IT industry of Ukraine not only did not decline, but it also gained even more momentum demonstrating a 23% rise. This is proof that foreign partners have not only not stopped the contracts, but new ones have emerged as well.
Aimprosoft retained its positions in the market, the full lineup of the team without termination of employment, and moved to a stable level of growth.
Mobilization of key engineers canceled
For the IT segment, mobilization is not an acute issue.
In the spring of 2022, during the restructuring of society and adaptation, there was no clear understanding of mobilization and who it would affect. Now senior leaders can say with confidence that there is no need for a new wave of mobilization of unprepared people, and we see that it will not happen.
During the war, we have a clear division of fronts: the military fights on the main front, and the economic front is covered by enterprises and businesses, including IT. In mid-August, Defense Minister Oleksiy Reznikov said that the Armed Forces did not need additional mobilization, only specialists in some specialties. In its turn, President Zelenskyy has officially canceled the drafts to regular military service during martial law.
Ukrainian IT staff in 2022: growth despite the downturn
Following the onset of a full-scale war with russia, between 50 and 57 thousand IT specialists—64% of them are women—left the country, remaining tax residents of Ukraine. About 228 thousand industry representatives remained in Ukraine, maintaining a regular delivery level.
With the start of a full-scale war, Ukrainian IT companies have paused hiring and focused on evacuating teams and businesses to safer locations.
Resumed hiring to meet the demand for new contracts
The majority of companies, among which Aimprosoft, also resumed active hiring of employees in April after getting adopted to new circumstances. Now almost 9 out of 10 IT companies continue to hire employees in Ukraine to meet the incoming demand for software services from Europe and the U.S. markets suffering from tech shortages.
Despite the war, companies have plans for expansion in the second half of the year, albeit moderate. More than half of the companies plan to grow by less than 200 specialists. Aimprosoft has a promising intention to expand in 2023 predicting positive changes in the conflict and the country in general.
Ongoing staff supply: the influx of new IT personnel by 20% yearly
National education system. The industry has grown by more than 50% in the number of specialists over the last three years. Every year, about 30 thousand graduates enter the IT labor market. Despite the war, this rate will remain with the potential to grow with 80,000 minimum IT specialists in 2022-2025.
Corporate education. There are 5,000 IT companies in Ukraine representing the IT sector in the global arena. 3 out of 4 specialists in IT are technical.
Government initiatives. IT Generation is a project of the Ministry of Digital Transformation created for Ukrainians to get a profession in the field of IT for free. It is shown great interest among the citizens so that during the first day of the announcement, the program website was viewed by 64,000 users who submitted thousands of applications to IT schools.
Affordable prices, high quality, fast hiring
Small foreign startups and global international businesses are returning to hiring in Ukraine after a short break. The main reason is a cost-quality balance for the services of specialists of the right level. Salary ranges in Eastern Europe are 10-30% higher than in Ukraine, demonstrating a difference with the U.S. tech talents of up to 50%.
For example, the BlueOptima Global Benchmark report found Ukraine’s most effective at delivering high-quality code. According to the 2019 Kearney Global Services Location Index, Ukraine is more financially appealing than Poland, China, and India. It has a cost-efficiency rate of about 10% greater than the latter country’s.
In addition, businesses cannot always afford to wait for candidates to work for up to three months, which is the norm in Europe today. While in Ukraine, candidates go to a new job 2-4 weeks after accepting the offer. Applying to Ukrainian companies for services, clients from Europe accelerate the implementation of solutions for at least two months.
Favorable tax policy
Launched shortly before the outbreak of war, Diia City is intended to help Ukraine become the largest IT hub in Europe.
The Ukrainian government is aware that the information technology sector is essentially one of the main pillars supporting the country’s economy during the war. The IT sector has the full support of Ukraine’s Ministry of Digital Transformation, which also offers a free economic zone for representatives of the creative economy within Diia City. This enables both domestic and foreign tech companies to operate in Ukraine under simplified rules (with a distributed 10% tax) in accordance with English law.
Recent data on residence in Diia.City shows that working with a Ukrainian company is a realistic alternative. Most governmental registers have been shut down since the declaration of martial law in Ukraine on February 24, 2022, with the notable exception being Diia.City. Between March and April 2022, about 150 foreign and Ukrainian businesses entered this legal and financial environment.
Aimprosoft news: security updates, energy independence, global events
We are at safe places for stable work
We overcame the foreseeable difficulties. It was a true test of our character.
Resumed hiring in April and new contracts. New incoming inquiries stimulated the resumed hiring in April 2022. A growing talents base to meet the needs for new contracts positively set us up to continue working.
Relocation to Ivano-Frankivsk. We continue to demonstrate to our clients our high standards of responsibility and devotion by fulfilling our word from our secure bases in Ivano-Frankivsk, Western Ukraine. The company policy encourages employees to work in the office, with 30% of employees regularly working here, and the percentage continues to grow. The rest of the employees are in safe areas according to the company policy.
Energy independence at the office
Understanding the critical role of being connected to the power network to perform work tasks, our company was concerned in advance about the autonomous work of employees.
The office of Aimprosoft is fully equipped with everything for continuous delivery: there are Starlink internet sets and generators to sustain continuous office operation. According to an assessment of the office’s technical condition, we can absolutely autonomously work uninterruptedly for one week. Thus, no interruptions in the supply of electricity and rocket attacks will not prevent us from fulfilling our obligations to customers.
In addition to implementing individual measures to organize the necessary working conditions for separate companies, the Ukrainian government is also taking measures. Hydroelectric power plants can provide the country’s livelihood. It is also possible to import electricity from the European Union on lines used to export, which can help to balance the capacity, as stated by DTEK CEO Maxim Timchenko.
Ensuring the security of clients’ projects
With respect to customers’ concerns about the security of software solutions delivered by Aimprosoft, the following measures were taken to ensure the successful and secure running of all operations:
- Datacenter: Our complete cloud-based IT infrastructure is hosted in Germany.
- Hardware: Our internal security compliance policy protects any devices that contain sensitive data, and there is a system in place that keeps track of the OS, installed programs, antivirus software, and available patches, among other things.
- Software: We utilize intrusion detection and prevention systems, strong passwords, network segmentation, VPN for external users, hard drive encryption, and malicious application detection systems that are set up for critical infrastructure nodes.
- Certified by Cyber Essentials. We take great pride in providing our clients with the best degree of cybersecurity, which has been validated by Cyber Essentials, a certification program backed by the UK government and businesses.
Compliance with a European regulatory field
The issue of protecting people’s private information ought to be examined sooner or later in the era of widespread hacking and data breaches. Compliance with GDPR and data protection laws remains a constant rule of Aimprosoft in our work with clients and partners from the EU and the U.S.
Moreover, strengthening the protection of intellectual property rights in Ukraine is a natural far-sighted step toward joining the EU.
“We prefer the developers are Ukrainian,” foreign customers say
Despite all the hardships that hit Ukraine this year, clients choose Ukrainian developers. In September 2022, Aimprosoft received a request for a business web portal with a mobile presence. This fact again confirms the positive reputation of specialists from Ukraine, which is recognized worldwide.
Participating in international conferences in 2022
On November 1-4, a team of Aimprosoft will participate in Web Summit, the largest and the most essential annual tech event in the world aimed to redefine the tech industry.
Aimprosoft goes to Web Summit to help entrepreneurs continue the evolution of their businesses in terms of tech shortage by spending smartly, not tightening their belts. To have a business talk, you can meet us in Lisbon, Portugal, Pavilion 4, Booth #E454.
Professional community contribution
In addition to developing educational hubs, meetups, and hackathons, Ukrainian developers actively participate in the development of the community. For example, Vitaliy Koshelenko, Liferay Solution Architect at Aimprosoft, is actively involved in supporting a specialized Liferay community and is a regular participant in thematic conferences, working with Liferay for more than 12 years.
2023 is coming: IT industry growth despite all odds, $300 mln for Ukrainian startups, and a rapid Eurointegration
Export revenue, according to research, if the current trend is maintained – $ 8.5 billion (+ 23% compared to last year). Under the negative scenario – $ 8.1 billion. If all IT people who emigrated lose their tax residency – $ 7.5 billion. That is, even under the worst scenario, growth is predicted.
It is also noted that 65% of companies have increased their income since the beginning of the war, and 26% of companies admitted a decrease in their income. Therefore, despite the war, the IT industry market continues to grow. 13% of companies observe a 25-50% increase in income. Almost half of the companies have fully resumed work, and another 41% – at more than three-quarters of capacity.
Investors return to backing Ukraine startups
“Where others see risk, we see opportunity” this is not the other way to describe the creation of funds to support Ukrainian tech initiatives.
A $250 million fund is now being raised by Kyiv-based investment company Horizon Capital with the intention of supporting tech firms in both Ukraine and Moldova.
New York-based ff Venture Capital intends to establish ff Blue & Yellow Heritage Fund with $50 million to invest in Ukrainian founders and startups. As reported by TechCrunch, $30 million has been raised as of the middle of September.
This June 2022, the European Innovation Council (EIC) declared its intention to award funding totaling €20 million to 200 deep tech startups in Ukraine to support Industry 4.0 evolution.
R&D centers for non-resident legal entities are profitable
Plarium, PwC, Google, Oracle, UpWork, and other foreign tech companies do not close their offices in times of war, but continue their operations in Ukraine, suspending in the russian market.
Building an office for research and development is often associated with high costs and risks if it is not done in Ukraine. Being non-resident legal entity or foreign individual can set up a local subsidiary of the R&D (research and development) center. Ukraine has a favorable climate for foreign businesses to establish R&D facilities in order to lower the cost of human resources and taxes.
R&D can exist as a local branch, a representative office, an open joint-stock company, or a sole proprietorship. The most popular cost-effective model is the R&D center based on the local software development company. Thus, non-residents get the advantages of an immense talent pool, lower costs, avoid troubles with taxes, and delegate routine management focusing on strategic points and outcomes by setting the direction of development.
Closer to Europe: European integration
The processes of integration with the European Union have been actively launched and are underway.
EU candidate status
On 23 June 2022, the Heads of States and Governments of the European Union decided to grant Ukraine the status of a candidate country for EU membership. President Volodymyr Zelenskyy assured that despite the war unleashed by russia, Ukraine would continue to implement the legislation, norms, and rules of the European Union.
On 4 June 2022, the Regulation of the European Parliament and the Council on temporary measures to liberalize trade relations entered into force. This decision complements the opportunities that Ukrainian exporters have under the EU-Ukraine Association Agreement. Сancellation of duties on Ukrainian goods for one year is expected to help Ukrainian manufacturers and exporters withstand the burden of war and strengthen their positions in the European market.
Poland-Ukraine trade without burdens
A memorandum on the development of trade facilitation instruments between Poland and Ukraine signed in June 2022 expands risk insurance opportunities in bilateral trade, which also positively impacts the straightening relations between countries.
Joining Ukraine to EU roaming zone
The statement of the President of the European Commission, Ursula von der Leyen, on Ukraine’s accession to the EU roaming zone is another evidence of steps that relate not only to global changes in the development and support of Ukraine by Western partners but which may soon be felt by ordinary Ukrainians.
Free roaming and an industrial visa-free regime are the priority areas seen by the European government represented by Olivér Várhelyi as tools to accelerate integration, where success can be achieved quickly and where Ukraine can quickly get positive results.
In the context of IT, sector sustainable growth abovementioned steps are of utter importance in influencing the migration attitudes of IT specialists. 78% of surveyed respondents confessed that they would definitely stay in Ukraine under the scenario of European integration and liberalization of the economy, according to IT Research Resilience.
Over 3 million cross-border movements have been made back into Ukraine since roughly 7 million Ukrainians had crossed the border since the war began. They are demonstrating their willingness to put in a lot of effort to help the nation rebuild.
Establishment of Intellectual Property Court
Intellectual Property Court, Established in Ukraine, is the highest specialized court in the judicial system of Ukraine. In December 2021, the draft law on the resumption of work on the IP court was introduced by the People’s Deputies of Ukraine, bringing Ukraine even closer to European integration. The establishment of the IP court aims to create a consistent and predictable judicial practice following European and international standards. Among the countries with special IP courts or patent, courts are the United States, the United Kingdom, Germany, Sweden, France, Portugal, Spain, China, Brazil, Japan, Chile, Peru, and others.
Thanks to the fact that IT companies could quickly relocate their material assets to safer regions of the country without any obstacles from the government, but instead with its help, relocation within the country is more profitable for many IT companies compared to leaving the country immediately. This means that the IT business with its main assets – personnel – will remain in Ukraine, thus creating the favorable outsourcing environment to foreign companies in 2023.
In Ukraine, the legal complexities that exist in European countries for hiring employees are simplified as much as possible. Working with Ukrainian outsourcing companies, there is no need to delve into complex taxation schemes, worry about the local legal person, and spend time and resources dealing with it all. In addition, we have no double taxation, which is certainly attractive to companies-clients from the USA and Western Europe.
Final thoughts look optimistic
Overall, Ukraine’s IT sector is resilient. There is enough evidence to test the original hypothesis that Ukrainian IT professionals are equipped to provide high-quality services even during the war.
The resilience of the IT sector demonstrates an unprecedented situation, which shows the strength of Ukraine, which is able to create a solid foundation for the technology segment. The industry itself is just an industry with amazing, strong-minded people behind the name who showed the most important qualities in the most difficult times.
And as the world has seen, the potential of the IT segment is great. By coping with the challenges that began on February 24, 2022, we not only give hope for a bright future, but we take practical steps toward it every day.
We appreciate your continued support of Ukrainian developers, and if you don’t already have a relationship, now would be a great time to start.