Ukraine: Some Aspects of Building the New Economy
Preface
Patently, experiencing Ukraine every day both amazes you in a sense of strength for the nation, creativity, audacious use of technology, and at the same time, it gives you a feeling of never realized potential. The idea of this article is just to try to share some thoughts of mine about what kind of opportunities we can develop in terms of the new economy.
Unfortunately, the permanent crisis is a never-ending reality for Eastern Europe. Not surprisingly, many Ukrainians live with an expectation only for bad, skepticism became our national challenge. Tough history, endless social issues, corruption, war, annexation, continuously revitalizing economy are the stable trainers for every Ukrainian. Distrust and feelings of uncertainty transformed it into national habit. But the irony is that if we do not believe in our powers why anybody else would? Companies? Investors? Talents?
Winning is a habit. Unfortunately, so is losing. — Vince Lombardi
Business is something that is largely correlated with trust in a particular society. Also business is something very indicative and measurable: What? When? How? Whom? Before event talking actual business we check the technical capabilities of the shipment of a product. For many physical businesses, infrastructure is a very indicative thing. Let’s illustrate European flights traffic to be more precise in this approach. Definitely, Ukraine is among the laggards by this parameter. The roots of this problem are already mentioned: war, corruption…
But Ukraine’s case is not unique. Every country exists in specific circumstances. Paradoxically, for the extremely successful South Korea there is a utopian communist North. For innovative Israel, there are tenth Arabic countries which do not recognize the existence for this state…and for the “unrelentingly” transforming Ukraine there is Russia which for centuries politically and socially put us in danger. Is not it?
Ukrainians should be comfortable with an idea that nothing good ever came from the east to us.
Possibly, there should be this essential evil as a countermeasure for the country revitalizing itself. Nevertheless, there is no direct path for the nation to prosper instantly and painlessly. Well, what we can do about it? What actually Ukrainians can do to make the difference?
What we can learn from South Korea?
In summer in 2013 I’ve participated in Korean Government Program completion at Chung-Ang University in Seoul, South Korea. This country left a noticeable footprint on me; impressed me so much and developed my vision for the technology and business.
South Korea is one of the most highly regarded countries in the world when it comes to sustained growth and development. In each of the last five decades, the average annual rate of growth has exceeded 5% and the economy is now an innovation-driven, high-income country of just under 49 million people with a total GDP in excess of $1 trillion and a per capita income of over $20,000. Some economist has christened South Korea the “Germany of Asia”.
But South Korea has not always been like this. When the Russo-Japanese War ended entire Korea was annexed by Japan in 1910. Ending the Empire of Japan’s 35-year rule over Korea in 1945 the United States and the Soviet Union each occupied a portion of the peninsula (South and North), with the boundary between their zones of control along the 38th parallel. After the Korean War (1950–1953) began when the North Korean Communist army crossed the 38th Parallel and invaded non-Communist South Korea. As Kim Il-sung’s North Korean army, armed with Soviet tanks, quickly overran South Korea, the United States came to South Korea’s aid. Anyhow the war had ended for the both of Korea’s. Each part of it started operating independently with totally different approaches to the state building and economic generation. For sure we may notice the difference in business results of that decision.
Ukrainian case is a bit of similar to South Korean one in terms of reinventing countries’ identity on the background of war and malfunctioning economy. Some people may argue that Koreans will not have succeeded without US help. It is true that US investment in South Korea was the biggest in comparison to after WWII. But we have to acknowledge the basic principle nova South Korean economy — the value-added based export-driven economy. South Korea appears to have made the transition well from primarily agricultural state to high technology state — Samsung is a major competitor to Apple Inc for example — and exports to emerging countries are growing strongly.
South Korean way is all about value-added based export driven economy, Ukraine needs to try one too.
Personally, I see this potential in Ukraine too. I am not saying something extra unique referring to Ukraine’s need for real reindustrialization and building of innovation-driven product export economy in contrast to resource export economy. The paradox is that famine occurs in countries that focus mostly on agriculture and low complexity products. I tolerate and respect this type of business too but the thing is that you cannot survive today only on agriculture and talents outsourcing.
Following the way of technology it is Ukraine’s insurance for a future.
Following the way of the value-added based technological economy, it is our insurance for a future. From 0 to 1, iteration by iteration from swamp and destruction to an innovation-driven economy. Stimulating disruptive tech should be our mantra!
South Korea made this transition, so Ukraine can too!
Developing Ukrainian tech from an outsourcing perspective
The economy of Ukraine has been shaken heavily in the past couple of years. At the same time, IT has always been one of the most stable industries, which makes it super attractive for technology companies. Ukraine has more than 150 thousand IT-related professionals officially working for outsourcing companies in Ukraine. It is also beneficial for talented professionals to choose digital work in order to transcend local and national markets and receive payments from abroad.
IT salaries are way higher than average jobs in the Ukrainian market, which drives more interest to the industry. Also, Ukrainian workers are attractive to foreign clients who can obtain good-quality work for relatively low pay, yet keeping earnings from such jobs attractive enough to those who perform them.
“We are not cheap we are the inexpensive”
IT outsourcing and outstaffing are also often preferred by customers from Europe and America because of cultural proximity. Moreover, Ukraine is also located in the Eastern European time zone, which simplifies the online communication of Ukrainian workers with European clients, in contrast to workers from other regions, such as Asian countries.
We became so skillful in resolving issues and begin to outsource this craft.
18 information technology companies operating in Ukraine have made it onto the list of the best tech firms in the world — the 2018 Global Outsourcing 100. Also, PwC mentions Ukraine as fifth among the top 25 global service countries.
No wonder why such companies as Samsung, Amazon, Netcracker, War Gaming, Sitecore, SimCorp, Magento, ABBYY, Aricent, and SysIQ have been running their R&D centers in Ukraine.
But there is always one more thing… What are the global trends in offshore outsourcing right now? Let’s review the India case. Ukrainian outsourcing is worthwhile but in comparison to India’s $150 billion outsourcing machine, it is relatively nothing.
What is happening with the outsourcing industry in India?
Currently, because of rapidly shifting technology needs, Brexit and the ascension of protectionist Donald Trump as US president slams the brakes on the offshore outsourcing industry in overall. It is largely affected India outsourcing industry:
- Infosys, once the industry’s bellwether, is feeling the full force of this headwind;
- Cognizant has seen its growth targets reduced thrice in the face of changing realities;
- TCS felt the impact as it made a shift in business model on software platforms and chased digital contacts.
These dire warnings center around a shift from an old way of doing business focusing on outsourcing and cost-based software services. Obviously, Indian outsourcing companies need to transform their businesses, acquire new skills and move into emerging dimensions of the business.
India’s $150 billion outsourcing industry finds itself at a tipping point.
Reciprocally, Ukrainian outsourcing companies cannot compete with Indians ones on the quantitative level and still experiencing the same business challenges as Indian giants do.
“So in war, the way is to avoid what is strong, and strike at what is weak.” — Sun Tzu, The Art of War
Accepting the new business reality Ukrainians just needs to be different. Ukrainians have something else to show; something more valuable — the power creativity and national individualism (in a good way). Machines and AI can do a much. Yet, what can make a human really valued, is the ability to apply imagination.
Ukrainians as the creative force
The very same economy of many countries is experiencing substantial structural changes as conventional industries replaced by the service sector and innovation, making the transition to a knowledge economy where a particular role is played by creativity.
Unfortunately, there is not that much product oriented IT in Ukraine yet, but we can make one. Such a big country with so many creative people, software engineers, hackers (ethical) and there has not yet been a single company unicorn on the great Shevchenko’s soil.
Ukraine is close to such a local break-out with GitLab, Grammarly, BMP Online, Genesis, Readdle and Jooble en route to becoming the first unicorns.
I am sure that Ukrainians have the charisma to create something new. Our people have the talent and a certain level of stubbornness to create attention-grabbing products.
Filmmaking with contemporary CGI and Visual effects is an option too.
Recently, Ukraine-based film services company Radioaktive Film became of the best in the word receiving Shots Awards 2018 in the nomination of Production Service Company Of The Year. Eye-catching recent Radioaktive Film projects have included adverts for Apple, Hennessy, Oxfam, and Audi.
Ukrainian game development industry is also evolving rapidly. Only in recent years, more than 30 new game dev companies have appeared. Gamedev studios are present in almost all Ukraine’s regions.
ACHIEVERS HUB together with UNIT.City Innovation Park has made the first attempt to create a map of Ukrainian gamedev companies and analyze the market situation.
To be even more illustrative let's have a look at one interesting case from Poland.
Lessons learned from neighboring tech sector of Poland
Recently Poland becomes first country from former Soviet bloc to be ranked a ‘developed market’ on the FTSE Russell index. The country now joins the likes of the UK, US, and Japan in the index’s list of the 25 most advanced global economies. There are many reasons for this acclamation (including involvement of Ukrainian workforce) but the most it is Polish investment in human capital. A very bright example of this practice Polish computer-game CD Projekt Red. Financial results of this company are outstanding.
Polish computer-game developer has become Poland’s 13th biggest listed corporation as its stock value broke the EUR 3 billion ceiling because of expectations rise for the highly anticipated release of Cyberpunk 2077 game.
The company’s market capitalization has propelled it among all of Poland’s listed corporations, overtaking a number of major banks, one of Poland’s three biggest mobile networks as well as the oil giant Lotos. Currently, CD Projekt has a larger market cap than Tauron Polska Energia SA, an energy holding company with interests in power and heat generation and distribution and coal mining, that employs over 25,000 people.
Poland has done their lessons on the building of a creative economy, so Ukraine should too.
Value of Global Ukrainership
Definitely one of the positive outcomes of the conflict in Ukraine is the reinvigoration and reunification of Ukrainians globally.
Living and working for a while in Canada I learned one simple thing: every diaspora involves the idea of return. Sometimes return is literal and physical but it can be an investment too. For sure Ukrainian diaspora is an influential fighter for the country’s better future. It lobbies foreign governments, organizes countless protests, collects aid, and informs the world about events in Ukraine. However, business has never been in the priority.
Every diaspora involves the idea of return
Anyhow, essential steps are being done in terms of business, for an example, Canadian diaspora lobbied the signing off of the Canada Free-Trade Agreement with Ukraine. Effectively Canada opened 98% of its domestic market. During my work for a project supporting this agreement (Canada-Ukraine Trade Investment Support (CUTIS)) project, first-ever Ukraine IT mission to Canada has been organized. This mission showed the great potential of this business direction for both of sides.
Also, the study by USAID examined the potential role that the Ukrainian diaspora in the United States and Canada could play in Ukraine’s business and investment. It resulted that Ukrainian diasporans currently engage with Ukraine primarily via travel, volunteerism, charity, and sending remittances. Few are engaged in business investment, impeded by experience with/stories of corruption and previous diaspora failure.
Investment interest is mainly driven by institutional change and emotional return expectations, and information technology is among the most attractive industries for investment.
Based on that assessment’s findings, the greatest potential value proposition of a Ukrainian diaspora fund is to provide Ukrainians in the diaspora a trustworthy, reliable vehicle for channeling and scaling up diaspora capital to be invested in Ukraine to generate institutional economic and social change in the country, providing diaspora investors with emotional benefits of pride, accomplishment, and duty fulfillment in contributing to this change.
Conclusion
Ukrainians are the stubborn nation, intellectual but mostly blind in terms of the national product except agricultural. The country once pioneering in space tech and computer science trade mostly low value-added products recognizing themselves as an intellectual resource for developed markets. We started to outsource our capacity for resolving complex problems to the other countries. Actually, fear and permanent uncertainty are the key drivers of Ukrainian ability to innovate for centuries. Now its time to use this skill in some other way, the way extreme too — entrepreneurship and technology-dense economy. To cultivate our Samsung, eBay, Skype, Uber… by fundamental and applied research, by creativity and freedom-mindedness on the way to global economy.
Current Ukraine exists but its economy doesn’t on a global scale. Not a secret, if one’s economy succeeded one’s culture will be taught one’s language will be learnt.
Summarizing all mentioned in this article I tried to draw the attraction of the reader to:
- Need of positive thinking and trust for every Ukrainian as it influences the economy of scale;
- IT outsourcing is good but it does not allow to realize the full potential of Ukrainian intellectual capacity;
- Strong product companies is a must for the emerging Ukrainian economy;
- Game development as a possible source of business opportunities and self-expression of the nation;
- Potential of the Ukrainian diaspora in terms of investments and business in general including the tech sector.
