The IT Ukraine Association's 2022 report indicates that as of the end of 2021, there were about 289,000 IT professionals in Ukraine. The industry's share in GDP was 3.5%, and among export services – 37.8%. This means that our specialists were highly valued by foreign companies, which outsourced their projects to Ukrainians for economic and practical reasons.
At the end of 2021, there were about 5,000 IT companies in Ukraine, and as of November 2022, there were only 2,400 of them left (76.5% in digital product development, 23.5% in services). Some could not withstand the harsh conditions, and some organizations relocated to other countries. The IT sector has partially declined, albeit temporarily.
Market stagnation and subsequent gradual recovery
In 2021, the IT segment brought $6.9 billion to the budget, and in 2022, if a full-scale war had not broken out, it would have exceeded this amount. However, the reality was far from expectations: talented professionals left the country, and constant blackouts and massive rocket attacks made their own adjustments. That's why the market has shrunk significantly over the past year.
Nevertheless, not everything is as bad as it seems at first glance. Specialists are returning to Ukraine, new companies are emerging, and foreign clients are more actively interested in the services of our specialists.
Lampa Software, an IT outsourcing firm, has prepared an article explaining why the Ukrainian IT sector attracts foreign customers despite unfavorable conditions.
Challenges of the IT Segment and Attempts to Solve Them
Despite the war, financial risks, and an unstable economy, Ukrainian IT companies are increasing their productivity by developing internal and external digital spaces. For this purpose, the resources of the CEA (classifier of economic activities) are allocated to:
talent relocation;
professional development of employees;
marketing in the international space;
attracting foreign investment;
assisting in-house specialists;
adaptation to the current situation.
It brings some results, although not as good as we would like. External companies are in no hurry to cooperate with our experts because they fear missing deadlines, financial risks, etc. However, this is a temporary issue that will be leveled soon enough.
Expansion of areas covered by services
To increase the value of Ukrainian services, companies are abandoning mono-vector development and preferring multifaceted services. What does this mean? Instead of just developing digital products, IT specialists offer additional services, for example:
comprehensive testing;
IT services management;
integrations, software deployment, adaptation;
system support;
infrastructure development.
A client gets everything and even more, which partially compensates for the risk of missing a deadline or a specialist leaving the project.
Transition from quantity to quality
Previously, it was important for companies to serve many customers, but now this priority is given to one or more primary clients. It's important to understand that as of 2023, the industry has undergone a tectonic shift, meaning that even tech giants have been forced to downsize and focus on fewer simultaneous projects.
More precisely, the IT market has faced problems since 2022 that have led to a partial decline in its growth rate. The Ukrainian segment has also suffered from them, and the war has further aggravated the situation. Despite the ambitions of specialists, as of 2023, we can see a decrease in the number of active projects but a significant improvement in their quality.
Focus on comprehensive services
A company's competitiveness is measured by how many of the client's problems it can cover with its services. For example, if there's a need to develop software, will the customer have to contact other specialists to test it, deploy it, configure it, etc., or will one contractor do it all?
Modern IT companies in Ukraine, such as Lampa Software, provide a full range of services:
software development;
product testing;
publishing an IT solution;
deployment of the system in the cloud or on local equipment;
round-the-clock support;
assistance in scaling or updating the software;
collection and analysis of feedback and problems;
remote system administration.
A client does not need additional experts to cover the development needs fully. This makes Ukrainian specialists stand out from the crowd, as this practice of cooperation is standard for them.
Using trendy technologies in development
The Ukrainian IT segment continues to develop even during the war. The latest methods are being introduced, and specialists are adapting to more difficult working conditions. Moreover, experts are learning new frameworks, tools, development languages, and more. This means that Ukrainian specialists keep abreast of trends and actively integrate them into their processes.
It is clear that they cannot outperform their US competitors due to various circumstances, but they are still achieving significant results. But with external investments and many orders, they can better keep the bar high and offer customers advanced technologies on more favorable terms.
Cost of services compared to foreign companies
The Ukrainian IT segment has always attracted foreign investment due to factors such as the cost of services and their quality. The average hourly rate of a Ukrainian Middle development specialist is $20-$45 per hour, while the same specialists from the US or Western Europe are charging $35-$70. At the same time, the quality of the resulting digital products is equal.
The cost of projects directly depends on the team size and the work period. With high-quality lead generation, the cost of work does not suffer but only increases. For example, Lampa Software has certain minimum indicators that they never fall below and always find ways to provide developers with interesting projects. As a result, they will bring the company the desired profit and reliable partners.
Demand for Services and Market Supply: A Mixer That Will Stop Only After the War Is Over
Currently, the situation in Ukraine's IT sector is not the best:
constant shelling;
economic risks;
market instability in general;
talent migration;
total mobilization of specialists;
periodic blackouts;
closed borders;
outflow of foreign investment.
Nonetheless, the Ukrainian digital services market generates a huge number of offers. About 2.4 thousand companies continue to operate in Ukraine, paying taxes and serving almost all modern business sectors. Not only domestic but also foreign businesses.
For example, Lampa Software has already fully resumed its normal operations. Given the decline in hostilities in the region, there is no problem with meeting deadlines and scheduling meetings.
However, last year, experts were forced to adapt to the circumstances and solve such problems as they emerged:
overtime at the company's expense to ensure the required software quality;
rescheduling meetings with clients;
holding meetings in text format.
Hostages of circumstances: the #1 problem of the Ukrainian IT sector in 2023
The main problem is the war. Active hostilities and restrictions imposed on men of military age create obstacles for business processes in the IT industry.
The inability to meet with customers outside the country significantly affects the trust between the client and the contractor. Also, the possible mobilization of a key developer while working on a project bears risks. Add to this the constant shelling and periodic blackouts, and you'll get the answer to the question, "Why has the number of foreign clients decreased?"
How did the cooperation with foreigners change in 2022-2023?
The Ukrainian IT market stayed afloat thanks to the inertia gained in previous years. The nuances of contracts did not allow for early termination, and specialists did their best to complete projects on time. Many companies managed to succeed, particularly those situated far away from the front lines.
For example, the Lampa Software team prepared for possible problems in advance:
purchased a generator;
installed Starlink terminals;
provided employees with equipment with autonomous power sources;
developed a plan for working at home, in coworking spaces, and in shelters;
held a series of meetings with clients and created its own algorithm of actions to meet deadlines.
We overcame almost 90% of the difficulties, retained all customers, and completed all projects on time.
Besides, Lampa Software specialists began to look at building an affiliate system and customer base differently:
Increased the number of partners from as many different fields as possible who can help with their expertise at any time and vice versa.
Developing new ways of lead generation and attracting various project search opportunities.
Working with several new foreign projects.
During challenging times, it's crucial to avoid feeling disappointed and instead, put in more effort and strive for success.
Factors influencing the popularity of Ukrainian IT services abroad
Even before 2022, the Ukrainian IT segment was more than confident in the international arena. The market grew at a stable CAGR and was practically unaffected by external factors. There was demand, especially given the relatively lower cost of projects than when working with other countries.
Due to risks and internal company rules, foreign investors are less active. However, the situation is gradually improving because, in addition to the quality and cost, the growing desire to help Ukraine also plays a role. So even economic risks no longer stop foreign companies from cooperating with the Ukrainian IT business.
Although the volume of budget revenues from the export of digital services has declined slightly, growth is expected to increase again in the near future.
What Did 2022-2023 Bring to the Ukrainian IT Segment?
According to the IT Ukraine Association, over the past year, companies specializing in software development or providing digital services paid about UAH 26 billion in taxes. Moreover, not all of the 275,000 CEAs took advantage of the opportunity to reduce deductions and continued to operate as usual.
Overall, exports of IT services increased by 9.9% in 2022 compared to 2021. Despite the war, the niche continued to grow, albeit somewhat slower than previously predicted.
As for talent migration, analysts' worst-case scenarios did not come true. About 87% of specialists stayed in Ukraine. Some of them relocated within the country but did not emigrate. But about 71% of experts work remotely, although, before the war, only 25% worked outside the office.
Foreign investments
Even in the realities of war, investments in Ukraine are not decreasing. Moreover, their volume is growing in the defense and agricultural, real estate, financial, IT, and other sectors. This keeps the country's economy from declining and stimulates industry development in harsh conditions.
It is expected that in 2023, the volume of external revenues will only increase. And as the practice of the first months of this year shows, investments will be quite significant.
As for the IT industry, we can already see positive dynamics. Foreign clients gradually return, realizing the sector's value for their companies. And they get benefits for their business, such as economic benefits, high-quality digital solutions, and punctuality. This means that if Ukrainian developers support these factors, the demand for their services will grow.
For example, Lampa Software specialists, despite all the difficulties, completed several projects for Virgin Radio, LetyShops, and Dogiz, earning income and paying tax on it. Thus, they supported Ukraine together with foreign partners.
Government support of the sector
In recent years, the Ministry of Digital Transformation has done the impossible. It has restarted the Ukrainian IT segment and made it world-famous. One example is Diia, which proved its effectiveness even during the war, prompting foreign governments to order analogs for their countries.
Since the beginning of the invasion, the Ukrainian IT business has received an unprecedented level of government support. Provision of Starlink terminals, partial staffing, and a tax rate reduction for the sector.
Growing demand in the domestic market
Interestingly, the war became a catalyst for the digitization of systems in Ukraine. Moreover, those industries that have always been considered conservative were the most active in ordering services and software development. For example:
agricultural enterprises;
banking sector;
housing and utilities and real estate;
Armed Forces of Ukraine, police, security forces, and law enforcement agencies;
educational institutions
medical institutions;
commerce.
This is just a small part of the areas that have embarked on modernization or the creation of digital systems to improve efficiency in the last year. Demand, as is the pace of digitization, is expected to grow in the coming years.
Contributing to the Future of a Partner Country: Why Is It Worth Continuing to Support Ukraine’s It Segment?
Without investment, there will be no victory; without support, there will be no victory. And if there is no victory, there will be a threat to the rest of the civilized world, especially Europe. Both physical and informational.
On the practical side of the issue, foreign clients who have already used the services of Ukrainian IT companies are unlikely to want to turn to other specialists. By developing the Ukrainian digital services sector, foreign partners can count on high-quality products at affordable prices.
Personalization of services
In addition to the basic services and benefits others offer, Lampa Software specialists are ready to take responsibility for the final result. They are highly confident in the company's expertise and prove it to their clients from the first meeting.
Like other Ukrainian IT companies, Lampa Software is ready to offer its clients several development options with its own features and advantages. Moreover, they help clients choose the one that suits them best and achieve success together.
Beneficial cooperation
Pay less and get more. This is the principle that has increased the competitiveness of Ukrainian IT companies in the past. It maintains demand for services from both internal and external customers.
Access to the world's best specialists
Despite the active hostilities, software development and digital services professionals from Ukraine are improving their professional skills. For example, Lampa Software employs Middle specialists (39%); the rest are Senior and only a few newcomers who make significant progress in a short time.
They have not only excelled in the standard workflow but also surpassed leading information Russian systems.
Final Thoughts
Ukraine has a strong tech industry with skilled developers, engineers, and IT professionals who are known for their expertise:
technical skills;
innovative thinking;
entrepreneurial spirit.
A rich history of scientific and technological achievements and a strong education system contribute to the growth and success of the technology industry.
By investing in Ukraine and its IT companies, you are not only getting the highest quality digital products but also investing in the security of Europe. We believe in victory, in the Armed Forces, and foreign investment!