Ukrainian IT powerhouse

For the past few weeks barely a day has gone by without the news focusing on developments in Ukraine. European Union leaders may have pledged to support the country with closer economic ties, but the whole situation has made investors decidedly nervous about the Ukrainian economy.

There is, though, one industry which is thriving and set to expand dramatically over the next decade – IT outsourcing. It is the potential that exists here which persuaded Torben Majgaard, founder and chief executive of Ciklum, to approach Pavlo Mykhaylovych Sheremeta, Ukraine’s minister of economic development and trade.

“He had said he wanted to change Ukraine from a resource-based economy to a knowledge-based one,” says Mr Majgaard. “He invited me for a meeting and we’ve now put out a statement saying that Ukraine aims to be the powerhouse of IT for Europe, creating another 100,000 programmers in the next six years. That’s the plan I’m working on now.

“By 2020 the sector will have total revenue of more than $10 billion, making it the country’s third biggest industry, and by 2024 it will be the number-one exporting industry in Ukraine.” This would bring much needed economic benefits to the country, he believes, and see the emergence of a strong middle-class and consumer-led economy.

There are good reasons for this optimism, based around Ukraine’s attraction as a near-shoring destination for software development. “Ukraine is a unique country for this,” says Mr Majgaard. “When things go wrong in outsourcing it is usually around culture. The cultural difference between the UK and Ukraine is not big. It’s a very British and northern-European mentality, and the work discipline is very strong.” The time zone is another advantage, he says, with Ukrainians tending to work late, meaning they operate similar hours to the UK and other European markets.

The Ukrainian market also has the added benefits of lower wage rates than many surrounding economies and a highly skilled talent pool. “You don’t find that anywhere else,” says Mr Majgaard. “You have some quality people in Belarus, but it’s a smaller talent pool. Russia also has a good talent pool, but they have huge internal demand. If you go inside the EU, to Romania or Poland, the price goes up by £1,000 per person per month and there is no country with the size of the talent pool we have.

“We have come up with a new slogan, ‘the brain basket of Europe’, instead of the bread basket.”

Mr Majgaard’s own business is a case in point, having established itself as one of the largest operators in the software development sector, despite having only been in existence for 12 years. “We don’t see ourselves as outsourcers,” he says. “We see ourselves as facilities managers and partners for customers who wish to establish a presence here in Ukraine.”

We see ourselves as facilities managers and partners for customers who wish to establish a presence here in Ukraine

The business helps with all aspects of starting up, he says, including facilities and recruitment, where it offers a unique model, although legally staff are employed by Ciklum and the customer is simply invoiced from inside the EU.

“We go to the labour market on behalf of customers and we then interview and present candidates to the customer,” he says. “So the customers choose the employees rather than being assigned them from a pool, but what is even better is that the employees choose the customer. Here is an employee who has left their job somewhere to come and work for this customer.”

This relationship also means Ciklum cannot raise the salary of employees without the authorisation of the customer, Mr Majgaard adds, and encourages a direct relationship where employees are willing to go the extra mile for customers in a way that would not happen in a traditional outsourced model.

“There are elements here which create a high level of loyalty directly between the employee and the customer,” he says. “So if there is a need to work Friday night, they will do it for you. We sit on the sideline of everything and take responsibility for guiding the customer, as well as coaching, training and ensuring productivity and communication.”

The company’s business model also reflects this arrangement with customers. “We don’t invoice a customer at a price per hour, per month or even per project,” says Mr Majgaard. “We invoice the customer at the actual salary that is being paid to the employee and then we invoice a fixed price on top of that. If it were a percentage, we would have an interest in the customer hiring expensive staff and awarding big salary increases. We need to be independent advisers for the customer.”

To this aim, Ciklum started its own consulting service in 2007, born out of introducing customers to learn from each other’s experiences. A core part of this is advising around agile working – a method of software programming where customers and developers work together to develop programmes, rather than customers creating a specific brief and asking developers to go off and design a package.

“Often if there are problems, it’s not that the programmers wrong-code, it’s that they just code what the customer wanted,” says Mr Majgaard. “The more modern way is that you develop the idea and the planning while you’re programming so you do these things in parallel.” The company is already training programmers in organisations in the UK, Sweden and Switzerland, he adds, and has recently become the first company in Europe approved to certificate agile trainers.

It is this kind of innovation, as well as the other advantages such as culture, time zone, quality and availability of staff, which Mr Majgaard believes makes Ukraine a strong proposition for organisations looking for software development support, and why he believes the Ukrainian economy will ultimately flourish.

“Ukraine will become the powerhouse of Europe for IT, if it’s not already,” he says. “With 100,000 new programmers coming in over the next six years and a very small domestic demand, there will be a huge amount of resources for any UK-based companies. Even though there has been all this trouble, in the first quarter of this year we have added more than 100 to our headcount here and we will grow by an additional 800 this year. I’m very confident about Ukraine and the business.”

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