r&d globalization: a ukraine perspective
DESCRIPTION
Ukraine is the second largest contiguous country on the European continent, after Russia. As compared to established locations such as India and China, Ukraine does not figure as prominently on the radar of companies looking to globalize their R&D operations. During the period 2000- 2008, foreign direct investments inflow increased in the country, which indicates that Ukraine is emerging as one of the key economies in Central and Eastern Europe (CEE).TRANSCRIPT
R&D Globalization: A Ukraine Perspective
Zinnov LLC CONFIDENTIAL
2009
This report is solely for the use of Zinnov and Zinnov Clients. No part of it may be circulated, quoted, or reproduced for distribution without prior written permission
Zinnov LLC
Ukraine
Belarus Poland
Romania
Bulgaria
Hungary Slovakia
Czech Republic
CONTENTS The current document is a preview to the complete study and covers the R&D offshoring
market numbers for Ukraine along with an overview of the key drivers for offshoring of R&D to the region
Overview
Note: *The scope of the study includes countries Poland, Belarus, Czech Republic, Slovakia, Hungary, Romania, Bulgaria and Ukraine only
SCOPE This report is intended to provide an overview
of the R&D landscape in Ukraine in the context of Central and East European (CEE) countries*
Specifically, the report seeks to provide detailed information on the following aspects
Size of IT offshoring market in Ukraine with specifics for the R&D offshoring market
Primary drivers for offshoring of R&D to Ukraine
Key offshoring locations for R&D within Ukraine
Macro and micro challenges that may hinder the progress of Ukraine as a key R&D offshoring destination
Agenda
Market Overview 1
Lay of the Land 2
Location Analysis 3
Case Study 5
Key Restraints 4
The IT offshoring market in Central and East European (CEE) countries has rapidly evolved over the last 3 years
Ukraine
Belarus Poland
Romania
Bulgaria
Hungary Slovakia
Czech Republic U
SD M
illio
n
CEE IT Offshoring Market, 2006-08
18%
CAGR
Note: The scope of the study includes countries Poland, Belarus, Czech Republic, Slovakia, Hungary, Romania, Bulgaria and Ukraine only
Source: IT Ukraine, Zinnov Analysis
This is a preview. The total slides displayed are limited. For full access contact [email protected]
Among the CEE countries, Ukraine has emerged as the largest IT offshoring market
Source: IT Ukraine, Primary interviews with stakeholders of service providers and industry associations, Zinnov Analysis
IT Offshoring Market Size of CEE Countries, 2008
USD
Mill
ion
Ukraine has achieved this status with a significantly large talent
pool of about 25,000 IT resources, supportive
government policies and lower operating cost structures Ukraine accounts for
more than 20 percent of the total CEE IT offshoring market
This is a preview. The total slides displayed are limited. For full access contact [email protected]
The Ukrainian IT offshoring market is predominantly driven by R&D related activities
Note: * IT/ITES – Information Technology / Information Technology Enabled Services
Source: IT Ukraine, Russoft, Zinnov Analysis
IT Offshoring Market Split by Activity Based on Size, 2008
IT Offshoring Market Split by Activity Based on Headcount, 2008 The talent pool in Ukraine is highly capable of performing high end R&D work, as a result of the relatively advanced educational system inherited from the erstwhile Soviet Union
Agenda
Market Overview 1
Lay of the Land 2
Location Analysis 3
Case Study 5
Key Restraints 4
Post 2000, Ukraine has rapidly evolved into a leading destination for R&D Offshoring among the CEE countries
Soviet Era Reform Era Growth Era
1960s-1980s:
• Ukraine was an important center for Soviet arms industry and hi-tech research during the 1960s
• Most of the R&D related activities were state-funded for defense, space and military programs
• Restrictions in society and especially due to restriction in relations with the West, the software sector in Ukraine was underdeveloped until late the ‘80s.
1990s - 2000: • The country became independent
in 1992 after the dissolution of Soviet Union
• Post the soviet regime Ukraine moved from a planned economy to a market economy, the transition of which resulted in an economic recession
• In the early ‘90s the IT sector
suffered a backlash in the form of a brain drain. At that time the best qualified specialists and programmers found a job abroad or immigrated to the US, Canada or Western Europe
• Commercialization and applicability of programming resources was first introduced and developed after 1991
2001-Current:
• In 2001, the Government revised the legislative laws concerning software products to increase IP protection
• The Government implemented a visa free entry for citizens of US and Europe to attract experienced talent
• About 60 – 70 percent of the
service providers began operations post 2000
• Post 2004, the government has also
introduced various initiatives and laws to promote the IT industry in Ukraine
• Between 2000 and now the IT industry has grown at an average of 40 percent annually and has resulted in Ukraine being the largest R&D offshore destination in the CEE region
Evolving R&D Offshoring Landscape in Ukraine
Source: Ministry of Commerce-Science, Technology and Innovation System in the Ukraine, Zinnov Analysis
This is a preview. The total slides displayed are limited. For full access contact [email protected]
Compared to CEE countries, Ukraine has witnessed its R&D offshore market grow at more than double the rate of that of the CEE average in 2004-08
Source:IT Ukraine, Russoft, Zinnov Analysis
CAGR
R&D Market Growth, 2004-2008
18%
CAGR
Ukrainian R&D offshoring market has seen explosive growth in the past few years with the growth rate being more than double of that of the CEE average, which can be attributed to the highly capable talent pool, low attrition, low costs and increased government support
40%
This is a preview. The total slides displayed are limited. For full access contact [email protected]
The key reasons for the rapid growth in R&D outsourcing to Ukraine include presence of highly skilled R&D talent pool, lower cost of operations, supportive government policies and proximity to EU countries
Note: ‘Impact of driver ‘ indicates the important factors based on which global firms offshore R&D projects to Ukraine service providers . It is purely a qualitative rating based on Zinnov’s observation across key product development firms globally
Source: World Bank-Ukraine Economic Update; PWC-Doing business and investing in Ukraine; Zinnov Analysis
Key Drivers Description
The government has been actively supporting the IT Industry and specifically R&D activity in Ukraine. Though the support came recently, Ukraine is poised to be a significant R&D outsourcing destination
Impact of the Driver
Cost of running operations in Ukraine is about 60-70 percent cheaper than in the US
Ukraine has highly capable resource pool of about 8,000 to 10,000 working in R&D related activities. The number of R&D resources installed in companies in Ukraine are the highest in the CEE region
Cost Arbitrage
Talent Pool
1
2
Government Support 3
Impact
High Low
Close proximity to Europe makes Ukraine a preferred destination for near-shoring. In addition, good proficiency in English and European languages facilitates easy transition of projects and co-ordination between client teams
Proximity to Europe 4
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In terms of talent pool, Ukraine has a significant population of highly skilled manpower capable of working in R&D related activities
Source: IT Ukraine, Zinnov Analysis
1 Talent Pool
Installed R&D Resource Pool, 2008
Since the Soviet times, Ukraine has had a long standing reputation as a major technology hub with a well developed scientific and educational base
Ukraine’s traditions of physical, mathematical and programming schools are very strong. Nearly 60 percent of the universities in Ukraine have graduates who have majored in these fields
With only 1 percent of the world’s population, the country has 6 percent of the world’s physicists, mathematicians, computer programmers and other highly trained professionals
Soviet Legacy
Education System
Ingenuity
A Talent Pool Size
This is a preview. The total slides displayed are limited. For full access contact [email protected]
The cost of operations is also significantly lower with the costs of R&D resource in Ukraine being 60 to 70 percent less than that in the US
2 Cost Arbitrage
Illustrative
Source: Primary interviews with stakeholders of service providers; Zinnov analysis
0
50
100
150
200
Ave
rage
Co
st U
SD ‘0
00
Average Operating Cost/ FTE/ Year - A Comparison
USA Israel Russia China India Ukraine
Ukraine
Ukraine
Kharkiv, Donetsk Dnepropetrovsk
( 30 – 35)
Silicon Valley (150 – 175)
Tel Aviv (115 – 135)
Moscow (60 – 75) Shanghai
(45 – 55) Bangalore (35 – 45)
Kiev (37 – 40) Lviv
(33 – 38)
60-70% savings
Lviv is about 20% less expensive than Kiev while other cities are
about 25% lesser
This is a preview. The total slides displayed are limited. For full access contact [email protected]
The government has also been providing active support by driving targeted initiatives to promote investment in the region
Government Support
International Co-operation
Executive Bodies
Education National Programs
Infrastructure
Source : Primary interviews with various stakeholders in executive bodies and service providers, Zinnov Research
3 Government Support
Ukraine has entered into bi-lateral agreements with many countries such as Netherlands, Poland, Singapore, etc. to facilitate innovation & promote FDI
The government has established dedicated agencies such as IT Ukraine, Ukrainian Hi-Tech Initiative etc. to promote innovation and foreign investment in the IT and software industries in the country
Ukraine has worked constantly to improve the educational standard in the country through various programs and initiatives such as Bologna Process and EUREKA
Various programs on a national level such as “Invest Ukraine” have been introduced to improve the FDI status in the country
The government is also taking active measures to improve the infrastructure condition within Ukraine such as focusing on development of Transport Corridor Europe Caucasus Asia corridor, setting up of new technology parks etc.
This is a preview. The total slides displayed are limited. For full access contact [email protected]
Proximity to Western European countries is an added advantage as it has enabled companies to near shore their operations in Ukraine
4 Proximity to Europe
Ukraine
Belarus Poland
Romania
Bulgaria
Hungary Slovakia
Czech Republic
• Near-shoring locations are closer to the client which makes mutual visits easier enabling higher productivity and efficiency
• The Central and Eastern European countries have close cultural ties with markets of Western Europe. Typical near-shoring location personnel have proficiency in the client’s language and better understanding of cultural background of the client.
• Strong reaction to instances of companies moving jobs offshore (loss of good will) was the reason why European countries preferred near-shoring.
Source: Primary interviews with stakeholders of service providers and industry associations; Zinnov analysis
This is a preview. The total slides displayed are limited. For full access contact [email protected]
The current document is a preview to the complete study and covers the R&D offshoring
market numbers for Ukraine along with an overview of the key drivers for offshoring of R&D to the region
The full report provides a comprehensive coverage of the R&D landscape in Ukraine with more details on offshoring landscape and key drivers for offshoring along with additional insights on major offshoring locations in Ukraine and challenges that can hinder the progress of the region as a key offshoring destination
Full report on Ukraine R&D landscape can be accessed at Zinnov ‘s Global Location & Talent Pool Portal. Sign up today for a free trial account
http://zinnov.com/US/demo_signup.php Or, email us at [email protected]
Additional Information
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