Business Reporter UK - Ukraine: the brain basket of Europe - Ciklum

Business Reporter UK – Ukraine: the brain basket of Europe

Ciklum author

by Ciklum

11 Jul 2014

11 May 2014

How Ukraine can offer specialist services to firms interested in expanding their IT operations

The spotlight has focused on Ukraine in recent months, with the country fighting to overcome the unrest making both investors and the diplomatic community uneasy.

The situation, while challenging and unresolved, is unlikely to diminish Ukraine’s bright future as a strong economy and the powerhouse of Europe’s IT industry.

The Ukrainian IT sector is expected to have total revenue of more than $10billion by 2020, and to become the country’s top exporting industry by 2024. This is down to a number of factors. Ukraine has lower wage rates than western Europe, as well as IT talent that can be used to meet demand abroad, and a location near to customers in the UK. A number of initiatives are also working to build up this skill set.

The Brain Basket Foundation, for example, is bringing together politicians and entrepreneurs to raise funds for IT education, with the aim of training 100,000 new software engineers by 2020.

There are good reasons for Ukraine’s attraction as a near-shoring destination for software development. “Ukraine is a unique country for this,” says Torben Majgaard, one of the organisation’s backers. “When things go wrong in outsourcing it is usually to do with 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 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 cost 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.”

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.”

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, 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 fee 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 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 600 this year. I’m very confident about Ukraine and the business.”

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