Ukraine Wants to Become the Silicon Valley of Europe

And it’s hoping U.S. support in the current crisis with Russia will help draw in American clients.

National Journal
Marina Koren
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Marina Koren
April 30, 2014, 11:46 a.m.

In the last few months, the United States has pledged to Ukraine out­spoken sup­port, mil­it­ary food ra­tions, and $1 bil­lion.

But what Ukraine could really use dur­ing its stan­doff with Rus­sia, its of­fi­cials say, is help from Amer­ic­an in­form­a­tion tech­no­logy com­pan­ies.

The Ukrain­i­an Em­bassy in the U.S. has launched a cam­paign aimed at West­ern busi­nesses, ur­ging them to in­crease their out­sourcing ser­vices to Ukraine. “It’s high time for U.S. in­vestors and IT com­pan­ies to really dis­cov­er Ukraine,” said Ol­ex­an­der Mot­syk, the Ukrain­i­an am­bas­sad­or to the U.S., at a present­a­tion at the em­bassy Tues­day night.

The event ran like a stand­ard busi­ness pitch, with sev­er­al eco­nom­ic and tech ex­perts tout­ing the be­ne­fits of out­sourcing IT jobs. The em­bassy had partnered with Trans­par­ent­Busi­ness, a “cloud­sourcing” pro­vider that al­lows man­agers in oth­er coun­tries to re­motely mon­it­or their con­tract­ors’ work in Ukraine. By grow­ing this eco­nom­ic sec­tor, Ukraine isn’t look­ing to be­come the next In­dia, the even­ing’s fea­tured speak­ers said, but rather the Sil­ic­on Val­ley of Europe.

The most mem­or­able mar­ket­ing tac­tic of the even­ing wasn’t tout­ing cheap­er tax in­cent­ives or re­li­able tech­no­logy, however. It was something much more un­usu­al: demo­cracy.

“Na­tion­al eco­nomy is a mat­ter of na­tion­al sur­viv­al,” Mot­syk said. Posters of Feb­ru­ary’s Eur­omaidan protests hung in the room, and pamph­lets for guests read “Sup­port Demo­cracy. In­crease Your Profits. Cloud­source to Ukraine.”

At first glance, the slo­gan sug­gests Ukraine is try­ing to cap­it­al­ize on a crisis. But in this spe­cif­ic crisis, that may not be such a bad idea. The Ukrain­i­an eco­nomy is near­ing col­lapse. This month, the coun­try’s cent­ral bank, scram­bling to slow in­fla­tion rates and pro­tect the value of its cur­rency, in­creased its main in­terest rate by 3 per­cent.

Ukraine hasn’t tried to po­s­i­tion it­self as a des­tin­a­tion for out­sourced IT jobs be­fore, speak­ers said. But the cur­rent polit­ic­al cli­mate in­dic­ates the time is ripe to mod­ern­ize its crippled eco­nomy. By out­sourcing to Ukraine, the U.S. and oth­er West­ern coun­tries would not only boost eco­nom­ic de­vel­op­ment, they would also sup­port an­oth­er na­tion’s sov­er­eignty. Sev­er­al U.S. com­pan­ies already out­source tech­no­logy work to Ukraine, in­clud­ing Pep­sico, IBM, Chrysler, and Dell. The cur­rent state of Ukraine’s de­teri­or­at­ing eco­nomy sug­gests it could use a few more stateside cli­ents.

The IT ser­vices in­dustry has in­deed ex­ploded in Ukraine in the last dec­ade. The sci­ence schools that pro­duced rock­et sci­ent­ists dur­ing the So­viet era are now churn­ing out thou­sands of com­puter sci­ent­ists each year. In 2011, Ukraine’s IT ser­vices ex­ports ex­ceeded the volume of its arms ex­ports for the first time in his­tory. The coun­try ranks fifth glob­ally in IT ser­vices, be­hind In­dia and Rus­sia.

Out­sourcing to a na­tion in crisis, however, car­ries risks. Ra­chael King re­cently ex­plained for The Wall Street Journ­al:

When busi­nesses out­source to any low-cost des­tin­a­tion, they al­ways weigh risk and be­ne­fits, say out­sourcing ex­perts. Risks can range from nat­ur­al dis­asters such as last year’s typhoon in the Phil­ip­pines, to vi­ol­ence and polit­ic­al in­stabil­ity in Egypt”¦.The biggest risk now is the polit­ic­al un­rest with Rus­sia and what may hap­pen to cor­por­ate in­tel­lec­tu­al prop­erty out­sourced to the Ukraine if Rus­sia is suc­cess­ful in an­nex­ing all or part of the coun­try, said Dav­id Rutchik, a part­ner who spe­cial­izes in out­sourcing at man­age­ment con­sult­ing firm Pace Har­mon Inc. Laws in the Ukraine bet­ter pro­tect in­tel­lec­tu­al prop­erty, he said, than laws in Rus­sia.

The Ukrain­i­an Em­bassy hopes this friend­li­er at­mo­sphere in Ukraine will draw cli­ents away from Rus­si­an ser­vices. Ukraine is “not de­pend­ent on Rus­sia for re­sources. We have our own re­sources,” said Ihor Baranet­skyi, chief of the em­bassy’s eco­nom­ic of­fice. “We just need more at­ten­tion from you.”

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