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
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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