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Ukrainian Outsourcing – next destination Romania?

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For the past several years Ukraine has been a well-known destination in terms of Outsourcing and major companies seeking to relocate their business in Eastern Europe were looking at this country with a major interest. Has the situation changed over the last year and are the major players on the market starting to feel the need to relocate their shared services centers to neighbor countries due to the changing economic and political climate? With one of the most prestigious provider of computer services looking to move a business that had been developing in Ukraine for years towards Eastern countries due to the risks stemming from political tensions, we feel the need to analyze the situation further and really understand if there is truly a wind of change that could modify the trends in Outsourcing in Ukraine.

 

Two years ago, Ukraine was experiencing an economic boom, driven largely by the country’s information technology business. In 2012, companies were taking courageous steps in transitioning their IT operations from places such as India or the Philippines to Ukraine where a vast pool of highly trained IT specialists (ranked fourth in the world behind the United States, Russia and India) were eager for work. At that particular moment in time, the Outsourcing line of business in Ukraine was reaching a growth of 25% year to year.

 

“The information technology services industry in Ukraine is booming,” Forbes announced in August 2012. “And the reason? Outsourcing.”

 

Unfortunately, the revolution that took place at the beginning of 2014 and the political instability the country is facing at the moment has turned the situation upside down. The pressure is felt from companies that are headquartered in the US and that feel the tension in the area and are thinking more and more about changing the location for their shared service centers to more stable countries such as Romania, Poland or Hungary.

The decision to re-locate a certain service center is not so hard to understand if you take into consideration the investments a company has to face and the clients it has to serve – sometimes such centers reach amounts of billions of dollars and the investor needs to feel safe and constantly re-assured that the business is in good standing.

 

Luxoft to Move 500 Programmers from Ukraine due to economic risks

 

This year, in May, Luxoft Holding Inc. (LXFT), a provider of computer services employing programmers in Russia and Ukraine, announced the plan to move about 500 of them from the two countries after Western clients cited risks stemming from political tensions.

“The relocations are part of a plan to eventually have no more than 20% of its workers in any one geographical region. Clients in the U.S. and Europe urged the company to reduce exposure to Ukraine and Russia” – Dmitry Loschinin, Luxoft CEO declared. The customers’ names were not made public at the time.

The company declared that programmers could be moved to neighbor countries such as Bulgaria, Poland and Romania, where offices are now expanding. Vietnam could also be a new Outsourcing destination, a country that has strong engineering skills.

Luxoft has offices in three Ukrainian cities – Kiev, Odessa and Dnipropetrovsk. The company also has offices in countries such as Bulgaria, Poland, Singapore, UK, US and Vietnam. In Romania, Luxoft owns a center with over 800 employees.

 

The government is taking a stand

 

As a natural result, Ukrainian government officials are doing their best to assure foreign clientele everything is business as usual.

Ukraine’s Information Technology Development Center launched an awareness campaign to promote the Ukrainian IT industry. According to one IT blog, FierceCIO, “the program will feature a social media campaign on Facebook, Twitter and LinkedIn to encourage interaction with Ukrainian IT talent.”

Moreover, in the face of current conflict in Ukraine, global business leaders are returning to discussions about managing global operations during geopolitical crises. While attending the IAOP (International Association of Outsourcing Professionals) Chicago Chapter meeting on July 17th, Boris Kontsevoi, president and founder of Intetics Co, discussed the impacts of geopolitical conflicts on global business. He analyzed the risks, consequences and opportunities the current conflict in Ukraine may bring to providers and outsourcing buyers worldwide. Learning from previous geopolitical issues in places such as India, it becomes clear that while geopolitical risks may present a threat, it is important to realize that outsourcing buyers do business with their outsourcing partners rather than their countries.

Despite the political instability, the country’s representatives remain positive and encourage companies to continue with the business in the region. Only future will tell how the outsourcing line of business will continue to develop – we can only hope that from a political point of view things will remain calm and the country will continue its ascending curve.

 

Ionescu Daria

Outsourcing Advisors

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