Despite the conflicts affecting the eastern half of the country, Ukraine continues to enjoy growth in IT outsourcing from customers in Nordic countries.
Demand for skilled IT staff is outstripping supply in many countries in the region.
Arne Hansen, Scandinavian manager at IT services firm Ciklum, says demand from Nordic countries is growing quickly, with Scandinavia now accounting for 40% of his company's business.
Ciklum helps businesses find and recruit IT staff in Ukraine, which has a large software engineering skillset, and then provides the office space for its customers at its bases in Ukraine and Belarus.
The company has about 2,500 software engineers working for various corporate global customers.
“The fundamentals are simple,” said Hansen. “The local supply of competent development staff in Denmark, Norway and Sweden is not growing at the same pace as the demand. That leaves a gap, which we are filling.
“The Danish market is very open to outsourcing, with companies keen to experiment. Danish companies have used outsourcing for some time, even the smallest software companies with just three or four people.
“The general Scandinavian management culture of openness, sharing and evaluating people based on their qualifications, instead of their nationality, means we should, as a region, be quite good at this. Denmark has been an early adopter, whereas I’ve seen Norway and Sweden lagging a little and being more sceptical. A lot of that is to do with the more consensus-based business culture in both countries.”
Read more about enterprise IT in the Nordics
- Indian IT service providers are securing more and more high-profile outsourcing deals in the Nordics, involving the likes of Nokia, DNB and ABB.
- In February 2015, the European Commission's Digital Economy and Society Index (DESI) ranked Denmark, Sweden and Finland in first, second and fourth place, respectively, in a list of the European Union's most digital nations.
- Indian IT services giant HCL Technologies is expanding its reach in the Nordics with a third service delivery centre in the region.
Despite the high cost of employment in Scandinavian countries, Hansen said cost is not the main driver for the growth in demand.
“Unemployment among Scandinavian IT developers is almost zero, so it’s not like we are preventing people getting jobs in their home country,” he said. “Price is a factor, but it’s not just a matter of cost. Our clients are outsourcing to grow their business more quickly, not just to save money.
“Getting the right people is not easy, so most companies that are building products for the global market need to have an outsourcing strategy.”
It should come as no surprise that Ukraine is leading the charge. Although it is more costly than Asian outsourcing providers, the country offers Scandinavian companies some significant advantages.
Kiev is on Eastern European Time, just one hour ahead of Scandinavia, but this is not an issue because most Scandinavian companies have an early start time.
The technical education in Ukraine is among the best in Eastern Europe. The Information Technology Centre at the Taras Shevchenko National University of Kiev is home to a Cisco networking academy and a masters programme in project management.
English is the country's most commonly spoken language after Ukrainian and Russian, and is increasingly becoming the language of education and business. Finally, internet speeds in Kiev are among the fastest in the world, on a par with the Nordics and streets ahead of their outsourcing rivals further east.
Another Ukrainian company actively targeting Nordic customers is Scandinavian House. Kjell Leirvaag, managing director of its IT function, says Norwegian companies increasingly need help with megatrends such as mobile, cloud and big data, because that skillset is lacking in their relatively small domestic job market.
With its sister company focusing on business process management, Scandinavian House can offer a service that goes beyond straightforward IT development. This is attractive to process-driven companies, such as Norwegian toll road technology provider Fjellinjen.
Leirvaag said: “On the business process side, we help Fjellinjen to convert images of car number plates into the database and identify the correct owner of the car. On the IT side, we help to improve its database systems. We developed a process that checks different fields in the invoicing database to reduce errors.”
When events management software company Proviso wanted its outdated Visual Basic system to be moved to a modern ASP.net platform, it turned to Ukraine and Scandinavian House. General manager Christine Martin Jacobsen explains:
“We started the process last year with an outsourcing provider in Pakistan, but it was not successful. We received constant reassurance but very little deliverable, so ended up canceling the contract.
“Our experience with the Ukrainian team is completely different. Scandinavian House organises weekly status meetings where all details are discussed and approved.
“In addition to cost saving, the ability to access all the skills we need is the biggest benefit of outsourcing. Previously, we worked with three people in Norway, but now we have access to a much bigger labour market with a lot of varied skills, with the ability to call in specific resources when required.”
Rise in costs
Of course, the rise of IT outsourcing in Ukraine is not without its risks. Beyond the obvious question of the country’s stability is the rise in costs linked to currency fluctuations.
For Norwegian companies, the cost of a typical Ukrainian IT developer’s monthly salary ($4,000) has soared by 33% in just one year. This is not because of cost rises in Kiev, but because of the drop in value of the Norwegian krone against all major currencies, mainly because of the fall in oil prices.
But of course, as Ukraine’s IT industry continues to expand, salary demands will rise too.
For now, though, Scandinavian companies seem happy to accept the risk of committing to a long-term relationship with Kiev. Ciklum’s Hansen describes a future virtual Scandinavian IT department as “likely”.
He adds: “There may be an issue of scale at some point, but in the very near future we will see a lot more business architecture and analysis performed onshore, with a lot more programming and even the management of that programming done from other countries.
“We see a lot of that trend already. Once the Ukrainians start learning more about the business, they can contribute more and more. I don’t see any losers with this model.”
Scandinavian House's Leirvaag agrees. “I believe a virtual IT department is exactly what our clients are looking for,” he says. “They want to be in the driving seat and run the business, but everything that can be done by others can be done from the back seat, wherever in the world that the talent is located.
“Our customers have the business analysts that understand the business and describe and order the solution, but we deliver the people that will deliver that solution.”