Positivity and reorientation to Western markets: how IT companies of front-line regional centers work
At the beginning of August, the дослідження IT Research Resilience, in which was studied the impact of the war on Ukrainian IT. Thus, according to the study, as of 2022, there were 228 thousand IT specialists in Ukraine. Since the beginning of the war, from 50 000 to 57 000 IT specialists have gone abroad, and approximately 7 000 IT specialists have joined the ranks of the Armed Forces of Ukraine or the Defense Forces.
Moreover, IT Research Resilience notes that 85% of surveyed companies as of May have completely or almost completely resumed business activity that existed before February 24. 63% of companies noted a positive financial result, and 13% – an increase in income within 25-50%.
In the summer of 2022, “Strategic Vision” communicated with 4 IT companies working in front-line regional centers – Zaporizhzhia, Mykolaiv, Dnipro and Kharkiv. We asked the interlocutors how they see the situation on the IT market in Ukraine in general and their region particularly, how the war affected the structure of customers and profits, and what role IT will play in the post-war reconstruction of Ukraine. In general, we can say that the theses voiced by our interlocutors generally correlate with the study of the Lviv IT Cluster. The companies from the front-line cities also record positive dynamics and expect the growth of the industry despite the military aggression.
DNIPRO. Iryna Schmidt, CEO COMPARUS.UA, a member of the Supervisory Board of IT Dnipro Community and a member of the Supervisory Board of the NGO “Active Community”
According to Iryna Schmidt’s observations, in February and March, the activity of the IT business decreased by -30% ish in general for companies and up to -100% in the search for staff. “But from the middle-end of April, the market started to revive. This can be seen, in particular, by the number of vacancies and the activity of recruiters.”
The CEO of COMPARUS.UA notes that the first task of her company during the war was to maintain operational efficiency and inform customers about work in current conditions. For this, regular press releases are made for clients about the situation in the country. Daily check-ins are held with the team and communication is maintained through the Telegram channel and chats.
“We have a narrow specialization, at the beginning of the war we had 2 large clients. The project of one of them was completed in May. Deeper integration with another client. They had to prove to him that we are working as usual. In the 2nd week of the war, we were able to send them a full release, for which I am incredibly grateful to the team. It made a strong impression and the client stayed with us. We are now expanding the current project and continuing to work on our own product,” said Iryna Schmidt.
According to her, the war did not cancel the problems that existed in the IT industry earlier. But now martial law has also been added to them. “The mental state of employees and their families significantly affects the profitability of the team. The shortage and increase in the cost of qualified personnel is now exacerbated by mobilization and relocation. Although the latter is open only to women, it is up to 25% of the industry,” says Schmidt.
And she adds that the field is also adversely affected by low-quality IT courses, the lack of educational programs for training IT managers, and generally systemic problems with secondary and higher education.
“The difference in exchange rates on the interbank and cash markets added to the problem. This is evident from Ukrainian suppliers and lessors who were tied to the cash rate. It also affected the cost of working and server equipment, which, for its part, increased the cost of products and services,” comments Iryna Schmidt.
At the same time, she says that in spite of the war, the IT industry will resume growth: “IT, in my opinion, is the most flexible branch of the Ukrainian economy. And it quickly adapts to new circumstances. There are even prospects of getting new clients who left Russian and Belarusian performers due to sanctions.”
And she adds that IT is the basis for other industries and improving their efficiency. “I expect reasonable support of the IT industry from the state, further reforms and updating of legislation. The beginning of the dialogue has already taken place and I hope for its strengthening for further development of the IT sphere at all levels.”
Kharkiv Yevhen Kovalev co-founder of the company Asper.pro, which specializes in web development of solutions for Ecommerce projects
In Asper.pro he also sees stabilization of the market. But the war influenced the structure of the company’s customers. Now she receives almost 90% of orders from outside Ukraine.
“Many representatives of Western small and middle-sized businesses work with Ukrainian teams as support. Thanks to this, we can provide Junior and Middle specialists with work. This is how they improve their qualifications and ensure a stream of income. But projects are done longer and at a lower cost,” says Yevhen Kovalev. But he adds that there are also Ukrainian customers – businesses with consumer goods or projects from “safe” cities that need technical support.
According to him, since the beginning of the war, the company has been working with the same staff as before, but remotely, because people are scattered across the country. Yevhen Kovalev notes that, in general, many IT specialists have left Kharkiv. “It is clear for everyone that our situation, unlike Zaporizhzhia, is much more complicated. I would compare it with Mykolaiv, which also falls victim to artillery fire and rockets every day, which cause a lot of damage,” he says.
Among the problems of the industry in general, Yevhen Kovalev noted the situation with the exchange rate, which existed until recently.
“It was a loss of revenue and, in fact, almost all the profit that we somehow try to get in order to be able to continue our activities. The situation with the exchange rate is actually a veiled tax that no one included in self-cost. And it was not possible to add the difference in price, so as not to scare away customers.”
Kovalev notes that such upheavals can prompt Ukrainian companies to change their tax residency.
“Mass physical movement of IT companies abroad is unlikely, if only because of restrictions on movement associated with martial law. But small teams of up to 50 people can think about changing their tax residency – they will be physically in Ukraine, and they will pay taxes in, let’s take, Estonia. That’s a lot of people. For the country and the city, they can turn into a lot of lost taxes,” says Yevhen Kovalev.
He says as well that this can be prevented by a balanced regulatory policy. In addition, according to Kovalev, after the war, IT can recover very quickly and will contribute to the economic growth of the state, of course, under the condition of the normalization of the world economy.
“There will be not only currency from abroad. Ukrainians will be able to get a well-paid job. If IT grows, it will correlate with the employment of the population.Moreover, IT people are one of the most solvent categories of Ukrainians, they buy cars, real estate, and equipment and these are all taxes.”
MYKOLAYIV. Oleksandr Fedotov, CTO of Extrawest
According to Oleksandr Fedotov’s observations, less than 40% of the pre-war population remained in Mykolayiv, similar statistics are cited in the city council. However, this figure also includes residents of the Mykolayiv and Kherson regions who came to the city as refugees. But Fedotov cannot accurately estimate the number of IT workers who left the city, however, in his opinion, we are talking about the majority of representatives of the IT industry.
“IT is a very mobile and highly paid branch. Specialists have money to leave and live in a new place for a very long time. I think there are about 10% IT people left in the city. Since the beginning of the war, our company has announced remote work, work processes returned to normal in 3-4 weeks,” he says
Also, the CTO of the Extrawest company says that the war didn’t have an impact on the structure of the company’s customers:
“Our clients are mostly not from Ukraine, and even more so not from moskovia, so the composition and number of clients wasn’t affected by the war in any way. We work mainly with startups that do not assess war as a risk for the project. In addition, we add a little sales magic.”
At the same time, Oleksandr Fedotov doesn’t note the “brain drain” abroad and calls “The outflow of personnel is still not significant, in particular, due to bans on men traveling abroad. If the war drags on for a year or more, this issue may become more urgent. The situation with a large difference between exchange rates caused concern among experts, some companies managed to move into the “shadow”. But we left the old reward scheme and are now working on joining Diia City.”
According to Fedotov, he believes that the status quo will remain in the field of IT until the autumn. Actually, the deterioration or improvement of the state of the industry will depend on the situation at the front and hostilities. Regarding the role of IT in the post-war reconstruction of Ukraine, Fedotov points out the need for a balanced regulatory policy of the state in order to protect the industry from upheavals.
“The IT sphere in Ukraine mostly brings money from abroad. If it is taxed too much with additional taxes, the authorities will not only see the outflow of this field into the shadows, but also emigration. The share of companies focused on the domestic market is relatively small, and whether this segment will grow will depend on demand. But the investments in the post-war reconstruction will probably mostly go to industry and construction, not to IT,” says the CTO of Extrawest.
He adds that for more effective work of the industry, the state should not interfere in its work, “because the current fiscal and financial bloc of authorities are enemies of Ukrainian society due to their incompetence and non-market views on the economy, sometimes there is a desire to exchange some of the ministers, together with medvedchuk, for defenders of Azovstal,” Fedotov summarizes.
ZAPORIZHZHYA. Maksym Golovan, Business Development Manager at S-PRO company
“Since the beginning of the war, IT companies had to figure out how to continue working: whether to close the offices, where the employees will be geographically, how to keep in touch with them. In the first weeks after the start of the war, the teams worked shakily, but now the processes have stabilized, – says Maksym Golovan.
Also he adds that he notices a tendency for IT workers to return to Zaporizhzhya. “If we recall the storming of Enerhodar and the NPP, I think many people left the city then. Now many are returning. People see that everything is better here, they believe in the Armed Forces of Ukraine.”
Golovan marks as well that the IT sector works, although mainly with foreign clients. According to him, now it is necessary to explain to them “that everything is not so terrible”.
“The market of outsourcing companies is very large. Foreign teams offer the same services as Ukrainian ones, but from countries where there is no war. But Ukrainian developers are known all over the world, we work no worse than Americans or Europeans. Ukrainians are already competing with them in terms of prices and tariffs,” says Maksym Golovan.
He adds that now Ukrainian companies have an incentive to enter the European market more actively, to open offices there. Although, according to Golovan, there are also cases when companies simply close because they cannot adapt. This is especially relevant for those who worked only for the domestic market.
According to Golovan, Ukrainian IT is now negatively affected by the war and global economic problems in the world. They affect, in particular, the ability of foreign customers to hire Ukrainian teams.
“After the end of the war in Ukraine, the world will adapt to new conditions, the crisis will continue for some time. However, the sooner we win, the easier it will be to overcome the crisis. But even in conditions of instability, Ukrainian IT companies are trying to grow and develop.”
Maksym Golovan calls the development itself one of the main trends of the post-war IT market. “There is hope that by the end of the year it will be clear that we have won. So that within the next 5 years there should be intensive development of the industry. For instance, the company I work for wants to grow to 1,000 employees in 5 years,” he says.
He also says that after the war, IT will be one of the main drivers of the country’s reconstruction. Therefore, it is necessary to provide IT workers with comfortable conditions for work, search for customers and investors.
“IT workers increase the country’s GDP, pay taxes, and support local businesses. Therefore, for the IT industry, it is necessary to ensure the ability to work effectively in Ukraine and abroad. Now it is difficult to say what the state can do. But we definitely need to continue positive initiatives: go digital, get rid of paper and bureaucracy. This is how we will show the world that we are a super IT country.”
Ukrainian NGO «Strategic Vision» promote economic, infrastructural and mental reconstruction of Ukraine.