This blog is all about my experiences and insights as an Offshore Software Development Entrepreneur. It describes the inherent challenges that come with offshore development as well as the solutions we use at Ignite to create a high-performance cost-effective onsite-offshore software development model.

March 31, 2015

Ukraine: from IT services to High-Tech products

Did you know that the developer of the first computer in continental Europe was from Kiev? Back in the glory days of the Soviet Union, with proper government support, Sergey Lebedev could start the computer era in Europe in 1951 and make Ukraine the center of a new High-Tech industry. Nowadays, Ukraine is still a source of amazing developers, but it lost the High-Tech leadership to the USA (Silicon Valley) and Israel (Silicon Wadi). Why did it happen? I will try to explore it through the Israeli High-Tech success story, which I am very familiar with.

Aviram Eisenberg speaking at
Ukrainian Software Development Forum 2.0
The first High-Tech companies in Israel originated in the 1960-s, a decade after Ukraine made its first steps in the High-Tech arena. Fifty years later, Israel is a High-Tech super-power: the second largest High-Tech center in the world, with over 5000 active High-Tech companies and R&D centers, hundreds of thousands of IT experts, $22.2 billion of High-Tech export and $11.8 billion of foreign investments (2013). Where does Ukraine stand in these regards? While Ukraine is five times bigger than Israel in terms of population and while the culture and infrastructure of Science education is developed in Ukraine more than in Israel, the total High-Tech export from Ukraine is 4 times less than in Israel. Why? Well, it is because Ukraine sells IT brains, while Israel sells High-Tech products. While I have the highest appreciation to the Ukrainian IT brains, they are much harder to duplicate than software product licenses…

Maybe it’s time to create competitive micro climate for developers and make a move from IT services to High-Tech products. Homeland and cyber security, medical devices industry, personal surveillance control and scientific researches – in all these spheres Israel is ranked second only to the USA. But how did it start? Military industry originated developments that were able to compete on global software markets by 1980s. Israeli IT experts could find empty niches, left by U.S. companies, and make a real takeoff in software export.

How had Israel built this successful IT ecosystem?

1. The needs of Israeli Army created a thriving IT community – as a small, yet sophisticated Army that always strives to keep military supremacy over the neighbouring countries, the Israeli Army invested a lot in High-Tech weapons.

2. The cancellation of the Israeli Fighter Aircraft project (Lavie project) drove a lot of these IT experts to the private market.

3. The big international High-Tech companies head-hunted these experts and opened R&D centers in Israel.

4. The Israeli entrepreneurial spirit eventually drove some of these experts to open their own companies, creating clusters of expertise around Telecom, Medical devices, Homeland security and Cyber.

The peace agreement in Oslo gave a "security bill" for foreign investors. Tax incentives and government funds for foreign VC investments, low-rate loans brought the main Fuel of the High-Tech industry – money. Small domestic market forced the Israeli companies to focus on selling to the U.S. and EU markets. The global companies came again to Israel, this time not shopping for the Israeli brains, but shopping for interesting Israeli High-Tech products.

The Challenges for Ukraine

On the face of it, Ukraine has similar potential to succeed like Israel, yet the Ukrainian IT industry, while being a very significant vertical, did not fulfil its potential yet, and did not mature from IT to High-Tech.

The legal, business and financial environment in Ukraine does not encourage foreign investors to invest in Ukrainian High-Tech products, and without these investments, the Ukrainian IT machine cannot change its face. The corruption, the lack of legal protection for foreign investors’ rights, the lack of governmental support, the unstable and fragmented financial market are chasing away the foreign investors.

On the other hand, the good news for Ukraine is that the private IT sector is thriving, in spite of all the business difficulties, and already became the number 1 export vertical in Ukraine. The individualistic spirit of Ukrainians and the vast IT talent pool had created an IT market with 1000+ IT companies developing cutting-edge technologies and products for companies from the U.S. and the EU.

Will the Ukrainian government have the vision and power to help this vertical to mature and unleash its potential to the fullest? I don’t think so. It will be enough for me, if the Ukrainian government will not interfere and will let the private IT sector to help itself. The answer for the Ukrainian IT model lays in private initiatives and support from the EU.

Aviram Eisenberg

Entrepreneur and acclaimed speaker, Aviram Eisenberg is the founder and CEO of Ignite – a global software development company with headquarters in Israel that specializes Mobile, Web and Gaming Development. The company has 4 R&D centers in Ukraine. Under his leadership, Ignite delivered dozens of innovative projects for start-ups as well as for industry leaders such as NokiaSiemens Networks, Microsoft, VMWare, AT&T and MTV

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