The past year has been full of events and had been active in terms of growth and development for the IT industry in Ukraine and around the world. Along with the overall growth of the market, it is increasing the share of IT outsourcing (software development services, outsourced software projects, creation of infrastructure solutions for customers, etc.). Further development of the segment is stimulated by consistently high demand, which will continue to grow due to the ubiquitous “digital transformation”, which is increasingly penetrating both the private and public sectors. Meanwhile, the development of the IT industry in Ukraine, which is mostly represented by service (outsourced) IT companies, is significantly ahead of the average pace of development of the segment in the world. The whole world has undergone significant changes, the digital field has increased drastically, many companies lack professionals, some markets are unexpectedly increased at times, and all this in one year. It’s always interesting to look back and see how everything has changed. So let’s take a look at the highlights of last year.
The impressive demand for IT services
We can surely admit that 2021 was the year of conscious digitalization. Such fast swift of all processes from on-site to online created a big gap in the IT sector. The companies felt a lack of tech professionals and the job market was flooded with IT vacancies. The shortage of IT engineers and other professionals is also a great barrier to cultivating new technologies. Also, most IT entrepreneurs have stated that they keep having open positions. The companies face an extreme talent shortage, that has grown to 76% and it’s a whopping 145% increase since 2016.
The pandemic has also negatively influenced the US economy. The inflation rate jumped to 4.2% over the past year from 2.6%. Last year, inflation jumped from 2.6% to 4.2%. In the current environment, companies are forced to increase wages in order to meet consumer demand amid a shortage of workers. According to The Wall Street Journal, considering such a situation the next step will be the price increment, in order to compensate for increased labour costs.
As to the Ukrainian IT sphere here, the dynamics were positive. For the past year, the number of developers has jumped to +30%. In 2020 the number of individual proprietors of the IT sector was around 183,000 while in 2021 there were already 230,000 as of September. At the same time, the number of engineers has also tripled over the past 7 years and reached 230 thousand in 2021. Now, one IT specialist brings to the country’s economy more than 22 thousand US dollars in the form of exports from IT services. This suggests that the development of IT and the Ukrainian economy is associated with the growth of qualified professionals. The growth of Ukrainian IT companies has surpassed the worldwide dynamics and was 20-30% last year.
The salary increment
Last year, Latin America also showed extraordinary growth. The main factor here is the similarity with the US time zone. As a result of the convergence of several factors and the imperative of the times, Latin America has become a hunting ground for headhunters. Local universities offer a wide range of software-related degrees, from undergraduate to doctoral degrees, especially in Brazil, Argentina, and Chile. In recent years, there has been an unprecedented boom in the software and engineering ecosystems. Both the public and private sectors invest in software-related institutions and projects, with a focus on artificial intelligence, neuroscience, and software development.
The rapid development of the IT sector in Latin America provoked a significant increase in salaries among IT specialists in Ukraine +40%, while the worldwide tendency is just about 10%. According to some opinions, this is due precisely to the increased interest and popularity of Ukraine among investors and owners of IT companies. An increase in salaries leads to an increase in rates. Many companies are forced to switch from rates of $30- $40 to $50- $60 an hour. As a result, such a situation led to unexpected results. The total salaries (before taxes) of IT professionals in Ukraine exceed the wages of the closest competitor – Poland.
Remote work opened new borders
Since the beginning of the pandemic, IT companies have moved their employees to home offices. Firstly it was a bit weird, getting used to all the virtual work life. Now, it is something common, some firms even refused to go back to the physical office to keep everything as it is. For instance, in the US, the number of professionals who worked remotely was only 5% before the pandemic. After the COVID 19 hit, nearly every American who was able to work from home, used the opportunity.
As to Ukraine, the remote work culture had a positive impact on professionals. Most IT firms agreed on providing remote work possibilities for candidates as well. Since there’s no need to move to another city for work, people stayed in their home towns. Regarding the payment, they started to get salaries according to the city where the company is located. The firms from big cities like Kyiv, Kharkiv, Dnipro, can afford much higher respective salaries to the professionals who stay in small towns.
The remote work culture helped the biggest Ukrainian IT outsourced companies grow immensely. Such giants like SoftServe, EPAM, Ciklum, Luxoft hired from 300 to 1000 people a year not only in the largest cities but also in the regions in the terms of remote work.
Apart from changing the work culture, new times also brought another solution – bonus diversification. Professionals started to get paid for starting to work in the company, it’s called a sigh-in bonus. Such a novelty was made in order to attract more highly-skilled professionals. In the US the advertisements that offer sign-in bonuses have increased by 454%.
Such innovations have become possible in the market today due to several factors: the pandemic, the absence of borders for remote work, and the expansion of market geography.
Ukrainian outsource market growth
More than 60% percent of the outsourced market is taken by IT experts. Most such professionals are located in Asia, the Middle East, and Europe. Ukraine is among the leaders of European outsourcing countries. The approximate number of IT professionals in the country is 185,000 and it is expected to grow up to 230,000 in the coming years.
According to Ukrainian experts, 90% of Ukraine’s IT services are outsourced to other countries. In terms of growth in this segment of the world, the country is second only to India. Such activities bring in up to $ 2.5 billion annually.
Geographically, the Ukrainian outsourcing market is growing faster in the USA (up to 80% of the market of the companies) – Europe is a little behind in terms of growth rate. At the same time, the Asian market (including the Middle East) and Australia also show good increases. Many companies see the Gulf markets (UAE, Saudi Arabia, Qatar, and Kuwait) as strategic destinations for 2022, in which they have either already opened offices or are just planning to.
After all, the Ukrainian IT market is rich not only in talent but also in well-known and powerful outsourcing companies. In 2021, there are 11 of them: Ciklum, Eleks, Infopulse, Innovecs, Intellias, Intetics, Miratech, N-iX, NIX, Program-Ace, Sigma Software. The position in such a listing proves that international organizations, investors, and other companies can trust the local companies and build a business together.
Ukrainian IT companies themselves are actively hiring outsourced specialists from other countries. They are increasingly forced to hire outside of Ukraine. One of the top destinations is Latin America, as its main advantage is the same zone with customers in the US and the former Soviet Union countries, which also caught up with the growing salaries market. A bright example is the Ukrainian IT giant – SoftServe. The company recently announced the new offices to be opened in Latin America, where they plan to hire 3,000 professionals by the end of 2025. They plan that new offices will open their doors in Mexico, Colombia, and Chile. As the company claims, there are now about 500,000 IT professionals in those countries. The region also has geographical advantages, in particular, proximity to the United States. As a result, Latin America is attractive to most global technology market players.
More than 50 universities in these countries train approximately 350,000 technical graduates each year. So in 2022, SoftServe intends to start working with a number of universities in such cities as Guadalajara, Bogotá, Medellin, and Santiago.
Ukrainian outsourcing companies are not just let programmers work for another company but carry out projects with full responsibility, business analysis, project management, and more. The United States, where they are adapting quickly to any business situation, realizes that Ukraine is no longer just a supplier of engineers, but a supplier of innovative solutions. Ukraine is a strategically important outsourcing country. Convenient logistics, experience and knowledge in the field of IT, relatively cheap labour, and the urgent need to optimize resources give the opportunity for the sustainable development of outsourcing.
M&A market development in Ukraine in 2021
Ukraine’s domestic market is not lagging behind in development from the outsourced one. Thus, the market of mergers and acquisitions grew 2.3 times in Ukraine last year. The volume of announced and completed mergers and acquisitions (M&A) in Ukraine, including corporate agreements, privatization agreements, and venture agreements with technology companies, amounted to $2.72 billion in 2021. Compared to 2020, the total volume of M&A transactions in all categories increased 2.3 times, and the number of transactions increased by 40% to 112 transactions. The largest share is occupied by the IT sector, with 32 deals worth $789 million. In the vast majority of cases – 94% – the buyer was an international player.
According to Concord Capital, the following IT M&A deals were the most interesting ones.
The American printing company VistaPrint buys the Ukrainian photography database Depositphotos for $85 million.
The financial investor Dragon Capital bought the marketplace platform Treeum for $8 million.
The leading all-in-one event management platform Hopin paid $10 million to take over the Ukrainian marketing platform Attendify.
In general, experts see two reasons for the growth of transactions in Ukraine: global product companies are optimizing by choosing Ukraine, and growing demand from investors for developing product companies. In the future, an increase in the number of transactions in the service segment is expected as well.
Technology companies will be in demand from, foremost, foreign investors, as a result of the development of the venture capital industry in Ukraine and general digitalization amid the impact of the COVID-19 pandemic.
Ukrainian companies actively going on IPO
Ukrainian startups attracted $1.68 billion in investments in 11 months of 2021 or three times more than in the whole of 2020. Even the Ukrainian IT giants are looking into such an opportunity. For example, EPAM and Grid Dynamics. EPAM shares, for example, outperform the S&P 500 by 6.7 times. Up to 100% of, shares of 500 companies are included in EPAM’s basket, which is traded on the American stock exchanges and has the largest capitalization. In 2014, the capitalization of the company increased to $2.14 billion, in 2019 – to $9.39 billion. Today, EPAM’s estimate is at $39.71 billion.
Another Ukrainian IT company Gitlab, which creates code storage solutions and storage chain control systems for development, went on IPO in 2021. The company raised $801 million by placing shares above the stated range. During the IPO, a total of 10.4 million shares were sold at a price of $77 per share. GitLab itself placed 8.42 million shares, and another 1.98 million shares were sold by an investor affiliated with the company’s founder. The forecasts claim that the company’s capitalization during the first public offering may increase to $11.3 billion.
Let’s not forget about one of the wonders of the past year, the Ukrainian start-up Grammarly. The platform helps to communicate in English with the help of artificial intelligence. Assists in writing the text and gives recommendations on the style, accuracy, and nature of the message. The $200 million attracted by the company helped to grow its value up to $13 billion in 2021.
Going to an IPO allows companies to turn equity into real money, on the other hand, the publicity of a company increases its credibility and, as a result, access to companies that are already on an IPO.
Increased number of IT education platforms and special courses
The gap in the available number of IT specialists and the real needs of companies turned out to be extremely large in the conditions of a pandemic and the transition to a remote format of work. The need for IT professionals is growing rapidly, currently, it is 30% per year. Every specialist receives around 30-40 offers.
The number of vacancies in this area exceeds the number of relevant specialists who have published their resumes by 39.2%. It is because of a number of issues, the main are: the myth that a person can start working in IT only after studying for several years, overheated market, and universities give only 15-20 thousand graduates a year, which is a catastrophically low number. These factors contribute to the increased interest in the development and implementation of more specialized courses and the development of training platforms.
The Ukrainian government has already developed special digital platforms for schools. The IT business is actively involved as well. Leading Ukrainian IT companies SoftServe and Telesens, have been implementing training courses for specialists in domestic educational institutions for years. The colleges are very important for the IT sector because there are students who can study and work at the same time. IT company GlobalLogic, has a separate staff and conducts through its courses more than 1,000 students a year.
As a consequence of the shortage of personnel, companies are increasingly interested in organizing internships. Courses are popular in large companies, where they teach simple backlog tasks, and then connect projects to fix price as a hidden resource. EPAM for example is developing special courses for students, teachers, high school students. Future IT specialists are needed by both their cities and companies. If a local student knows that he or she has the opportunity to build a career in one of the best international companies, work with modern technologies for world brands, the need to leave the city, the country will not arise.
In addition, it is known that one job in the IT field leads to the emergence of five in other areas.
The phenomenal growth of the Ukrainian IT industry that is happening today would not be impossible without the cooperation of all market players – educators, various organizations, IT companies, and every IT specialist. Joint work of people and business created the image of Ukraine as a state of the technological hub.
Product and outsource companies competition
Product companies are actively starting to compete with outsourcing companies in the labour market – often offering salaries higher than the market ones due to “inflated” investments. Partner programs for subcontracting employees continue to develop. Some companies have almost as many subcontracted partners as they have their own employees.
The outsourcing market is very flat, only strong arguments matter here: clear marketing strategies, obvious advantages, experience, and reputation. Time is your ally, the longer the company is on the market, the more attractive its portfolio is, the more chances you have to get serious orders and cool clients. In addition, whatever one may say, any outsourcing sells, first of all, the time of programmers.
Product development, on the other hand, leaves room for surprises and the possibility to create something really unique.
Remote work has become trendy but hectic for junior developers
Many IT companies in the world and in Ukraine, in particular, have successfully implemented the work-from-home culture that completely changed the way of working. In general, the industry has adapted to a new world, however, there are still some pain points, and it’s mostly related to junior developers’ adaptation. Remote work adds new challenges for junior developers. 10-20% of employees now usually go to the office but some companies deliberately bring this number to 50%. The companies keep hiring developers of all levels, even the fresh graduates, but adapting the newbie to all remote processes is a quite hard procedure and requires presence in the office. Some companies may even still wait for a year hoping that things are back to normal and delay hiring the junior developers.
In order to overcome such a challenge, IT companies introduce new ways of adapting the junior professionals and help them to do their job effectively. Some American firms use the pair programming method, to avoid multiple callings to fix an issue. The pair programming allows both junior and middle or senior developers to work on an issue so that the new specialist can ask all the needed questions. Other companies organize weekly team meetings to maintain an offline atmosphere at work and meet the junior developer and he or she can meet the team live. When the pandemic situation is severe and you can’t meet offline, some managers were doing online meetings just to play some games not related to work so the team can relax a bit.
On the other hand, it has also become much easier for companies to hire remote employees around the world, and not just “on-site” to their offices, as their employees have begun to work remotely. According to research from Gartner, 51% of global talent will be working remotely by the end of 2021. Analysts also claim that the long-term impact of remote work leads to a revision of the IT infrastructure, shifting the requirements of the buyer in favour of the ability to work anywhere. Organizations will be compelled to postpone their digital business transformation goals for at least five years by 2024.These plans need to adapt to a post-COVID-19 world that sees continued and increased teleworking and digital touchpoints.
Penetration of the remote work format is regionally differentiated and depends on IT maturity, culture, and industry specifics. Thus, it is predicted that in 2022 the leaders in the number of remote workers will be the United States, where their share will be 53% of the workforce, followed by Europe, where professionals from the UK will account for 52%, Germany and France will have 37% and 33% respectively.
Technological trends of 2021
The COVID-19 pandemic has driven the use of enterprise clouds as companies expand their digital footprint and create new products. Companies are interested in cloud efficiency, scalable solutions, and unique customization.
According to Forrester by 2022, container adoption will be about 50%. This is all because of cloud computing takes the major stage in enterprise clouds. Cloud computing will expand beyond all major technology areas such as big data, artificial intelligence, and the Internet of Things.
Cyber security specialists. Companies will include cyber insurance policies in contracts to offset third-party breach costs, Forrester said.
Today, most companies’ digital assets are already outside of traditional physical and logical security systems. A cloud-based cyber security network allows anyone, employee or customer, to securely access a company’s digital asset, no matter where the asset or person is located. It is predicted that by 2025 the cyber security network will control more than half of the requests for digital access to information.
Artificial intelligence. The volume of the world market of the software using algorithms of artificial intelligence will reach $51.5 billion in 2021, it has increased by 21.3% compared with 2020. Analysts call virtual assistants the largest segment of the market – the amount of $6.21 billion will be spent on such service in 2021, which is 12% more than the previous year. The software segments for unmanned vehicles and digital workplaces got higher growth rates in 2021 – +13.7%. Sales of software here are measured by $5.7 billion and $3.59 billion respectively.
The leader in terms of dynamics is the segment of solutions in the field of knowledge management. It’s all about the systematic processes for the creation, collection, accumulation, preservation, distribution, and application of knowledge in companies. Such assets may include databases, documents, policies, procedures, knowledge, and experience of individual employees that have not previously been recorded.
2021 was rich and fruitful for the IT industry. The need for IT services is actively growing, along with a need for qualified outsourced professionals. Companies are ready to raise salaries, provide therapists, massage chairs, give bonuses for going to work, and are actively developing internal courses for juniors. Everything that you can imagine, just start working. The trend for remote work has completely and forever changed the industry, foreign companies started to give more preferences for outsourced employees. Also, the outsourcing companies themselves are trying to keep their employees and clients.