The last few years have been extremely difficult for Ukraine’s IT sector. Starting with the coronavirus and continuing with the full-scale invasion, the country has not been able to recover from the previous problems.
The aggravation of the Ukrainian IT market crisis in 2023 was predicted at the end of the first quarter, when exports fell by 16%. And recently, the Lviv IT Cluster released a market study for the past year. It notes that for the first time since Ukraine’s independence, exports of IT services did not grow compared to the previous year. The forecast for export revenues for last year was $6.78 – $7.18 billion. But for 2022, this figure was $7.35 billion.
Trends in the IT industry
What trends have companies noted in 2023? The European Association of Software Engineering (EASE) conducted a survey among its residents representing small and medium-sized IT businesses. Most of the surveyed companies are quite young, half of them have been on the market for 1-3 years.
When asked about the impact of the events in Ukraine, the answers differed significantly. Those companies based abroad labeled it as “positive,” while companies based in Ukraine expectedly answered “negative.” Large international companies described the impact of the war as “neutral”.
In terms of customer outflow, half of the companies did not experience an outflow of customers, but only an increase in their customer base. These companies are also mostly located or have representative offices abroad. The Ukrainian part of the companies noticed the outflow and characterized it as “moderate”. Among the reasons for the loss of customers, companies named political instability, economic problems, as well as corruption and the media’s dissemination of information about it.
The companies also spoke about ways to retain international clients and expand their customer base. To retain customers, most companies are taking steps to improve the quality and range of services. The second place is taken by price reduction and active marketing campaign. Expansion into new markets also plays an important role. When it comes to attracting new customers, the vast majority of companies use social media. The second place goes to affiliate networks. Other ways that companies consider effective are advertising campaigns, participation in international exhibitions and conferences, and networking.
Finally, the companies shared their forecasts for 2024. Most are optimistic: half of the EASE residents anticipate significant growth, and another third chose the “moderate growth” option. The rest of the companies are preparing for a possible reduction in operations.
Vladyslav Savchenko, President of the European Association of Software Engineering (EASE), commented on the general trends and main reasons for the outflow of foreign clients from the Ukrainian IT market.
Vladyslav noted that the main advantage of Ukrainian IT workers was quality. It attracted the main flow of clients despite the fact that some other markets have a larger scale and lower prices. For example, the prices of Indian workers are 2-3 times lower than Ukrainian ones, but the quality of Indian specialists is significantly inferior.
Adapting to new conditions
However, during the war, the market experienced major stability problems, which made Ukraine’s main advantage a vulnerability. Due to the unreliable conditions, many foreign customers stopped preferring Ukrainian quality and switched to competitors – the IT markets of India, Canada, and even some countries in South and Central America. Sometimes the loss of trust in Ukrainian specialists is caused by distortions in the media, when the criticality of the situation is greatly exaggerated, but this equally undermines customer confidence.
Thus, Ukrainian IT professionals need to be able to adapt. In times of war, it turned out that the main advantage of the entire IT market can become the main disadvantage, and quality can be valued less than stability. If you do not anticipate the next change in global market trends, the consequences can be critical. That is why companies are increasingly paying attention to their preparation for any eventuality.
Vladyslav also mentioned the case of one of the EBA companies. The company opened R&D centers abroad, in particular, in Budapest, specifically to “reassure” foreign customers. They could demonstrate to customers the employees in the offices, the safe environment, and overall stability. This restored customers’ confidence in Ukrainian companies, but such a case does not change the global situation, which remains disappointing.
Oleksandra Prokhorchuk, Director of Network Management and Medium Business Clients at Raiffeisen Bank, also shared her relocation cases. Oleksandra notes that Ukrainian IT businesses are experiencing a slight decline in their customer base. The most effective solution among the businesses with which the bank cooperates is to expand abroad. Companies open offices in other countries, buy real estate there, and hire foreign employees. Partial relocation mostly takes place to European countries.
Oleksandra also reminds that these measures require significant costs and investments, which Raiffeisen helps Ukrainian companies with. At the same time, the topic of layoffs was definitely not a trend last year, the situation was very different for different businesses. Despite the war, some of the bank’s IT clients managed to increase their revenues by expanding abroad.
Flexibility and reliability
In addition, Victoria Chuchina, CEO of Digital Data Consulting, commented on the situation in 2023. According to her, the situation has changed significantly compared to the first half of the invasion. Clients have become more flexible, priorities in projects have changed, and the focus on quick results has changed, which directly affects the business.
The company focuses on flexibility and reliability of solutions. Even before the invasion, DDC focused on using low-code technologies, which allows the customer not only to get a quick result but also to support the project with its own competence center. At the beginning of the war, the company worked mainly with the Ukrainian market, but now it is actively entering the European market, and there is a significant difference in communication and attitude towards partners.
Instead of an outflow of clients, the company is experiencing another problem: increasing customer needs with decreasing financial resources. Viktoriia emphasizes that this can become a significant problem and lead to serious consequences.
As Digital Data Consulting is still getting used to the international market, it is facing the issue of attracting new clients. The main search strategies are affiliate sales, joint projects, membership in business associations, and participation in events. At the moment, there is no question of retaining international clients, so the company is focusing on finding and expanding its customer base.
As for the employees, no layoffs were applied. On the contrary, the team has grown significantly during the war. In addition, the company takes care of the mental health of its specialists as much as possible, and the detailed status of employees will be discussed during the year-end review.
The main idea that has united the DDC team is to be valuable to clients seeking transformation and development. The company’s projects help such customers create the basis for growth. In 2024, DDC will focus on achieving this goal by working with medium-sized businesses and scaling up in the European market.
Entering new markets
The digital agency Elit-Web also began expanding to a foreign audience with the outbreak of war. Ihor Volovyi, CEO and co-founder of Elit-Web, spoke about this in more detail.
Before the invasion, the company worked mainly with the markets of Ukraine and the CIS. But after February 24, the company began actively looking for new customers abroad. The fact is that before the invasion, the customer base in the European market accounted for about 25% of all customers, and after the war started, this base remained the most stable. This made it clear that customers in Ukraine would not be reliable if the situation worsened.
Now the company continues to integrate into the European market. Lead generation through LinkedIn, mail marketing, freelance exchanges, international listings such as Clutch, which are platforms where clients can choose a company, helps in finding new clients. Leads are also attracted through websites. Another area that has potential is the company’s own stands at international events. So far, the company hasn’t attracted many clients at these events, but it’s a matter of time. Further plans to attract the audience include contextual advertising, activation of the Google My Business tool, and so on. Thus, the priority is to add new lead generation channels, as it is thanks to attracting a new audience that the company has not experienced a significant outflow of customers due to the war.
Customers are scared of the war
However, Igor noted that the problem of the Ukrainian IT brand still persists. Customers understand that dealing with a company whose country is at war is a risk. Unfortunately, this also applies to companies that are no longer based in Ukraine but originate from there. Prior to the invasion, the Ukrainian IT sector held a significant place in the global market, but due to the instability of the situation, many customers began to favor competitors. After the war and reconstruction, Ukraine will be able to confirm its ranking as a leading IT country, but at this stage, the Latin American market is growing significantly, which is why there are even more competitors.
The main challenge for the company this year was to build teams focused on international integration. The company built this area from scratch, which is why we paid more attention to the specialization of employees in certain areas of activity. This has also led to an increase in the number of employees: before the war, the company employed about 120 people, and now their number is about 150. There were no layoffs, and most of the specialists left the company for personal reasons.
Nevertheless, Elit-Web has ambitious plans for this year. As of last year, the company’s foreign currency revenue was about 35%. However, the target for 2024 is ~50% or even more. The company plans to achieve this goal through existing expansion channels. It is estimated that each active channel of audience engagement should generate about 25 leads per month. If the expansion is large enough, the company plans to create separate agencies that will deal with traffic generation and other tasks.
Direct international communication
The main key to the growth of Ukraine’s IT exports is expansion into international markets.
The most effective way to generate leads is through direct communication at business conferences. For example, this year, with the assistance of the Ministry of Digital Transformation, Ukrainian national stands were organized at such IT conferences as WebSummit and Slush. EASE also joins this task, in 2023 we organized Ukrainian stands in Germany at Bits&Pretzels and Latvia, Riga Comm. National stands at international events help to draw attention to the true state of the Ukrainian market, assess stability without media distortions, and restore confidence in Ukrainian IT professionals.
The past year has been difficult for both the IT sector and the entire country. But despite the war and economic difficulties, Ukrainians are convinced that all challenges make us stronger, and this year will definitely bring positive changes and an end to the long crisis.
