What do the USA Israel and Ukraine have in common?

Despite being geographically and culturally remote, the USA, China and Ukraine have formed some of the most advantageous partnerships of the last decade. How come that Ukraine became a “skills pool” of the second Silicon Valley and what is the impact Israeli businesses have had on the Ukrainian IT industry.

Why Israeli businesses choose to source IT talent overseas?

Israel and Ukraine have always been closely interrelated due to a number of historical and ethnic factors. A number of major Israeli companies have chosen Ukraine as their preferred location for R&D activities. Some prominent examples of the latter include Wix, which was among the pioneers opening its first R&D center in Ukraine 10 years ago; as well as Plarium and Playtika, both having over 50% of their engineering workforce located in Ukraine. Look at the story of SimilarWeb: they managed to solve their HR problem within a month by outsourcing development to Ukrainian engineers.

The estimated Israeli investment that was put into running engineering departments in Ukraine reached over $40 million in 2018, according to the Ukraine Business Journal.

The current relationship between Israel and Ukraine is remnant of the US – China relationship some time ago. China was just a place where foreign companies (mostly US companies) set up their manufacturing facilities, having no solid share of its own in the global business market. Today, it is a manufacturing country with a status of a potential global superpower.

Ukraine, in its turn, is still halfway through a similar process in the IT field. Just like American companies that outsourced manufacturing to China, leading Israeli technology companies are opening their R&D centers in Ukraine.

AS the CEO at Eastern Peak I see the current state of the Israeli Ukrainian business cooperation Similar to many Western countries. Israel is currently facing a severe IT talent shortage. With the record-breaking $4.8 billion in VC funding scored by Israeli startups in 2016-2018, this issue becomes even more acute for a fast-growing industry.

The lack of qualified specialists has become the main weak point for many innovative projects. On average, it takes 3-6 months to find and hire the required IT specialist. For a growing startup, wasting so much precious time is an unattainable luxury.

Many companies currently view outsourcing as a way to solve their problem. Turning to some of the most popular outsourcing destinations, such as India, however, can put your business at risk. The benefit of outsourcing often come at a price, including the lack of professionalism, poor quality of the work, or the violation of standards and agreements. 

Another way to solve the talent shortage crisis is to hire Ukrainian developers. Judging by my own experience at Eastern Peak, an insignificant time difference, geographical proximity and close cultural and economic ties between the two countries create favorable conditions for business.

The Israeli hi-tech industry has always been driven by international partnerships. The new strategic cooperation with Ukraine can open up new opportunities, foster the growth of the local economy and solve the talent shortage issues once and for all.

The Premises of a win-win relationship

In addition to the lack of engineering talent, the high cost of doing business in Israel remains the major challenge for local startups. An average salary of an Israeli engineer is on par with the US, while Ukrainian engineering talent, for example, is typically half as expensive. Consequently, in order to stay competitive, many local tech companies are increasingly expanding their presence in Ukraine.

As we can see, the premises of the Israeli-Ukraine cooperation are quite straightforward. For Israel, this cooperation means unlimited access to one of the largest European tech talent pools (currently encompassing roughly 90,000 specialists with a forecasted twofold increase within the next 5 years) and cost-effective R&D outsourcing centers.

Ukraine, in its turn, is able to attract foreign investors, acquire high-end business expertise and adopt international best practices, which further contributes to the development of the local business and startup ecosystem.

The Ukrainian IT Scene: Current Challenges and Hidden Potential

Despite the challenging economic and political situation, the local IT sphere is currently on the rise. It is one of the fastest growing and the most profitable industries in Ukraine. The country ranks high among the global outsourcing destinations. Leading global IT companies, such as Samsung Electronics, Siemens and Huawei, delegate their R&D operations to Ukraine.

Moreover, the Ukrainian startup scene is very promising. Some of the local products score millions in funding, while some of them are being acquired by such tech giants as Oracle, Ericsson and Snap Inc. Among the most prominent Ukrainian startups are Looksery, Gitlab, Petcube, Deposit Photos, Augmented Pixels and Ecoisme.

Foreign investments and the growing global interest in the Ukrainian tech talent will further fuel the development of the local IT scene. Thanks to long-term international partnerships, including the existing business ties with Israel, Ukraine might soon become a global IT powerhouse, following a similar path which led China to its current state of progress.