Total Control
Ukraine Wants to Become the Silicon Valley of Europe
by Marina Koren, National Journal
Apr, 2014

In the last few months, the United States has pledged to Ukraine outspoken support, military food rations, and $1 billion.

But what Ukraine could really use during its standoff with Russia, its officials say, is help from American information technology companies.

The Ukrainian Embassy in the U.S. has launched a campaign aimed at Western businesses, urging them to increase their outsourcing services to Ukraine. "It's high time for U.S. investors and IT companies to really discover Ukraine," said Olexander Motsyk, the Ukrainian ambassador to the U.S., at a presentation at the embassy Tuesday night.

The event ran like a standard business pitch, with several economic and tech experts touting the benefits of outsourcing IT jobs. The embassy had partnered with TransparentBusiness, a "cloudsourcing" provider that allows managers in other countries to remotely monitor their contractors' work in Ukraine. By growing this economic sector, Ukraine isn't looking to become the next India, the evening's featured speakers said, but rather the Silicon Valley of Europe.

The most memorable marketing tactic of the evening wasn't touting cheaper tax incentives or reliable technology, however. It was something much more unusual: democracy.

"National economy is a matter of national survival," Motsyk said. Posters of February's Euromaidan protests hung in the room, and pamphlets for guests read "Support Democracy. Increase Your Profits. Cloudsource to Ukraine."

At first glance, the slogan suggests Ukraine is trying to capitalize on a crisis. But in this specific crisis, that may not be such a bad idea. The Ukrainian economy is nearing collapse. This month, the country's central bank, scrambling to slow inflation rates and protect the value of its currency, increased its main interest rate by 3 percent.

Ukraine hasn't tried to position itself as a destination for outsourced IT jobs before, speakers said. But the current political climate indicates the time is ripe to modernize its crippled economy. By outsourcing to Ukraine, the U.S. and other Western countries would not only boost economic development, they would also support another nation's sovereignty. Several U.S. companies already outsource technology work to Ukraine, including Pepsico, IBM, Chrysler, and Dell. The current state of Ukraine's deteriorating economy suggests it could use a few more stateside clients.

The IT services industry has indeed exploded in Ukraine in the last decade. The science schools that produced rocket scientists during the Soviet era are now churning out thousands of computer scientists each year. In 2011, Ukraine's IT services exports exceeded the volume of its arms exports for the first time in history. The country ranks fifth globally in IT services, behind India and Russia.

Outsourcing to a nation in crisis, however, carries risks. Rachael King recently explained for The Wall Street Journal: When businesses outsource to any low-cost destination, they always weigh risk and benefits, say outsourcing experts. Risks can range from natural disasters such as last year's typhoon in the Philippines, to violence and political instability in Egypt….The biggest risk now is the political unrest with Russia and what may happen to corporate intellectual property outsourced to the Ukraine if Russia is successful in annexing all or part of the country, said David Rutchik, a partner who specializes in outsourcing at management consulting firm Pace Harmon Inc. Laws in the Ukraine better protect intellectual property, he said, than laws in Russia.

The Ukrainian Embassy hopes this friendlier atmosphere in Ukraine will draw clients away from Russian services. Ukraine is "not dependent on Russia for resources. We have our own resources," said Ihor Baranetskyi, chief of the embassy's economic office. "We just need more attention from you."