On March 29, 2024, the Software Ukraine Association held a partner meeting to discuss the current market situation for domestic businesses.
It is no secret that the Ukrainian IT industry, which has long demonstrated dynamic growth and resilience, has faced serious challenges in recent years. According to the National Bank of Ukraine, in January 2024, the volume of IT exports decreased by $103 million, or nearly 17%, to $508 million compared to the previous month. In figures, this is $20 million less than in January 2023 and $131 million less than in January 2022. In other words, while we can confidently say that a gradual stabilization is occurring, it is still too early to talk about a recovery. Total exports of Ukrainian IT services in 2023 fell by 8.4% to $6.7 billion. The main partners for IT service exports remain the USA, the UK, Malta, Israel, and Cyprus.
The difficult situation with service exports is directly linked to the war, the subsequent departure of some qualified IT professionals abroad, and general instability.
Despite the decline in exports, the Ukrainian IT industry continues to be a key sector of the economy, accounting for 4.9% of the country's GDP. Efforts to create a more favorable business climate, develop education and science, and support innovation and infrastructure development will help improve the position of the Ukrainian IT industry in the global market. However, all of this can only happen after the end of hostilities.
According to Software Ukraine experts, in the current situation, Ukrainian IT companies should seriously consider transitioning from an IT service export model to creating their own IT products and services. Such a step will not only ensure higher value-added and independence but also open up new opportunities.
During the event, several advantages of this approach were highlighted.
1. Higher value-added
Creating IT products and services requires significant investment in research and development, but at the same time, it offers higher profit margins compared to the service-provision model. "Proprietary products allow companies not just to fulfill orders for others, but to shape the market, implement innovations, and create trends," says Yuriy Syvytskyi, President of the Software Ukraine Association.
2. Investment attractiveness
Developing proprietary IT products helps build a strong brand in the international market. "Owning unique products and technologies significantly increases a company's recognition, attracts the attention of investors and partners, and reduces dependence on fluctuations in demand for outsourcing services," notes Mykhailo Vihovskyi, Member of the Supervisory Board of Intecracy Group. Proprietary IT products and services open doors to global markets for Ukrainian companies. Sergiy Balashuk, Director of IQusion IT LLC, emphasizes: "This not only contributes to revenue growth but also expands opportunities for international cooperation and entry into new market niches."
3. Stimulating innovation
A focus on developing proprietary products stimulates innovation and technological progress. This encourages continuous improvement, research into new market opportunities, and adaptation to changes in technological trends.
Challenges of the transition
The transition from a service-provision model to developing proprietary products is accompanied by a number of challenges, including the need for significant initial investment, the risk of the market not accepting new products, and the need to form an effective marketing strategy. However, there is no other way for the survival and development of Ukraine's IT industry.