Unique IT environment of Ukraine

Content

I. Introduction

II. IT infrastructure
1. The level of adoption of information communications technology (ICT) in Ukraine
2. Software market in Ukraine

III. Unique Characteristics of IT
1. IT outsourcing in Ukraine
2. Governmental Policies in ICT industry
3. ICT and “Orange revolution”

IV. Cultural impact on the unique IT application

V. Conclusion

VI. References

I. Introduction

Ukraine, the second largest state in Europe, appeared on the map of the world in 1991 after the dissolution of the Soviet Union. It borders Russia to the east, Belarus to the north, Poland, Slovakia and Hungary to the west, Romania, Moldova to the southwest, and the Black Sea and the Sea of Azov to the south. The capital of Ukraine is Kyiv. The state language of Ukraine is Ukrainian. Russian language is widely spoken, especially in the eastern and southern part of Ukraine.

Although Ukraine has only been independent for seventeen years, it has an ancient history. In IX century the territory of Ukraine was a center of the East Slavic civilization, forming the state of Kievan Rus' which disintegrated in the 12th century [1]. At that period of time Kiev was the major political and cultural center in Eastern Europe. From the 14th century the territory of Ukraine was divided among a number of regional powers. As a result of such disintegration, in the 19th century the largest part of Ukraine was integrated into the Russian Empire, with the rest under Austro-Hungarian control [1].

In 1917 and 1918 three separate Ukrainian republics declared independence. However by 1921 the western part of the traditional territory had been incorporated into Poland and the larger central and eastern part became one of the founding republics of the Soviet Union. Later after the German and Soviet invasions of Poland in 1939 the western Ukrainian regions were also incorporated into the Soviet Union [2]. The Ukrainian national idea persevered during the Soviet period was pressed mostly by Stalin who imposed terror campaigns against the intellectual class.

Ukraine declared its independence on Aug. 24, 1991 after the dissolution of the Soviet Union. It was quickly recognized by the international community and more then 100 countries have established diplomatic relations with Ukraine [3].

Ukraine is a big country with a population of 46.2 million inhabitants, 68 % of which are urban population [4]. Ukraine is considered to be in a demographic crisis because of its high death rate and a low birth rate (9.55 births/1,000 population and 15.93 deaths/1,000 population respectively, 2008) [4].

In Soviet times, the economy of Ukraine was the second largest in the Soviet Union, being an important industrial and agricultural component of the country's planned economy. But after the declaration of Independence 1990th was a period of transition to a market economy, in which Ukraine was stricken with an eight year recession because of disruption of economic relationship with Soviet Union republics. As a result of the slowing economy the majority of the population plunged into poverty.

As it was mentioned before, the Ukrainian republic was the second most important economic component of the former Soviet Union after Russian Federation, producing about four times the output of the next-ranking republic [5]. But during the 1990s Ukraine faced a big decline in GDP; output by 1999 had fallen to less than 40% of the 1991 level and GDP (PPP) per capita dropped to less than $4000 (Figure 1).

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Figure 1. Real GDP growth and GDP (PPP) per capita in Ukraine, 1992-2007. [6, p.41]

Economic recession during 1990s had impact not only on the level of output but also on the structure of Ukrainian economy. Disruption of supply chain between former USSR republics resulted in catastrophic results for majority of high added value manufacturing industries like aircraft building, ship building, automobile building, equipment building etc. The majority of enterprises in these industries which where successful in the environment of planned economy were not ready to “shock therapy” transition to market economy. On one hand their usual markets in former USSR republics contracted under influence of regional recession and on the other hand they were not able to compete with their “western” rivalries in new markets. As a result majority of them went bankrupt and huge amount of valuable equipment was sold as a junk and thousands of highly skilled and experienced professionals were fired. Recession during 1990s had highly negative impact also because it prevented Ukraine from economy-wide implementation of the technological boom in ICT industry results. By failing to integrate ICT advancements in their value chain, majority of Ukrainian companies were not able to maintain operational effectiveness on adequate level not saying about creating strategic competitive advantage.

Nowadays major contributors of Ukrainian GDP are resource producing industries (coal, iron ore, wood) and low value added manufacturing industries (steel, fertilizers, pipes). Ukraine's dependence on Russia for energy supplies and the global prices for steel - Ukraine's top export - made the Ukrainian economy vulnerable to external shocks [5]. Another problem is that most of the Ukrainian infrastructure such as road system, utilities mainly has not been upgraded since the Soviet era, and is now outdated. But due to the Soviet Union's emphasis on total access of education for all citizens, which continues today, the literacy rate in Ukraine is 99.4 percent [1]. In addition Ukraine produces the fourth largest number of tertiary graduates in Europe, while being ranked seventh in population [1].

The Global Competitiveness Report 2007-2008 saw the Ukraine on the 73rd spot in the 2007-2008 rankings [6, p.38]. The factors involved in Ukraine’s low ranking are many, but the main are the country’s reputation for corruption, a poor judicial system and tax, macroeconomic instability.

II. IT infrastructure

1. The level of adoption of information communications technology (ICT) in Ukraine

Some researchers state that among the Commonwealth of Independent States (CIS) countries Ukraine is second only before Russia in the size and strength of its IT establishment [7]. The country was an early adopter of policies to support information communications technology (ICT) but in comparison to developed European countries still has a wide scope for improvements in our IT infrastructure.

For example, as can be seen from the Figure 2 the number of Internet users in Ukraine is still very low, only 12.1% of people in 2006 are using it. PC diffusion has increased more than five times from 1995 to 2006, from 0.8 PC per 100 inhabitants to 4.6 (Figure 2). However, the country’s PC penetration rate are still very low and is growing not so fast as mobile penetration rate, which is extremely high even for developed countries - 106.7 per 100 inhabitants in 2006.

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Figure 2. Evolution in penetration rates for selected indicators, 1995-2006. [6, p.135]

If we will compare some key ICT indicators in Ukraine with Poland and Germany we will have an opportunity to see that Ukraine has recently experienced a boom in mobile telephony but still has a poor state of fixed line infrastructure and internet communications. Poland population in 2007 was 38.8 million, GDP (PPP) per capita - $6200; population in Germany in 2007 was 82.6 million, GDP (PPP) per capita - $34100 [8].

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From Figure 3 we can see that Ukraine in 2007 has the same number of fixed line subscribers (27.83 per 100 inhabitants) as Poland (27.14 per 100 inhabitants) but significantly less then Germany (65.07 per 100 inhabitants) [8]. At the same time the portion of digitalized fixed lines in Ukraine is only 40% while in Poland and Germany the whole fixed line network is digitalized. Ukrainian fixed line network requires substantial modernization in order to meet the requirements of up to date IT infrastructure. The largest telecom and top-tier Internet service provider (ISP) in the country (95% of network), Ukrtelecom, has 92.9 percent state ownership and considered very ineffective under government management [7]. Due to low level of income of the majority of population tariffs for fixed line communication were kept too low since the beginning of 1990s. Because of this Ukrtelecom was not able to generate cash flow sufficient to upgrade the network according to industry standards in other countries. Only during last years there were some moves toward privatization of Ukrtelecom and increasing tariffs for fixed line communication [7].

During 2001-2007 Ukraine has experienced a rapidly growth of mobile telephone subscribers and in 2007 reached a 119.55 subscribers per 100 inhabitants which is even more than in Germany – 117.62 per 100 inhabitants [8]. Such a high growth rate in mobile telephony can be explained by different factors like increasing purchasing power of the Ukrainian population, the poor condition of fixed line infrastructure and low level of mobile operators’ control for subscribers’ activity (there are no monthly fees so a lot of people have SIM cards of more then one cell phone operator enjoying lower tariffs when they talk within network of one operator).

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As can be seen from Figure 5 internet penetration rate in Ukraine are still far behind form the world’s levels, with 21.64 Internet users per 100 inhabitants in comparison to 47.42 and 42.01 Internet users per 100 inhabitants in Germany and Poland in 2007 respectively [8]. Main reasons for this are relatively small pool of PCs present in the country and under-developed fixed line infrastructure (dial up connection is still dominant modality of Internet access in the country according to “Ukraine Competitiveness Report 2008”). Also it should be mentioned that although some internet-service providers (ISP) have considerably reduced their access costs (for example, by leasing outdated or redundant infrastructure from Ukrtelecom) and a few providers offer free access during the night, most Ukrainians cannot afford to use the Internet: 46.8 percent of the population identified themselves as poor [7].

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Other evidences of low level of IT infrastructure development in Ukraine are statistical data about income of internet service providers and mobile service providers. In 2007 the revenue of internet service providers reached a $326.5 millions and the Revenue of mobile service providers was $5012.24 millions [4].

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