Secrets of Ukrainian Software

First Deputy Premier Anatoliy Kinakh recently made Ukraine happy with his announcement that the shadow economy level is down by 7%, but it seems that the process has not reached all regions.

It is true that most software made in Ukraine is for export. Experts believe that it makes up 70-90% of the market supply. The percentage is explained by the fact that this is the most uncontrollable and elusive market in Ukraine. The situation that has developed is affected primarily by software production as one of the newest sectors of the economy, and few know how to get it under control. Second, software is not a product whose output can be easily exposed to bookkeeping and accounting, nor can its objective value be easily assessed.

A bill was passed by the Ukrainian parliament last week, setting forth criminal responsibility for “piracy in the sphere of intellectual property.” For the most part, however, it is meant to protect the interests of foreign software producers, because Ukrainian software companies practically do not specialize in programs for the mass consumer.

The Ukrainian software market was originally oriented toward domestic big business and orders from foreign clients. The specific features of the former are such that standard programs are unacceptable, and unique software programs must be custom developed for each business. That’s why Ukraine’s software companies focus on specific projects, ranging from research and development to personnel training to implementation. Every such software project costs hundreds of thousands of dollars.

Another trend in Ukraine’s software development is IT autosorting. The pattern begins with a large foreign producer planning a sizable software project. The latter is divided into countless simple stages, some of which can be entrusted to smaller subcontracting companies. Manpower cost is the key factor governing the choice of company. Not surprisingly, India tops the list of countries with promising software companies, compared to Ukraine’s software exports, which only represent several hundred million dollars.

No one knows the exact figures. Ukraine’s IT market works in the shadows. Most large and medium-sized software companies keep their work orders away from the local tax authority, and smaller firms simply do not get officially registered and easily avoid submitting information to the tax authority. Denys Ruden, head of the information systems department of the civic organization “Informatsiyne Stolittia” [Information Age], believes that several factors that define the closed nature of a company should be singled out. Perhaps the key one consists in the use of “protection,” although company interests are lobbied for, rather than those of the software authors. Naturally, such activity is only possible in the absence of laws that would adequately regulate Ukraine’s software market.

All experts agree that a nationwide policy is responsible for India taking the lead among software-producing countries. It is true, however, that India needed laws as well as investments worth billions of dollars to make its name in the IT sphere, something the Ukrainian government can’t afford with its socially oriented budget. Another thing to consider is that in the developed countries software suppliers are mostly found in so-called technology parks with adequate infrastructures and working conditions. In Ukraine, the very notion of a technology park and all the attendant privileges and tax concessions were abolished at the beginning of the year, meaning that this country cannot expect to rank with the industrialized countries in the foreseeable future.