Ukraine is the second largest contiguous country on the European continent, after Russia. As compared to established locations such as India and China, Ukraine does not figure as prominently on the radar of companies looking to globalize their R&D operations. During the period 2000- 2008, foreign direct investments inflow increased in the country, which indicates that Ukraine is emerging as one of the key economies in Central and Eastern Europe (CEE).

1. R&D Globalization: A Ukraine Perspective
2009
Zinnov LLC
Zinnov LLC CONFIDENTIAL
This report is solely for the use of Zinnov and Zinnov Clients.
No part of it may be circulated, quoted, or reproduced for distribution without prior written permission

2. Overview
SCOPE
 This report is intended to provide an overview
of the R&D landscape in Ukraine in the context
of Central and East European (CEE) countries*
 Specifically, the report seeks to provide detailed
information on the following aspects
 Size of IT offshoring market in Ukraine with
specifics for the R&D offshoring market
 Primary drivers for offshoring of R&D to Belarus
Czech Poland
Ukraine Republic
 Key offshoring locations for R&D within Ukraine
Ukraine Slovakia Hungary
 Macro and micro challenges that may Romania
hinder the progress of Ukraine as a key Bulgaria
R&D offshoring destination
CONTENTS
 The current document is a preview to the complete study and covers the R&D offshoring
market numbers for Ukraine along with an overview of the key drivers for offshoring of R&D to
the region
Note: *The scope of the study includes countries Poland, Belarus, Czech Republic, Slovakia, Hungary, Romania, Bulgaria and Ukraine only

3. Agenda
1 Market Overview
2 Lay of the Land
3 Location Analysis
4 Key Restraints
5 Case Study

4. The IT offshoring market in Central and East European (CEE) countries has rapidly
evolved over the last 3 years
CEE IT Offshoring Market, 2006-08
CAGR
18%
USD Million
Belarus
Czech Poland
Republic
Ukraine
Slovakia
Hungary
Romania
Bulgaria
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
Note: The scope of the study includes countries Poland, Belarus, Czech Republic, Slovakia, Hungary, Romania, Bulgaria and Ukraine only
Source: IT Ukraine, Zinnov Analysis

5. Among the CEE countries, Ukraine has emerged as the largest IT offshoring market
IT Offshoring Market Size of CEE Countries, 2008
Ukraine has achieved this status
with a significantly large talent
pool of about 25,000 IT
resources, supportive
government policies and lower
operating cost structures Ukraine accounts for
more than 20 percent
of the total CEE IT
offshoring market
USD Million
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
Source: IT Ukraine, Primary interviews with stakeholders of service providers and industry associations, Zinnov Analysis

6. The Ukrainian IT offshoring market is predominantly driven by R&D related activities
IT Offshoring Market Split by Activity Based on Size, 2008
The talent pool in Ukraine is highly
IT Offshoring Market Split by Activity Based on Headcount, 2008 capable of performing high end R&D
work, as a result of the relatively
advanced educational system inherited
from the erstwhile Soviet Union
Note: * IT/ITES – Information Technology / Information Technology Enabled Services
Source: IT Ukraine, Russoft, Zinnov Analysis

7. Agenda
1 Market Overview
2 Lay of the Land
3 Location Analysis
4 Key Restraints
5 Case Study

8. Post 2000, Ukraine has rapidly evolved into a leading destination for R&D Offshoring
among the CEE countries
Evolving R&D Offshoring Landscape in Ukraine
Soviet Era Reform Era Growth Era
1960s-1980s: 1990s - 2000: 2001-Current:
• Ukraine was an important center • The country became independent • In 2001, the Government revised
for Soviet arms industry and hi-tech in 1992 after the dissolution of the legislative laws concerning
research during the 1960s Soviet Union software products to increase IP
protection
• Most of the R&D related activities • Post the soviet regime Ukraine
were state-funded for defense, moved from a planned economy to • The Government implemented a
space and military programs a market economy, the transition of visa free entry for citizens of US and
which resulted in an economic Europe to attract experienced
• Restrictions in society and recession talent
especially due to restriction in
relations with the West, the • In the early ‘90s the IT sector • About 60 – 70 percent of the
software sector in Ukraine was suffered a backlash in the form of a service providers began operations
underdeveloped until late the ‘80s. brain drain. At that time the best post 2000
qualified specialists and
programmers found a job abroad or • Post 2004, the government has also
immigrated to the US, Canada or introduced various initiatives and
Western Europe laws to promote the IT industry in
Ukraine
• Commercialization and applicability
of programming resources was first • Between 2000 and now the IT
introduced and developed after industry has grown at an average of
1991 40 percent annually and has
resulted in Ukraine being the
largest R&D offshore destination in
the CEE region
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
Source: Ministry of Commerce-Science, Technology and Innovation System in the Ukraine, Zinnov Analysis

9. Compared to CEE countries, Ukraine has witnessed its R&D offshore market grow at
more than double the rate of that of the CEE average in 2004-08
R&D Market Growth, 2004-2008
CAGR
18%
Ukrainian R&D offshoring market has
CAGR seen explosive growth in the past few
years with the growth rate being
40% more than double of that of the CEE
average, which can be attributed to
the highly capable talent pool, low
attrition, low costs and increased
government support
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
Source:IT Ukraine, Russoft, Zinnov Analysis

10. The key reasons for the rapid growth in R&D outsourcing to Ukraine include presence
of highly skilled R&D talent pool, lower cost of operations, supportive government
policies and proximity to EU countries
Key Drivers Description Impact of the Driver
1 Ukraine has highly capable resource pool of about 8,000 to
Talent Pool 10,000 working in R&D related activities. The number of R&D
resources installed in companies in Ukraine are the highest in the
CEE region
2 Cost of running operations in Ukraine is about 60-70 percent
Cost Arbitrage
cheaper than in the US
3 The government has been actively supporting the IT Industry
Government Support and specifically R&D activity in Ukraine. Though the support
came recently, Ukraine is poised to be a significant R&D
outsourcing destination
Close proximity to Europe makes Ukraine a preferred
4 destination for near-shoring. In addition, good proficiency in
Proximity to Europe English and European languages facilitates easy transition of
projects and co-ordination between client teams
Impact
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com High Low
Note: ‘Impact of driver ‘ indicates the important factors based on which global firms offshore R&D projects to Ukraine service providers . It is purely a qualitative rating based on Zinnov’s
observation across key product development firms globally
Source: World Bank-Ukraine Economic Update; PWC-Doing business and investing in Ukraine; Zinnov Analysis

11. 1 Talent Pool A Talent Pool Size
In terms of talent pool, Ukraine has a significant population of highly skilled manpower
capable of working in R&D related activities
Installed R&D Resource Pool, 2008
Since the Soviet times, Ukraine has had a long
Soviet standing reputation as a major technology hub
Legacy with a well developed scientific and educational
base
Ukraine’s traditions of physical, mathematical and
Education programming schools are very strong. Nearly 60
System percent of the universities in Ukraine have
graduates who have majored in these fields
With only 1 percent of the world’s population, the
country has 6 percent of the world’s physicists,
Ingenuity mathematicians, computer programmers and
other highly trained professionals
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
Source: IT Ukraine, Zinnov Analysis

12. 2 Cost Arbitrage
The cost of operations is also significantly lower with the costs of R&D resource in
Ukraine being 60 to 70 percent less than that in the US
Illustrative
Average Operating Cost/ FTE/ Year - A Comparison
200
150 Silicon Valley
(150 – 175)
Average Cost USD ‘000
60-70% savings
Tel Aviv
(115 – 135) Lviv is about 20% less expensive
100
than Kiev while other cities are
about 25% lesser
50 Moscow
(60 – 75) Shanghai
(45 – 55) Bangalore Kiev
(35 – 45) (37 – 40) Lviv Kharkiv, Donetsk
(33 – 38) Dnepropetrovsk
( 30 – 35)
0
USA Israel Russia China India Ukraine Ukraine Ukraine
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
Source: Primary interviews with stakeholders of service providers; Zinnov analysis

13. 3 Government Support
The government has also been providing active support by driving targeted initiatives
to promote investment in the region
International
Co-operation
Ukraine has entered into bi-lateral agreements with
many countries such as Netherlands, Poland,
Singapore, etc. to facilitate innovation & promote FDI
Infrastructure Executive Bodies
The government is also taking active measures to The government has established dedicated agencies
improve the infrastructure condition within Ukraine such as IT Ukraine, Ukrainian Hi-Tech Initiative etc.
such as focusing on development of Transport Government to promote innovation and foreign investment in the
Corridor Europe Caucasus Asia corridor, setting up of Support IT and software industries in the country
new technology parks etc.
National Programs Education
Ukraine has worked constantly to improve the
Various programs on a national level such as “Invest
educational standard in the country through various
Ukraine” have been introduced to improve the FDI
programs and initiatives such as Bologna Process and
status in the country
EUREKA
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
Source : Primary interviews with various stakeholders in executive bodies and service providers, Zinnov Research

14. 4 Proximity to Europe
Proximity to Western European countries is an added advantage as it has enabled
companies to near shore their operations in Ukraine
• Near-shoring locations are closer to the client
which makes mutual visits easier enabling
higher productivity and efficiency
• The Central and Eastern European countries
have close cultural ties with markets of
Western Europe. Typical near-shoring
location personnel have proficiency in the
client’s language and better understanding of
Belarus
cultural background of the client.
Czech Poland
Republic • Strong reaction to instances of companies
Ukraine moving jobs offshore (loss of good will) was
the reason why European countries preferred
Slovakia
Hungary near-shoring.
Romania
Bulgaria
This is a preview. The total slides displayed are limited. For full access contact info@zinnov.com
Source: Primary interviews with stakeholders of service providers and industry associations; Zinnov analysis

15. Additional Information
 The current document is a preview to the complete study and covers the R&D offshoring
market numbers for Ukraine along with an overview of the key drivers for offshoring of R&D to
the region
 The full report provides a comprehensive coverage of the R&D landscape in Ukraine with more
details on offshoring landscape and key drivers for offshoring along with additional insights on
major offshoring locations in Ukraine and challenges that can hinder the progress of the region
as a key offshoring destination
 Full report on Ukraine R&D landscape can be accessed at
 Zinnov ‘s Global Location & Talent Pool Portal. Sign up today for a free trial account
http://zinnov.com/US/demo_signup.php
 Or, email us at info@zinnov.com

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