Developing a Ukrainian Silicon Valley: Will It Be Odessa or Kiev?

The technology sector is becoming increasingly important in the Ukraine, and not just in the negative sense that has previously hit the headlines. Odessa’s share of this industry has been particularly focused on the more creative side, with many of the IT companies that operate in the country choosing to locate their research and development departments in the city. However, its status as a contender for the title of the Ukrainian Silicon Valley is now being challenged by a new development in Kiev, which has tended to take a larger sector of the technology sector when it comes to outsourced IT services, but has not previously been such an important hub for technological innovation as Odessa.

Growth of the Technology Sector in the Ukraine

Companies working on the creation of new software, IT service outsourcing, and technologically based marketing strategies, are becoming a common part of the economy. The technology sector has been growing steadily at a rate of around 20% a year for nearly a decade, according to The Ukrainian Hi-Tech Initiative’s report on the sector. The growth has been surprisingly rapid since the onset of the global recession, thanks to the incentives such as tax relief for international technology and software development firms that have been put in place by the government to encourage the industry. Outsourcing alone accounts for about half of the IT sector, hitting an annual income of $1 billion in 2011, and growing to $1.4-1.5 billion in 2012. The National Commission for the State Regulation of Communications and Informatization has predicted that the annual revenue of the IT sector as a whole for 2013 can be expected to reach $3.6 billion by the end of the year. However, the growth of this sector has been unevenly distributed around the country, with most of the outsourced IT services being set up in Kiev, although certain other cities, such as Kharkiv and Lviv have also attempted to encourage investment from the technology sector.

Creative Technology in Odessa

Odessa is one of those cities that has developed into a hub for the IT industry, but it is home to just 1000 IT specialists, representing only 4% of the Ukrainian IT workforce. In terms of numbers, this puts it behind not just Kiev, but also several other cities, including Lviv. Despite the small size of the industry in Odessa, the city’s reputation as a center for education, and the many programs that are producing highly skilled IT graduates at its universities, have ensured that the companies that have settled in it are thriving and performing some of the most creative IT work in the country. It is in Odessa that many of the companies operating in the Ukraine have established their Research and Development departments. The city has been following in the footsteps of America’s Silicon Valley, hosting the most innovative projects for the development of new software products and technologies, mainly for the global market.

New Technology Park Planned for Kiev

Another site that is now being described as a possible Ukrainian version of Silicon Valley is the new industrial park being planned for the old Kotsiubynske military base in the Sviatoshynsky district of Kiev. The Bionic Hill park will focus on providing space for technology and IT companies, and it is expected to create employment for 35,000 computing specialists by 2020. The same architects who worked on some of the actual Silicon Valley’s most famous buildings, such as the Stanford Business School and Google campus, will be bringing their vision to Bionic Hill, but this may not be enough to ensure that the $1 billion project will be worth its price tag. Innovation is not just about investment, but also the creation and cultivation of talent, and the Kiev project is not being built on the success of educational institutions or existing technological communities to the extent that other such developments have been worldwide, including in Silicon Valley.

Welcoming New Technology: Odessa vs. Kiev

Kiev may be investing in developing the more innovative side of its IT sector, but it may not be enough to tempt more innovative projects to select the capital as their base. Odessa’s universities currently have stronger computing and technology programs, which has helped the city to avoid the gap in creative programming skills that has caused problems in many other outsourcing centers around the world. Kiev hosted the 2013 KPI-Open International Students Programming Olympiad, but it was a team from Odessa National University that took second place in the competition, ahead of any of their local competitors. Odessa has also hosted its own events aimed at encouraging IT professionals and technology companies to see the city as the place to explore new projects, including in 2013 the fourth annual WebCamp conference, which was paired with various networking and educational events for Odessa Innovation Week.

Both cities seem intent on winning the title of the Ukrainian Silicon Valley, but it is too soon to tell whether Kiev’s investment in its new technology park will be enough to draw the software developers away from Odessa. The only thing that can be said for certain is that the technology sector is likely to continue growing in the Ukraine for the foreseeable future, as international corporations continue to move their IT services and project development offshore. Exactly where it will grow remains to be seen.