A country brainpower: why Israeli tech companies choose Ukraine as their trusted R&D location
The Fourth Industrial Revolution is not only reshaping the way people live and work but is acting as a major enabler of innovations and digital breakthroughs across industries. Having introduced advanced technologies, disruptive solutions, and automation at a global scale, it's forcing organizations to transform their business models or even create new ones to get ready for the digital future. The rapid development of the Internet of Things, Artificial Intelligence, and the sharing economy has spawned progressively more innovative and technologically complex products. That's why even during the global crisis of 2020, companies continue to invest in research and development of innovations that are key to gaining a competitive edge in this tech-savvy world.
Though, a shortage of local professionals with relevant experience and deep tech expertise is a common challenge that organizations face when setting up their research and development (R&D) centers. Many businesses efficiently address this problem by starting R&D operations overseas. And being a fast-growing tech powerhouse, Ukraine becomes increasingly popular as a strategic R&D destination for tech companies and startups, Israeli companies included.
Though, a shortage of local professionals with relevant experience and deep tech expertise is a common challenge that organizations face when setting up their research and development (R&D) centers. Many businesses efficiently address this problem by starting R&D operations overseas. And being a fast-growing tech powerhouse, Ukraine becomes increasingly popular as a strategic R&D destination for tech companies and startups, Israeli companies included.
The article prepared under the sponsorship of Intellias
What does that mean?
What does that mean?
This article was sponsored and prepared by the advertiser according to AIN.UA editorial standards.
So why do we start talking more about the collaboration between Ukraine and Israel today? What's so interesting about Ukraine for Israel-based businesses, and how do these countries cooperate in the present?
According to Yossi Vardi, an Israeli tech godfather and a co-founder of ICQ, the cooperation holds endless opportunities for both countries. "The reputation of Ukrainian IT services providers is very good. They are regarded as professional, hardworking, loyal, and ambitious. I see a great future to these relationships," says Yossi.
And he's totally right since the relationships between these two countries are already in the full swing. Ukraine and Israel have both proven their enthusiasm in fostering their thriving partnership by starting collaborative initiatives like domain-specific conferences, alliances, and collaboration platforms aimed at creating a powerful tech ecosystem.
According to Yossi Vardi, an Israeli tech godfather and a co-founder of ICQ, the cooperation holds endless opportunities for both countries. "The reputation of Ukrainian IT services providers is very good. They are regarded as professional, hardworking, loyal, and ambitious. I see a great future to these relationships," says Yossi.
And he's totally right since the relationships between these two countries are already in the full swing. Ukraine and Israel have both proven their enthusiasm in fostering their thriving partnership by starting collaborative initiatives like domain-specific conferences, alliances, and collaboration platforms aimed at creating a powerful tech ecosystem.
Creating synergy between the two countries
Source: High Tech Human Capital Report 2019
Ukrainian IT companies report an increasing number of deals from Israel recently. Vitaly Sedler, the CEO and co-founder of Intellias, says that "Analyzing the market and share of Israeli projects in our company as well as in other Ukrainian IT companies, we can clearly notice significant growth dynamics of IT business between our countries. To compare, at the beginning of 2020, Intellias got 60% more requests from Israel than in 2017."
Moreover, the High Tech Human Capital Report 2019 states that 41% of Israeli companies that report an offshore presence have established it in Ukraine — quite the lion's share. And when it comes to the purpose of offshore activities, R&D takes the lead.
Waze, SimilarWeb, Payoneer, and Playbuzz are all world-renowned and well-established Israeli companies that have set up R&D centers in Ukraine. What's more, in 2019, Perion Network, an Israel-based AdTech giant, bought Ukrainian startup Septa Communications to extend its engineering capacity in Ukraine.
Moreover, the High Tech Human Capital Report 2019 states that 41% of Israeli companies that report an offshore presence have established it in Ukraine — quite the lion's share. And when it comes to the purpose of offshore activities, R&D takes the lead.
Waze, SimilarWeb, Payoneer, and Playbuzz are all world-renowned and well-established Israeli companies that have set up R&D centers in Ukraine. What's more, in 2019, Perion Network, an Israel-based AdTech giant, bought Ukrainian startup Septa Communications to extend its engineering capacity in Ukraine.
ISRAELI COMPANIES WITH R&D OPERATIONS IN UKRAINE (ARRANGED IN ALPHABETICAL ORDER):
21Pink Ukraine
Adventec
Autotalks
Benish GPS
Bridge
Celeno
Ceragon Networks
Check Point
Development Group
Honeybook
Adventec
Autotalks
Benish GPS
Bridge
Celeno
Ceragon Networks
Check Point
Development Group
Honeybook
Imonomy
Interlude
Leverate
Lumus
Mellanox Technologies
Moon Active
MyHeritage
Oberon Media / Friends Games
Payoneer
Interlude
Leverate
Lumus
Mellanox Technologies
Moon Active
MyHeritage
Oberon Media / Friends Games
Payoneer
Plarium
Playtika
Similarweb
SkyWind
Teva
Trackimo
Verbit.ai
Waves Audio
Wix.com
Playtika
Similarweb
SkyWind
Teva
Trackimo
Verbit.ai
Waves Audio
Wix.com
Source: High Tech Human Capital Report 2019
As Vitaly Sedler also notes, there's a tendency for Israeli clients to request autonomous technologies, machine learning and deep learning, artificial intelligence, neurolinguistic programming, and neural network technologies. According to Vitaly, Israeli companies rarely look for out-of-the-box solutions, as they are strong in developing innovations by themselves. What they need are tech experts whose experience can be valuable for bringing their innovative solutions to life.
Confidence in business partners and their willingness to take responsibility for the job done is one of the most important business rules for Israelis. Many Ukrainian companies have proven their commitment and competence here as well, delivering excellent services over the course of 10 years of cooperation with some clients.
Beyond technology, culture is another factor that tips the balance. As many Israeli citizens have Ukrainian roots, the cultural similarities of both regions mark an additional advantage in favor of partnership between Israel and Ukraine.
Confidence in business partners and their willingness to take responsibility for the job done is one of the most important business rules for Israelis. Many Ukrainian companies have proven their commitment and competence here as well, delivering excellent services over the course of 10 years of cooperation with some clients.
Beyond technology, culture is another factor that tips the balance. As many Israeli citizens have Ukrainian roots, the cultural similarities of both regions mark an additional advantage in favor of partnership between Israel and Ukraine.
Ukrainian-Israeli relations: A cultural and tech match
Technologies and expertise hub
HOW TO START WORKING WITH UKRAINE — USEFUL LINKS
A series of international tech conferences aimed at networking for governments, businesses, and startups
A collaboration and integration platform for establishing business relations between Israeli and Ukrainian tech companies
Public services for business entities
The phenomenal rise of the IT sector in Ukraine is explained by the country's deep tech talent pool. With 191,000 experts working in the industry, Ukraine holds a leading position at the world tech scene. And it's not all about quantity but quality as well — the country has a good reputation in the global market, being on the 20th place among the best destinations for offshore development, based on the Global Services Location Index 2019.
According to DOU (the largest media in the Ukrainian tech community), 29% of Ukrainian engineers have 3 to 5 years of work experience, 17% have 6 to 10 years, and 12% have over 10 years. Furthermore, two-thirds of Ukrainian IT specialists are middle or higher, and 19% are senior level expertise.
Additionally, the Ukrainian IT labor market is also rapidly growing. Ukrainian IT companies realize the importance of human resources for the software development industry and focus on upgrading the qualifications of IT specialists and nurturing young talents. Some companies set up their own academies, while others partner with universities and colleges to adjust curriculums and employ the best graduates.
Software development companies also join their efforts and unite in IT clusters to promote the engineering culture countrywide. For example, the Lviv IT Cluster has worked with IT companies to create a laboratory for the design and construction of IoT devices at Lviv Polytechnic National University. Today, such IT clusters operate in 17 Ukrainian cities.
According to DOU (the largest media in the Ukrainian tech community), 29% of Ukrainian engineers have 3 to 5 years of work experience, 17% have 6 to 10 years, and 12% have over 10 years. Furthermore, two-thirds of Ukrainian IT specialists are middle or higher, and 19% are senior level expertise.
Additionally, the Ukrainian IT labor market is also rapidly growing. Ukrainian IT companies realize the importance of human resources for the software development industry and focus on upgrading the qualifications of IT specialists and nurturing young talents. Some companies set up their own academies, while others partner with universities and colleges to adjust curriculums and employ the best graduates.
Software development companies also join their efforts and unite in IT clusters to promote the engineering culture countrywide. For example, the Lviv IT Cluster has worked with IT companies to create a laboratory for the design and construction of IoT devices at Lviv Polytechnic National University. Today, such IT clusters operate in 17 Ukrainian cities.
Talent capital
The key aspect that makes Ukraine so attractive as an R&D location for Israel is the rapid development of advanced technologies in the country. Besides support for rapid growth and scaling teams, a lot of Israeli startups and companies need deep technological expertise. They decide to set up R&D operations in Ukraine to work with experienced engineers and maximize their return on investment since the Ukrainian IT industry has significantly grown and matured over the past decade.
An increasing number of software development companies are choosing their technological specialization, focusing on specific market niches, and amplifying their expertise. Having started as outstaffing providers, these companies have already evolved to the level where their experts create, launch, and support end-to-end products based on research into user needs and the client's vision.
An increasing number of software development companies are choosing their technological specialization, focusing on specific market niches, and amplifying their expertise. Having started as outstaffing providers, these companies have already evolved to the level where their experts create, launch, and support end-to-end products based on research into user needs and the client's vision.
Today, software engineering goes far beyond just coding. Considering the rising demand for proven experts in advanced tech, large companies like Intellias nurture expertise, develop industry competencies, and invest in building and diversifying value-added service portfolios. In our company, we take full responsibility for the technical solution and conduct full-scale product development, proving our maturity and readiness to cope with tasks of different complexity.
– Vitaly Sedler, the CEO and co-founder of Intellias
Let's dive deeper into the reasons why Ukraine has become a prime outsourcing destination for Israel-based businesses.
Source: World Bank, PwC and IT Ukraine
Currently, there's no strict sectoral regulation of the software development industry in Ukraine, which goes in line with global practice. Moreover, the absence of regulatory pressure positively impacts the country's competitive position in the global IT market. At the same time, companies operate within general Ukrainian legislation, and their business processes align with all relevant regulations, including those related to taxes, customs, and currency.
What matters for IT industry growth is access to professionals as much as the conditions of cooperation with them. Payments to specialists make up 80% of Ukrainian IT companies' expenses, so the industry is highly sensitive to taxation. Registered as private entrepreneurs, specialists work with Ukrainian IT companies on the basis of commercial agreements and pay a 5% tax on gross income. This model creates a favorable environment for the biggest expense line of IT companies.
What matters for IT industry growth is access to professionals as much as the conditions of cooperation with them. Payments to specialists make up 80% of Ukrainian IT companies' expenses, so the industry is highly sensitive to taxation. Registered as private entrepreneurs, specialists work with Ukrainian IT companies on the basis of commercial agreements and pay a 5% tax on gross income. This model creates a favorable environment for the biggest expense line of IT companies.
Regulatory field
In recent years, the Ukrainian government has become increasingly involved in the development of the IT sector, using it as a part of the state's international PR program.
Established in 2019, the Ministry of Digital Transformation is a brand new, fresh institution responsible for the implementation of a digital strategy and the development of the IT industry in Ukraine. There's also a platform called the IT Ukraine Association established to create an open dialogue between IT industry representatives and public authorities. This organization actively advocates for the interests of the Ukrainian IT sector. Among its most recent significant achievements has been the simplification of procedures for importing equipment prototypes to Ukraine and for registering foreigners as private entrepreneurs.
Such enforced government support shows how determined is Ukraine on its way towards digitalization and further growth of the IT sector, both in the country itself and worldwide.
Established in 2019, the Ministry of Digital Transformation is a brand new, fresh institution responsible for the implementation of a digital strategy and the development of the IT industry in Ukraine. There's also a platform called the IT Ukraine Association established to create an open dialogue between IT industry representatives and public authorities. This organization actively advocates for the interests of the Ukrainian IT sector. Among its most recent significant achievements has been the simplification of procedures for importing equipment prototypes to Ukraine and for registering foreigners as private entrepreneurs.
Such enforced government support shows how determined is Ukraine on its way towards digitalization and further growth of the IT sector, both in the country itself and worldwide.
State support
Today, Ukraine is not only a provider of qualified experts but also a center for creating innovative solutions. In refining their service lines, Ukrainian IT companies create added value for clients and partners, helping them usher in Industry 4.0.
As American economist Adrian Slyvotsky has said in his recent interview with Radio Svoboda, "Every client and partner, regardless of the country, strives to receive more value-added services every year. So, it is worth improving business models, making them more sophisticated. And, at the same time, one should invest resources in creating innovative products — this is the way to success."
As American economist Adrian Slyvotsky has said in his recent interview with Radio Svoboda, "Every client and partner, regardless of the country, strives to receive more value-added services every year. So, it is worth improving business models, making them more sophisticated. And, at the same time, one should invest resources in creating innovative products — this is the way to success."
With further development on radar
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