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The R&D Potential of Ukraine

October 5, 2015

Sir Peter Bonfield is a true veteran of the high-tech industry. He has over 45 years of experience in the fields of electronics, computers, and communications. Currently he serves as Chairman of the Board for NXP Semiconductors N.V., Director of L.M. Ericsson, Director of Mentor Graphics Corporation Inc., Director of Sony Corporation, and Board member for GlobalLogic and several other tech companies.

During a recent meeting of GlobalLogic’s Board of Directors, Sir Peter Bonfield had a chance to visit Kyiv, Ukraine. He was accompanied by Igor Byeda, Managing Director of GlobalLogic Ukraine, to a meeting with KyivPost, Ukraine’s leading English-language newspaper. During this interview, Sir Bonfield expressed his views on Ukraine’s R&D potential and the country’s role in an international tech landscape. Below is a transcript of that interview.

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Sir Peter Bonfield (GlobalLogic Board Chairman) and Igor Byeda (GlobalLogic Ukraine Head)

Ukraine is already well-known for its outsourcing tech companies, but what can help our outsourcing companies become even more developed?

Sir Peter Bonfield: I think everything starts with the education system. The main reason that Ukraine is good at IT is because you are historically skilled in science and technologies, engineering and math. And I believe that fundamentally the difference is still there. With all the reforms your government is doing, it should concentrate on that. Because this is the core differentiator of Ukraine versus others.

What is the competition landscape of the IT industry in Ukraine?

Igor Byeda: First of all, we need to determine the nature of competition in the Ukrainian market. We rarely identify this competition as business competition, as mostly this is a competition for talents. Such companies as GlobalLogic, Luxoft, or EPAM are competing for the same talent pool in Ukraine.

Sir Peter Bonfield: Consequently, this competition is beneficial. The more players who are competing for a talent pool in a particular country, the more people who are willing to work in a certain industry. Silicon Valley is a good example. It is a place with advanced infrastructure, very smart people, and a strong presence of key players. And there is a possibility to move from one company to another, and this actually generates growth.

In fact, the industry needs just a few things from the government. First, it needs an increase of the talent pool through educational systems. Second, it needs a favourable environment for investing in such opportunities. Consequently, the industry’s growth will create more clusters, and more clusters will lead to the long-term strengthening of differentiative advantages. And this is the way Ukraine can be very successful.

Igor Byeda: I’d also like to add that the industry in general is quite young. This means that many companies are just about to come to this market. As for now, the educational basis allows us to do more engineering work, but the conditions are not sufficient to launch more product companies and work in full-cycle product development. I think this is the next stage, and a lot of companies will come to this market simultaneously once the market is ready.

Among the other things we definitely need (and some changes are on their way), there is transparency in doing business in Ukraine, as well as clear and fair rules of the game for all businesses that enter this economy. A more attractive investment climate will definitely help the IT industry — which is one of the most rapidly growing industries in Ukraine — to grow further.

What do you think IT companies in Ukraine should do to influence the government’s decisions?

Sir Peter Bonfield: In most other areas, there are associations to represent industries towards the government. In the US, these associations are very very powerful because of Facebook, Oracle, Texas Instruments, and many others — and this can influence government policy. And you have to do the same in Ukraine. The government needs to understand the long-term benefits of the IT industry for the country and to support it.

Basically, every country is going through the same process. For example, the UK is experiencing the same thing right now. We were making a lot of motorcars, and we have to get into a new era of software development. How can we do that?

By the way, the EU Commission started to understand how to make it in terms of regulations, education, and competitive environment. And Ukraine has to do this as well, but there are additional problems because of the geopolitical risks you are facing, which are misunderstood abroad.

What do you think can attract more people to the industry?

Sir Peter Bonfield: The government can do more to attract people into engineering, math, science, and technology starting with schools and, especially, universities. It is important to show that jobs in this industry are interesting and well-paid, the conditions are excellent, and there are a lot of possibilities — not just one or two companies involved. There should be companies of different scales to join or an opportunity to start your own company.

Moreover, Ukrainian IT professionals are not tied to their homeland. Such truly international companies as GlobalLogic have global operations in a number of countries. This allows us to transfer people between locations, for example, to India, Argentina, Poland, Israel, the UK, or the US. So, for a young and inspired person, all of this should be very exciting, I think.

Igor Byeda: We definitely provide good conditions for both young and mature professionals. And we are going to advertise these opportunities more. Besides, we can offer the really innovative R&D work we are doing in different industries for various clients. And this is the biggest advantage for any engineer, I believe. Public interest in IT is growing. IT is in the air. And I think this trend will develop.

From this perspective, what is the potential of Ukrainian product companies?

Sir Peter Bonfield: What is going to happen is that small companies will be able to grow under the umbrella of bigger companies, like GlobalLogic or other international enterprises. It creates a lot of activity and momentum in the industry. I think you need a BPO, you need software development outsourcing, you need a true R&D and prototype development business like GlobalLogic. All this enables small business development, which strengthens all the markets.

So, you need to develop a certain entrepreneurial atmosphere within the country. A young engineer should believe that a modest start is not bad, that one does not have to work only for big international companies. If entry-level engineers have all these opportunities, more people will be eager to study, get employed, and intensify industry growth.

What about hardware products? Does Ukraine need to make more hardware to become more interesting for investors?

Sir Peter Bonfield: As Ukraine has very a good reputation in software development, I wouldn’t suggest developing the same reputation in other fields, but rather recommend focusing on software development. Ukraine should be differentiated as a destination for software development.

If you say that Ukraine makes better hardware than China, nobody will believe you anyway, and this will diffuse your image. So I’d be very careful about it, making sure that the image is relatively focused and it aligns with a skill set of the country that is very clear and very believable.

Igor Byeda: I’d put it in a slightly different way. Hardware is a massive manufacturing process. It should not necessarily be produced in Ukraine, as China is a world-known destination for hardware manufacturing. But when it comes to product R&D and the architecture of complex hardware and software solutions, I find Ukraine to be a very good destination for many reasons.

First of all, we have a very good basis of doing software on an embedded level, which is basically the lowest level of software implementation, like a firmware for hardware devices. That embedded software is absolutely critical for any hardware product, as it enables all its functions and features. And GlobalLogic as a company has a huge division for embedded software development. A lot of embedded software development happens in GlobalLogic Ukraine, particularly. So we are very close to the field you are talking about.

You probably do not know, but a lot of products that are sold under various brands in different parts of the world do have pieces of code that has been developed in Ukraine. Unfortunately, being an R&D partner/vendor, we are not allowed to put our brand on these devices, but still we are a part of this success.

Many leading R&D companies have their offices in Ukraine, but none of them are doing R&D here. What should be done to change this situation?

Sir Peter Bonfield: You have got the necessary skills to perform significant product development here. So, there is another issue, and it is more about the overall climate and the risk factor. If you just outsource some business processes, you can do it everywhere. But once you get into fundamental R&D and it gets really important (which is actually GlobalLogic’s key differentiator), you need to deal with risk factors.

So, the government needs to explain to the rest of the business world that Ukraine is open for business by means of quick reforms and changes that you are going to implement. Personally, I think you can move very quickly due to the key skills people have here.

Igor Byeda: In fact, many of the leading companies are doing R&D in Ukraine. But they are doing it with their outsourcing partners. And the main reason for such practice is the general climate. From business, economical, and geopolitical points of view, this country should become a more stable destination. Once it happens and the future becomes more visible and forecastable, I think these companies will appear on this market.

How do political situations and the war influence the industry’s growth in Ukraine?

Sir Peter Bonfield: This is the biggest issue we face at the moment. Yet, I think it is a relatively short-term issue. I think the government and the press should demonstrate to the rest of the world that Ukraine is open for business, and there is no big war zone, and there is just a little risk. Because at the moment, most the world has the wrong impression about what is happening in Ukraine. From a general perspective, the fear factor is still present. So I think that the government should do more with publicity and proper reforms just to try to get people inside and let them see that the situation is actually more stable than they think.

The advantage of the IT industry compared to other industries is that it is relatively less capital-intensive. The risk is significantly lower. Let’s say you are going to install a big car manufacturing plant. There will be big capital investments and big risks. You can start a large software development company with relatively low capital investments and low risk. The risk is low when you have got skilled people, and in Ukraine the risk is relatively low because you indeed have got skilled people. From the software development and R&D points of view, the risk here is much lower than most people think.

Igor Byeda: We have operated in this market for a long time. Starting from the protests in Kyiv and the war conflict in the East of Ukraine, we have seen some decline in the development of the industry. Geopolitical risks were one of the major concerns of both existing and prospective clients. But now we see some positive changes.

A meeting of GlobalLogic’s Board in Kyiv and a visit from an executive team from our headquarters are just two of many positive signs, along with frequent visits by our clients. Such visits are very important; they do matter, as they “broadcast” a real picture from the ground, not something you may just see on BBC or CNN.

Sir Peter Bonfield: We are very pleased to have our Board meeting here, because Ukraine is a very big part of our operations. And we want to show that having a Board meeting here for us is absolutely normal. It is just the way we have meetings in San Jose, New Delhi, or London, so why not Kyiv? Our business runs as usual, geopolitical problems are about to be resolved, the stability is here at the moment. And we should communicate all these messages.

What will be the main benefit of IT growth for Ukraine as a country?

Igor Byeda: First of all, this means the growth of GDP that is critically important right now. This is purely an export of services, and this is a winning solution for the country, if this industry continues to grow. In addition to a well-paid job market, we create a secondary market around this initial market, as most of its income is being spent in Ukraine.

Ukraine is a well-known grain export player in the world. But it didn’t happen in a moment. It happened due to great government support during the last 10 years. And the IT industry can be even more beneficial for the Ukrainian economy, especially if Ukraine becomes a truly global leader in this field.

Sir Peter Bonfield: To sum up, this is the industry of the future. We are going to be a knowledge-based society, as the next phase of the industrial revolution is going to be completely different. To be successful in the next 15 years, you have to be successful in the IT industry. That is all the differentiation there is.

My grandfather was a coal miner. He started to work in a coalmine when he was 12. The only thing he insisted on was education for his children to get them out of a mine. My mother was a nurse, and my father was a technician. He said that I had to become an engineer. And he was right.