Ukraine as a budding destination for Shared Service Centers
Operations of Shared Service Centers (SSCs) represent an important area for economic development of Eastern and Central European countries. The Ukrainian market is among the most attractive potential areas for SSC development. Integration into the global economy, improved indicators in international ratings, and implementation of reforms – all of this has significantly improved the country's attractiveness to investors. The research conducted by Deloitte highlights the competitive advantages offered by Ukraine for the development and operation of SSCs compared to other countries in Eastern and Central Europe.
This report also includes an analysis of the following key factors that influence the decision-making process about opening SSCs: a review of aviation logistics (proximity to operations), labor potential, and office property markets. We analyzed indicators of five of the largest Ukrainian cities – Kyiv, Lviv, Kharkiv, Dnipro, and Odesa, to ensure representativeness of the report and provide comparative information.
Since the previous report released in 2017, the following large brands have entered the Ukrainian market:
- 37 additional international retail companies, including H&M, IKEA, Under Armour, Zara Home and other retailers
- 3 technology services: Apple Pay, Google Pay, Xoom
- About 60 companies specialized in business process outsourcing (BPO) that provide data entering, customer support and accounting services
- 5 international airlines: Qatar Airways, Ryanair, Brussels Airlines, etc.
- 2 international hotel chains: Aloft, Mercure
- Approximately 100 leading global R&D centers
“Ukraine remains an attractive market for various industries, which is confirmed by the interest of foreign investors and choice of the Ukrainian market by large companies both for expanding its presence and as a strategic direction for business development,” said Volodymyr Yumashev, one of the research authors and Tax & Legal Partner at Deloitte Ukraine.
Six SSCs, a large number of BPOs and R&D centers are successfully operating and expanding their operations in Ukraine. A number of companies are currently viewing Ukraine as a promising area for the development of SSCs and R&D centers. We hope to announce the names of new companies very soon.
The implemented reforms since 2014 have had a beneficial effect on Ukrainian business. Ukraine has improved its previous results by moving four positions up and it now ranks 76 among 190 countries in the Doing Business 2018 report prepared by the World Bank. This improvement was mainly due to the deregulation and tax system reforms.
Aviation logistics (proximity to operations)
Ukraine has considerably improved air connectivity with other countries. This year, a number of international and low-cost airlines launched operations in Ukraine, making the country's domestic and international logistics simpler and more accessible. In particular, passenger traffic increased by 27.5% in 2016–2017 alone.
The visa-free regime between Ukraine and EU came into effect on 11 June 2017. At present, a passport of a citizen of Ukraine guarantees visa-free travel to 91 countries of the world. Ukrainians can obtain visa upon arrival in 41 countries, while they have to apply for a visa for trips to 66 countries. Therefore, a Ukrainian passport is ranked 24th in terms of possibilities in the Global Passport Power Rank 2018.
Labor potential and employee costs
Ukraine has a significant potential of highly skilled labor. More than 14 million Ukrainians with higher education are employed. Poland posted a similar indicator. However, the number of employees with higher education is much lower in other Eastern and Central European countries: about 7 million people in Romania, less than 4 million people in Czech Republic, and less than 2 million – in Slovakia and Latvia.
With the opening of companies specialized in business process outsourcing, the number of people employed in this sphere in Eastern and Central Europe has increased exponentially. Currently, there are 700,000 people employed in the BPO sphere. It is expected that by 2020 there will be a need for another 265,000 outsourcing specialists. Ukraine has a chance to both fill a niche in training the required professionals and to create thousands of jobs.
Overall, there are 298 higher education institutions in Ukraine, including universities, institutes, and academies. According to the statistics, about 1.33 million students studied at the higher education institutions in 2017–2018. In 2017, a university degree was obtained by 360 thousand graduates.
Today, about 247 thousand students study economics, 104 thousand – technical specialties, and 82 thousand – information technology. In perspective, all these students can become specialists in business process outsourcing.
The level of education in Ukraine is quite high: the quantitative indicators are identical to the statistics of Poland. The number of people with higher education is much higher than in other Eastern and Central European countries (Czech Republic, Hungary, Romania).
The difference in average salary rate is also significant: in Ukraine it equals to US 395 (according to data for 2018), and in neighboring Poland it amounts to USD 1,379. Therefore, when launching the Shared Service Center in Ukraine, the employee remuneration costs will be approximately five times lower.
Office property market
The office property market of Ukraine has overcome the crisis: businesses become more active due to the heightened interest of tenants in new office premises.
New office centers continue to be built in Ukraine, with the indicators expected to increase by another 10%.
Social Progress Index
Ukraine ranked 64 among 146 countries in terms of social development according to the findings of the Global Social Progress Report, developed by US-based, non-profit organization Social Progress Imperative with the support of Deloitte.
Ukraine's GDP per capita has increased from USD 7,457 in 2017 up to USD 7,668 in 2018.
The survey results illustrate the potential: social and economic performance of Ukraine continues to grow from year to year.