Analysis
Ukraine – a Budding Destination for Your SSC/BPO
Operations of Shared Service Centers (SSCs) represent an important area for economic development of Eastern and Central European countries. Currently, more and more companies around the world decide to open SSC. This decision is driven largely by workforce optimization, cost reduction, introduction of new technologies, and elimination of repetitive processes in the branches of companies, making SSC the main provider of fast, high-quality, and uniform services for several company branches.
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 largest Ukrainian cities – Kyiv, Lviv, Kharkiv, Dnipro, and Odesa, to ensure representativeness of the report and provide comparative information.
Since 2017, the following large brands have entered Ukrainian market:
- More than 45 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 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.
Five 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. Since our last report released in 2018, Ukraine has improved its previous results by moving five positions up and it now ranks 71 among 190 countries in the Doing Business 2019 report prepared by the World Bank. This improvement was mainly due to the easier trading across borders, simplification of a procedure for small claims and pretrial conferences, deregulation, and tax system reforms.
Aviation logistics (proximity to operations)
Ukraine has considerably improved air connectivity with other countries. Thus, Kyiv, Lviv, Kharkiv, Dnipro, and Odessa have a direct connection with the biggest airports of the world. 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 24.5% in 2017–2018 alone.
The visa-free regime between Ukraine and EU came into effect on 11 June 2017. At present, the passport of a citizen of Ukraine guarantees visa-free travel to 91 countries of the world. Ukrainians can obtain visa upon arrival in 44 countries, while they have to apply for a visa for trips to 63 countries. Therefore, a Ukrainian passport is ranked 24 out of 92 in terms of possibilities in the Global Passport Power Rank 2019.
Labor potential and employee costs
Ukraine has a significant potential of highly skilled labor. International companies show heightened interest in hiring young and qualified professionals for their SSCs and BPOs in Ukraine, as the salaries and office rent prices remain at a reasonable level among comparable destinations.
More than 13 million Ukrainians with higher education are employed. Poland has 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 Hungary, and less than 2 million – in Slovakia and Lithuania.
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 both to fill a niche in training the required professionals and to create thousands of jobs.
Overall, there are 282 higher education institutions in Ukraine, including universities, institutes, and academies. According to the statistics, about 1.32 million students studied at the higher education institutions during 2018-2019 academic year. In 2018, 357 thousand graduates obtained a university degree.
Today, about 235 thousand students study economics, 110 thousand – technical specialties, and 89 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 similar 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, Slovakia, and Lithuania).
The difference in average salary rate is also significant: in Ukraine it equals to US 430 (according to data for 1Q 2019), and in neighboring Poland it amounts to USD 1,554. Therefore, when launching the Shared Service Center in Ukraine, the employee remuneration costs will be approximately four times lower.
Office property market
A growing demand in the office property market in major cities of Ukraine, especially from IT sector and BPOs, has been putting upward pressure on rents and driving further decrease in vacancy rate over the last several years.
Nevertheless, in view of the improvement of general economic situation in Ukraine, many developers are now increasingly considering new development projects in major cities of Ukraine.
When choosing office premises, many Ukrainian companies are shifting their preferences from private offices to open space, with the possibility of remodeling when needed.
The highest vacancy rate in office property market among surveyed Ukrainian cities is in Kyiv – 6.2%. Lviv has the lowest vacancy rate of 0.7%.
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.