IT in Eastern Europe
Tags: Startup, Software Development, Patents, Eastern Europe, Market

The collapse of the Soviet Union in 1991 marked the defeat of the USSR in the Cold War. The war lasted more than 40 years and was primarily considered a “scientific war”. The arms race forced the United States and the USSR to put huge amounts of money into the scientific field. And now, in 2021, the United States has become the technological capital of the world, and China is keeping pace. Why are the post-Soviet countries and those that were under the influence of the USSR not so noticeable in the IT industry nowadays, or are they? Let’s talk about IT in Eastern Europe.

The IT industry background in Eastern Europe is quite good. High-tech industries developed in the USSR: nuclear power, aviation, astronautics, computer technology, etc. 25% of all scientific workers in the world worked in the USSR, and the country itself took 6–7 place in the world for Nobel laureates. There were many student exchange programs, so scientific spheres also developed in countries that were under the influence of the USSR. And it yielded results: great success was achieved in medicine, the military industry, and the space industry. The defeat itself in the Cold War happened not due to technological backwardness, but because of an overall misunderstanding of the importance of the humanities, such as Economics, because the Plan did not imply free pricing, competition, and building market relations. Engels and Marx were great thinkers of their time, however, as we can see now, it is not so easy to build communism, if even possible.

So, after the decline in oil prices and the protracted economic crisis, the USSR became bankrupt and the Soviet Union collapsed following by a transition period in Eastern Europe. Countries are trying to build the market economy and move away from the planned one. As is usually the case, the transition periods are accompanied by an even deeper economic recession, which can last for several years and affect absolutely all areas, but will certainly lead to economic growth in the end. The intelligentsia, which mainly consisted of professors, researchers, scientists, engineers, as well as cultural figures, was leaving for the West. The USA and Western Europe willingly accepted professional staff and integrated them into their economies.

However, investment in science is a long-term investment, many bright people stayed in their homelands, and those who moved abroad left students. All that background that had been accumulated over the years was not completely lost. Now you can see many developers from Eastern Europe in the Top Ranked Algorithm Competitors by TopCoder as well as a large number of companies from Eastern Europe or with huge offices there in the lists of top 100 outsourcing providers.

State of European Tech reported about 6.1 million professional developers in Europe in 2019, as well as $ 39 billion in investments in the tech industry. The largest tech communities, however, are located in Western Europe. One of the main reasons for the development of Western Europe is the possibility of venture investment, the stability of national economies, as well as the correct stimulation of the development of the IT industry by reducing taxation. In recent years, Eastern Europe has been adopting more and more practices for the development of the IT industry: Special Economic Zones for IT companies, IT hubs have appeared, and local legislation continues to open up new opportunities for investment, including venture capital. The lack of a legal framework and practice for venture capital investment is one of the biggest challenges for building product-oriented companies and start-ups, which is why so many companies from Eastern Europe are outsourcing.

Let’s take a look at the Eastern European countries separately.

Czech

ICT Sector Size: 219,000 ICT experts according to Eurostat

ICT Alumni: 3,662 per year

ICT Patents (IP5 Patent families): 53.1 (2014), 56.2 (2015), 45.4 (2016)

Major IT firms: SAP, Red Hat, Google, IBM

Top IT companies

Notable Startups: Kiwi.com, Rohlik.cz, ProductBoard

Tech-startups ranking in the Czech Republic

The tech industry in the Czech Republic has been growing over recent years. Prague has already become one of the IT capitals in Central and Eastern Europe. The low cost of housing and labor, coupled with a very liberal business environment for start-up entrepreneurs and a good knowledge of the English language in the country, contribute to the continued growth of the industry. Since 2010, with the emergence of the first venture capital funds and accelerators, the Czech Republic has experienced a boom in startups. The most common type of product for Czech startups is SaaS. In 2021, Statista predicts IT industry revenues of $ 4.7 billion.

Slovakia

ICT Sector Size: 105,000 ICT experts according to Eurostat

ICT Alumni: 1,562 per year

ICT Patents (IP5 Patent families): 7.1 (2014), 16.3 (2015), 11.2 (2016)

Major IT firms: Dell, Amazon, ESET, IBM

Top IT companies

Notable Startups: Sli.Do, HILBI Health, InoBat

Tech-startups ranking in Slovakia

The geographic location and size of the country play a positive role in the development of the tech industry in the country. Bratislava is located a few hours’ drive from Vienna and Budapest, which offers good opportunities for exchange of experience, internships, joint educational programs. More and more accelerators, incubators, and coworking spaces appear. The opening of Dell and IBM offices is also driving the industry forward. Due to the compactness of the country and the concentration of IT infrastructure in Bratislava and regional centers, a tech community has developed in the country with constant conferences and events where you can meet future local partners, venture capitalists, and angel investors.

Hungary

ICT Sector Size: 170,000 ICT experts according to Eurostat

ICT Alumni: 3,077 per year

ICT Patents (IP5 Patent families): 40.3 (2015), 69.4 (2016), 10.9 (2017)

Major IT firms: EPAM, Microsoft, T-Systems, Robert Bosh

Top IT companies

Notable Startups: BOOKR Kids, Rollet, Bitrise

Tech-startups ranking in Hungary

Software development accounts for over 5% of the Hungarian economy. Hungary has a fairly low staff turnover rate — 18% in 2019. As is usually the case in Europe, the main IT cluster is concentrated in the capital, Budapest, but there are several other large IT hubs in the country. Venture capital gains an increasing role in the economy, which is why laws reducing the tax burden on venture capitalists have been passed in recent years. Many startups are already funded by major players in the international IT market. Also, great attention is paid to various events for networking.

Romania

ICT Sector Size: 202,700 ICT experts according to Eurostat

ICT Alumni: 5,992 per year

ICT Patents (IP5 Patent families): 41.2 (2015), 34.3 (2016), 15.2 (2017)

Major IT firms: Nokia, IBM, Honeywell, Robert Bosh

Top IT companies

Notable Startups: DRUID, UIPathc, Elrond

Tech-startups ranking in Romania

Over the past years, Romania’s IT sector has shown continuous growth despite the political and economic crises. This shows that the country has a very good potential for ICT development. Romania is opening up more and more to the IT market. The country produces a large number of ICT graduates, and the students themselves constantly participate and win prizes in mathematics olympiads. After joining the EU in 2007, Romania get access to European funds as well as opportunities for stronger academic integration with Europe. At the same time, the state has reduced the tax burden for residents of the IT market in order to maintain growth rates and attractiveness for investors.

Bulgaria

ICT Sector Size: 103 300 ICT experts according to Eurostat

ICT Alumni: 2,084 per year

ICT Patents (IP5 Patent families): 9.5 (2015), 9.9 (2016), 1.5 (2017)

Major IT firms: VMware, EPAM, HP Inc., Hewlett Packard Enterprise

Top IT companies

Notable Startups: pCloud, Software Group, Endurosat

Tech-startups ranking in Bulgaria

The share of Bulgaria’s software sector in the country’s GDP is expected to increase to 7.6% in 2024, or $5.8 billion. After joining the EU, Bulgaria, like Romania, got an impulse to the development of the IT industry due to the simplification of business transactions with the EU countries, as well as access to European funds and general academic programs. The country has one of the lowest corporate taxes in Europe, which is 10%. Salaries are lower than in Western Europe, but the high standard of living of IT specialists is attracting more and more people to the field. Despite a 5% decline in the national economy during the coronavirus pandemic, the IT sector increased revenue by 10% in 2020.

Moldova

ICT Sector Size: 29,600 ICT experts

ICT Alumni: 2,000 per year

ICT Patents (IP5 Patent families): 0.3 (2015), 0.0 (2016), 0.0 (2017)

Major IT firms: Endava, Glovo, Pentalog

Top IT companies

Notable Startups: Staf Online, FunEasyLearn, Midnight Works

Tech-startups ranking in Moldova

In 2017, an IT park was created in Moldova, which allows companies to reduce the tax burden, and also stimulates the growth of the industry, while simultaneously creates a culture and infrastructure for the IT market. A year later, the country’s IT exports grew from $ 99 million to $ 149 million. In 2019, it amounted to $ 290 million. Outsourcing is booming in the country, and IT companies export about 80 percent of their products. Main partners: France, UK, USA.

Poland

ICT Sector Size: 553 900 ICT experts according to Eurostat

ICT Alumni: 17,270 per year

ICT Patents (IP5 Patent families): 121.3 (2015), 80.1 (2016), 52.7 (2017)

Major IT firms: Samsung Electronics, Google, Microsoft, Amazon

Top IT companies

Notable Startups: DocPlanner, Brainly, Booksy

Tech-startups ranking in Poland

The country has a fairly developed industry, as can be seen even from the list of Top Custom Software Development Companies from Clutch. A large number of companies represented here are Polish. The country’s GameDev industry is already making excellent AAA projects and is known all over the world. Take as an example The Witcher and Cyberpunk from CD Projekt Red. The value of public game development companies exceeds $ 14 billion. The country already has quite a lot of experience working with global brands, and the number of academic IT programs is growing every year. Thanks to reforms in the field of education, the basics of programming are taught from school age. There are 457 universities constantly attracting foreign students.

Ukraine

ICT Sector Size: 185,000 ICT experts

ICT Alumni: 23,000 per year

ICT Patents (IP5 Patent families): 28.3 (2015), 20.9 (2016), 11.2 (2017)

Major IT firms: Luxoft, Google, Microsoft, EPAM

Top IT companies

Notable Startups: Looksery, Grammarly, Gitlab

Tech-startups ranking in Ukraine

Ukraine is the second-largest IT outsourcing market in Central and Eastern Europe. Just have a look at the top IT outsourcing companies in Ukraine. High ratings and many reviews are impressive, aren’t they? IT in Ukraine, in a sense, has become a national idea. A lot of people graduate from universities or courses to work in the IT sector. The amount of outsourcing services is growing every year by an average of 20%. IT exports already exceed $ 4.5 billion. In 2018, IT companies and startups raised $ 323 million (excluding transactions that fell under the NDA). Already, some of the Ukrainian startups are known all over the world, and they are used by millions of people. The state is trying to encourage the IT business, and the number of vacancies and companies is constantly growing. More and more IT hubs appear outside Kyiv, the largest IT cluster in Ukraine, and nothing foreshadows the stagnation of the IT market in the country.

Russia

ICT Sector Size: 1,300,000 ICT experts

ICT Alumni: 75,000 per year

ICT Patents (IP5 Patent families): 234.0 (2015), 203.1 (2016), 154.4 (2017)

Major IT firms: Intel Corporation, NVIDIA, Google, Microsoft

Top IT companies

Notable Startups: Telegram, Miro, Ecwid

Tech-startups ranking in Russia

In 2019, the ICT sector produced 2.7% of GDP, behind only the rural (4.4%), financial (4.2%), construction (6.4%), and mining (10.4%) sectors of the economy. In 2020, the ICT sector generated 3.1% of GDP. Since 2016, the growth of the ICT sector has been showing stable growth and outstripping the growth of the country’s GDP. Russia is aware of the importance of this sector of the economy and has already digitized a huge number of services provided by the state (utility bills, hospital appointments, etc.). The Russian venture capital market almost doubled in 2020, from $ 156m to $ 294m, and the number of deals increased from 134 to 180. Over 700 startups are operating in Russia now. The most popular niche for Russian startups is SaaS (16%), AI (13%), big data (11%).

Belarus

ICT Sector Size: 54,200 ICT experts

ICT Alumni: 7,000 per year

ICT Patents (IP5 Patent families): 3.1 (2014), 2.7 (2015), 2.7 (2016)

Major IT firms: EPAM, IBA, Wargaming, Itransition

Top IT companies

Notable Startups: Viber, MSQRD, Flo

Tech-startups ranking in Belarus

In 2005, the Hi-Tech Park was created. Since that time, it has served as the main driver and a special economic zone for the IT business, and the IT sector has become the most dynamically developing sector of the Belarusian economy. The export of IT services has already accounted for more than 20% of the total export of services in Belarus. Belarusian developers provide IT services to the largest corporations and organizations in the world like Google, Microsoft, Samsung, HTC, etc. STEM (science, technology, engineering, and mathematics) is one of the main specializations for students. 24% of Belarusian students study in these specialties. Due to the small distance between the regional centers of the country, the IT culture is developing quite quickly and the best practices from large companies are being picked up by new players in the market. Although outsourcing is one of the main directions of Belarus, more and more startups are appearing on the map of the IT industry. 46.2% of them have already had a regular income, and 71.2% sell their services or products on the foreign market.

Perhaps, you may consider that the numbers shown in the article are far from the highest (taking into account the recent IPO of Airbnb and the subsequent growth of their shares, and this is only one American company), but it’s already quite obvious that in all the listed countries there is a steady growth of the IT sector, despite some political instability in some of these countries and not ideal conditions for running a business. All countries have already had an experience of working with the world’s largest IT giants, and the best practices in the 21st century are being picked up by local companies very quickly. Even Covid hasn’t had much of an impact on the IT market of Eastern European countries.

No one is surprised by the millions in investments in American startups during the preseed round. Although 10 years ago, very few people received such money. In Eastern Europe, founders are ready to work with investors for much less money, and programmers for less wage. The mentality of an Eastern European is practically no different from a person in the Western World (the same ancient Greek education system, Roman law, the ideas of liberalism and democracy), so finding a common ground with them will not be an issue at all.

Would like to invest in tech startups or work with educated but not expensive programmers, maybe it’s high time to pay attention to Eastern Europe?

P.S. Wow! You have read to the end! Here is a little bonus for you about the Software Development in Eastern Europe =)

Nikita Tretyakov