Spoiler: More than 50% of the surveyed IT companies have not relocated
In July 2022, the IT Ukraine Association in collaboration with Sayenko Kharenko law firm, conducted a joint research “Relocation. New IT-Landscape of Ukraine”. We collected and analysed data on relocation of IT companies both within Ukraine and abroad. Sayenko Kharenko experts have developed methodology for the research.
“The survey confirmed that Ukraine’s IT landscape is changing, but it is happening gradually and quite carefully. Companies took much deliberation in their decisions whether to relocate or not, and whether to relocate within Ukraine or abroad. Without a significant improvement of the situation, the gradual relocation will most likely continue, but it is fundamentally important that none of the surveyed IT companies answered that it has completed full relocation and is closing down its business in Ukraine. The point of no return (from relocation) has not yet passed. IT companies are waiting for the situation to improve and are ready to return,” comments Oleg Klymchuk, Counsel at Sayenko Kharenko, actively involved in all stages of the research.
According to the research results, more than 50 % of the surveyed IT companies have not relocated and switched to remote work. Some companies have already partly returned to work in the office.
Most of the IT companies that relocated (45 %) did so within Ukraine. 42 % of the companies partially relocated abroad, only 5 % of them have closed some of their Ukrainian offices. None of the surveyed IT companies have carried out a complete relocation abroad. IT companies largely consider relocation as a forced step for the period of the War, or at least its active phase.
None of the surveyed IT companies intends to completely close down its business in Ukraine. Most of the surveyed IT companies (63 %) do not plan either partial or full relocation by the end of 2022. Only 14% of respondents consider relocating abroad by the end of the year partially or in full. Some companies (23 %) plan to combine relocation abroad and within Ukraine. Overall, a total of 37 % of the companies consider relocation by the end of this year as a possible option. If the situation in the country does not change significantly, we can expect this indicator to increase.
According to the May research of the Association, the largest percentage of relocated employees is among the companies with 1,200+ employees (32 %); in the companies with 200–1,200 employees, this figure is 24 %, while in the companies with up to 200 employees – only 14 %. The main countries of relocation were Poland, Germany, Spain, Romania, Portugal, Bulgaria, the Netherlands, Turkey, the Czech Republic, Moldova and Croatia. At the same time, all large companies (1,200+ employees) and 64 % of the companies with 200-1,200 employees plan to open new offices. Instead, 75 % of the companies with up to 200 employees do not plan to expand. Among the potential countries for opening the new offices are Poland, Romania, Spain, Bulgaria, Portugal, Croatia and the UK.
The survey shows that IT companies consider relocation carefully, analyse and calculate the consequences of each option and give preference to the countries where they already have offices (43 %). Approximately 22% of the respondents rely on recommendations of their lawyers or tax consultants, while another 22% make their choice based on the assessment of costs of operating business in the potential relocation country.
The main deterrents for relocation are restrictions for men to travel abroad; desire of IT companies to pay taxes in Ukraine; reluctance of the majority of the IT-company team to relocate; and higher costs of operating business outside of Ukraine. The latter is the main restraining factor for one-third of the IT companies and is not limited to the smaller companies with “fewer than 50 IT professionals” group. Companies of all sizes, including those with more than 1,200 IT professionals, calculate the relocation “price”. This data also correlates with the companies’ responses to the key challenges they faced during the first months of relocation. Thus, the main challenge for the companies (21 %) is becoming less competitive as they are forced to increase the cost of jobs/services for the customers due to the increased costs of operating business. This is also affected by the need to create a local company (18 %) and increased tax burden (15 %). Lack of sufficient housing for the employees is also one of the key challenges for both internal (33 %) and external (20 %) relocation. Notably, most IT companies have no difficulties understanding how to conduct business outside of Ukraine.
Based on the survey results, the relocation process will continue. The vast majority of IT companies are satisfied with relocation (93 %). This shows that IT companies are successfully adapting to the new business conditions and can respond to the challenges arising from relocation. At the same time, 53 % of the relocated companies are still looking for the further relocation options to minimise their costs.
Abolition of martial law and significant improvement of the situation in Ukraine (for every third company) or at least a return to the pre-War state (until 24 February 2022) and absence of active hostilities in Ukraine for several months (for the majority of the surveyed companies) can significantly alter the situation. In such case, 80 % of the companies plan to bring business back to Ukraine. As of today, only 7 % of the companies do not plan to return (relocate back to Ukraine).
For greater stability of the IT industry and its further development, it is important that the companies:
“Undoubtedly, the factor of relocation of companies and teams becomes decisive for the future industry development. A new IT map of the country and new technological hubs are being formed. Some companies are relocating abroad and diversifying their offices. The industry faces certain challenges and tasks for the further development of the IT market. However, we count on an open dialogue with the government and resolving urgent issues for the industry, allowing us to preserve and develop its potential within the country. This research turned out to be representative and detailed. We wanted to track the dynamics of relocation, summarise the experience accumulated by the companies and identify possible scenarios,” Konstantin Vasyuk, Executive Director of the “IT Ukraine” Association, stressed.
Please follow the link to find the results of the survey in more detail: “Relocation. New IT-Landscape of Ukraine” Research.”
IT Ukraine Association is the largest specialised Ukrainian community for service and product companies of various scales. The Association represents interests of 120 companies and over 82,000 IT professionals. Our mission is to provide favourable conditions for the sustainable development of the field of information technologies in the country and to promote the brand of Ukraine as a leading technological nation.
Sayenko Kharenko is one of Ukraine’s leading law firms that provides comprehensive support in all major sectors of the economy. The firm acts as a legal advisor to more than 2,000 clients from more than 60 countries. More than 100 times Sayenko Kharenko has been recognised as the No. 1 law firm in all major areas of law and more than 30 times as the “Firm of the Year in Ukraine” by the most prestigious professional publications.