The IT sector should become an important development direction for Kyrgyzstan

написали следующее чтиво и провели семинар на тему "развитие ИТ аутсорсинга" совместно с Азисом, Талантом и Таалайбеком Жумашевичем

Talant Abdullaev, IT Expert
Azis Abakirov, Chairman of Kyrgyz Association of Software Developers and Services
Azamat Akeleev, independent expert

Why is the IT sector important for Kyrgyzstan?

According to estimates of the IDC analytical agency, the world IT market capacity totaled $1.16 trillion in 2007. The world market for IT services is growing more rapidly; global IT services totaled $626 billion in 2007, including software development services of $150 billion.

In 2002, India produced software and associated services to the value of $ 5.7 billion. In 2005, exports of software from India to the world came to more than $ 15 billion with outsourcing at $ 60 billion. Exports of software are expected to reach $ 50 billion in 2008.

Exports of software and services from Russia were $560 million in 2005 and $740 million in 2006. Software exports reached $ 1 billion in 2007, out of a total volume of Russian exports of $180 billion.

The IDC reported that the total IT market in Kazakhstan in 2007 amounted to $860 million, with equipment making 75%, IT services 15%, and packaged software 10%.

The IT market in Kyrgyzstan is small in absolute terms, with most aspects lagging behind those of many developing countries. According to expert information, the total IT market in Kyrgyzstan is $100 million, although this includes unofficial data on the market in software development and services of about $ 10 million in 2007. It should be noted that there are currently no studies of the markets for software development and IT services. However, the ICT sector in Kyrgyzstan has a significant and positive impact on economic development.

The IT industry, including software development and IT services, is one of the fastest growing industries in the world. The industry’s growth comes from the growing use of IT technologies in companies and business processes, in the conduct of public administration and in the daily lives of people.

In the last 5-10 years economic heavyweights, such as USA, Japan and Western Europe, passed from an industrial economy to a knowledge based economy.

Kyrgyzstan still has not passed through the phase of industrialization; our economy is, in fact, agro-industrial. In addition, geographic remoteness and lack of access to the sea makes us a relatively unattractive region for investments from large, traditional manufacturing corporations. While China, the Philippines, Indonesia, Thailand and other countries with access to the sea and plenty of cheap labor have become suppliers of industrial manufactures to the developed world, Kyrgyzstan has been unable to attract any significant investment in the production of industrial goods. However, this feature could help to spur the development of more "advanced" sectors of the economy.

The Kyrgyz Republic has no large oil and gas fields. The global market is increasingly moving away from large-scale manufacturing to lighter industries, the so-called “soft” industries, which include services, finance, tourism, information technology, etc.

Therefore, the development of software as an industry in general and information technologies in particular are amongst the means to economic growth. Unlike manufacturing sectors, where the international division of labor is established, the geographic distribution of the IT industry is not yet settled; Kyrgyzstan has a chance to find its place in the global market.

The experience of countries - the leaders in the development of IT

The main trends of world development of the IT industry include the gradual reduction in the share of equipment cost in the total IT market, the rapid growth of the IT services segment and offshore customized software, as well as the movement of business from Europe and America abroad, mainly to countries with low labor cost. For example, Central and Eastern Europe has huge potential to develop an IT outsourcing industry if these countries can rise to the level of established world outsourcing centers such as India, China and Ireland.

The increasing proportion of services is the result of the growing complexity of IT systems, requiring greater effort and cost of installation, development and maintenance, as well as special technical skills of operating personnel.

The features of the IT industry are suitable for re-locating software development abroad, and also product support and a number of subsidiary processes. Since the second half of the 90 ies a large number of international IT companies opened offices in India and China, and transferred part of the implementation of functions or entire business processes to these units. IT companies in developing countries provide services to clients in developed countries via remote access in parallel. India is the undoubted leader of offshore development in all segments. Recently, the countries of Eastern Europe entered those markets which are oriented to the EU, whilst China mainly focuses on nearby countries (Japan, South Korea, Hong Kong, the Philippines).

Thus, the IT industry is being transformed to develop custom and offshore software and IT services, with a significant portion of these services being provided by developing countries.

In exploring and using the experience of other countries in achieving an economic breakthrough, India is the outstanding example of rapid development of the IT industry. India has managed over the past 20-30 years to find its place in the global distribution of labor especially in the sector of software development. Also, such countries as Ireland, China, Malaysia, Australia have made great progress, not to mention countries such as Israel, Korea, Singapore and Taiwan. East European countries are now developing intensively.

All these States had a clear strategy, under which they consistently concentrated on achieving an economic breakthrough. Their experience demonstrates that participation of the State is a principal factor in the rapid and efficient development of the industry. India, Ireland, China and Malaysia developed and implemented large-scale government programs to attract investment to the sector, to promote exports and to support research and education in the IT sector. Many of these programs started 15-20 years ago, and now the benefits are huge. In general, countries that have achieved an economic breakthrough in development of IT did so through positive policy and priority for IT development, mobilization of foreign direct investment, a range of preferential tax treatments for IT companies and increased investment in human capital, leading to greater numbers of IT specialists in the country.

These countries harmonized their legislation with international practice and passed legal regulations on incentives for export promotion, liberalizing imports of IT products, exemption from income tax for technological companies for a certain period and special financial incentives for software development companies. Also they took steps for preferential taxation of venture capital funds in the IT industry, tax credits, and special regimes for investment companies and private educational institutions. Such incentives for IT companies are still important and relevant nowadays in Kyrgyzstan.

Barriers to IT development in Kyrgyzstan: Problems and Solutions;

Barriers to the development of the IT market can be divided into legislative issues, factors that restrain growth of the internal market, export growth restraints and institutional problems. Analysis of these problems can be presented in the form of the well-known marketing system “4 Ps” (Product, Price, Promotion, Positioning). After all, software is a product that our country offers to the world. So:

Price or rather Taxes;

The main problem lies in taxation and social security payments from the salaries of staff which now make up 20% of the payroll. The high proportion of labor cost in total cost of IT companies increases the overall tax burden and reduces the investment attractiveness of the industry. Our companies are becoming uncompetitive compared with those of India, China and Vietnam. The experience in Belarus is interesting; they are experiencing booming software outsourcing, where the total tax burden is only 9% of salary.
Because of the technological features of most IT products and services, strict control of channels of technology and intellectual property transfer through the Internet is not possible. This leads to the fact that most of the export-import operations, as well as quite a lot of payroll activity is done through illegal schemes. The widespread use of such schemes makes it difficult for companies to obtaining credit and financing, which hinders the development of the industry. In addition, the non-transparency of the business complicates the search for business partners in Kyrgyzstan and abroad.

The Product is directly related to Personnel;

Today in the labor market, there is an acute shortage of skilled IT professionals. Companies attract staff from each other, there is a constant "brain drain" and there is no succession and professional culture.
There is a direct interaction between educational level and economic prosperity of countries. This is demonstrated by Russia, where traditionally high level of education of the people contributed to sustainable and equitable growth and welfare of the population over the last 16 years. IT sector experts predicted that the Russian economy could overtake India in the next few years.
Unfortunately the situation with education in Kyrgyzstan continues to deteriorate. The chain of problems begins with school, and continues to the absolute unsuitability of fresh university alumni for professional activity. As a result, there is a paradoxical situation - high unemployment and an acute shortage of skilled manpower. Particularly, there is an acute problem of weakness of mathematical and technical training in schools and universities. The OECD ratings stress the dismal situation in the field. Kyrgyzstan is in last place of 57 countries by level of knowledge among graduates of senior classes.
There were lots of vigorous discussions around “HIPC”, “Kumtor” or “Ganci”, but statistics are a much more dangerous bomb in slow motion; it is a bomb for several generations ahead, and the damage on the scale of a country is probably hundreds of times higher than the possible missed opportunities of the same “Kumtor”.
At the moment in the ICT sector, the opportunity to enter the world market through the Internet is truly limitless. With a competent approach, contracts for many IT projects can be secured as the world's leading corporations and small and medium-sized Western companies are constantly seeking new opportunities for outsourcing. There is opportunity to work with Russia and Kazakhstan.
But there is a lack of manpower, mainly technical and management. There are proposals to develop clusters: a physics-mathematical or computer school, the technical university/faculty, IT companies producing software, IT companies promoting and selling software, IT companies making and installing hardware, IT consulting companies, Internet companies, etc. .

Position or Infrastructure

The level of development of the software development industry remains low because of several factors limiting the development of Kyrgyzstan in the market. The proportion of software is significantly less than the share of hardware and telecommunications. The local software market is small and the high level of software piracy is a deterrent. The small size of the internal market determines the character of software production based on local consumers; this is mainly a bespoke product. Kyrgyzstan has companies with proprietary software but working in the corporate sector, companies target products towards specific customers. At the same time with the growth of small and medium businesses in Kyrgyzstan there is a demand for large amounts of software, where packaged solutions are required. A feature and the main difficulty of unique focused business solutions is that they are expensive. Small and medium sized businesses demand simpler universal products (such as, for example, 1C-Accounting).
Rapidly, Kyrgyzstan is developing offshore programming - the development of customized software products for specific customer needs, while remote work minimizes the cost of development for the customer companies. Programmers in Kyrgyzstan work under contract to foreign companies; they are mainly freelance professionals finding clients through the Internet. According to expert estimates, there are about 10 companies in offshore programming in Kyrgyzstan with an annual turnover of more than $8 million.
The overall costs of the development and use of IT in Kyrgyzstan is growing (at 29.2% in real terms), the increasing number of businesses using computers and information technology (at 21.8%) and increasing number of employees who use IT in their work (at 18.7%). Sectors of software and delivery of IT – services are expanding. Several measures for cheaper Internet access and the development of broadband access were adopted in the telecommunications sector.

Promotion or importance of Brand

An equally important aspect of development of the IT sector of Kyrgyzstan is the external and internal promotion of the country as a supplier of IT services.
Against the background of total specialization in search of competitive advantages in the context of globalization, Kyrgyzstan needs a clear and achievable marketing strategy for the IT sector. The development and promotion of a "Kyrgyzstan" brand in the IT market is a key part of the process. Examples of such countries as Ireland, Malaysia, Taiwan, Thailand, Singapore and many others suggest that consistent implementation of a strategy can really lead to success within the next 15-20 years.

In this regard, we must build on our competitive advantages, the needs of our potential partners, the weak and strong points of our potential competitors, as well as studying the dynamics of the internal and external environment.

It should be stressed that any action is doomed to fail in the long run without brand communications that match the product itself and without the actual delivery of brand "promises". A brand is a tree, where the trunk and branches represent the external image and the consumers associated with the product, and the roots are the product itself. Strong roots provide a stronger trunk and foliage, so the tree stands out against the backdrop of the dense forest.

What goals and objectives will the Association pursue?

The Association of Software Developers and Services has been founded to solve many of these problems and to protect the interests of members of the IT industry. The main objective of the Kyrgyz Association of Software Developers and Services is to pool efforts to build an environment and to create conditions favorable to the activity of Kyrgyz software developers and IT services.
At the moment the Association unites 8 companies, including companies engaged in developing software and providing IT services to local and international markets. The Association will provide educational, informational, economic, technical and political support to ensure openness and economic business space for the successful promotion of participants in international markets for software and services.

The main objectives of the Association:
1. Develop and promote the professional growth of IT-industries outsourcing services and software development; facilitate its competitiveness.
2. Form the social, economic, technological and political environments conducive to the development of IT-industry outsourcing services and software development.
3. Express and protect the collective interests of members of the Association as part of their professional activities related to software development.
4. Facilitate with the public authorities the formulation of KR legal, economic and social policies that respond to the professional interests of members of the Association and to facilitate their implementation.
5. Enhance the professional skills of members of the Association.
6. Promote a positive image abroad of companies and the industry as a whole.
7. Assist the development of companies designing software and services.

The marketing strategy for promotion of the IT industry in Kyrgyzstan should focus on presenting an image of Kyrgyzstan as a country with qualified personnel and successful companies that offers competitive services and development in the IT sector. Also the strategy must provide support for the participation of Kyrgyz companies in important international events in the field of IT (exhibitions, conferences, seminars).

Association priorities will be:

1. Consolidation of intellectual, financial, technical, organizational and other resources of the Association for the effective expression of professional interests.
2. Legal and intellectual protection of the interests of the members of the Association.
3. Organization of information, guidance and technical support to the Association.
4. Creation and support of databases, information retrieval systems, etc. (partners, customers, sponsors, etc.) necessary for the effective operation of the Association.
5. Collection and analysis of information, conducting research on potential markets.
6. Minimizing the cost of training, staff training and certification of companies’ developers.
7. Marketing material on members of the Association in the foreign media to attract attention and interest of potential partners and customers.
8. Holding formal (exhibitions, conferences, seminars, etc.) and informal (club, cafes, picnics, trips, etc.) meetings to exchange business experiences.
9. Representation of interests of participants in the Alliance government and international organizations.

Particularly, the role of the State in establishing and developing the industry and the software market should be stressed. Scientific education in the development of the software industry, the need to strengthen measures to protect intellectual property and copyright of local developers and researchers that promotes the development of domestic software market are essential.
The software and services industries can give new impetus to the economy to increase exports and engage in potentially profitable market for goods and services; it can build the intellectual creative forces in the country, promote science and education and the emergence of the "new economy".
The Kyrgyz Association of Software Developers and Services is composed of co operative people who seek to actively promote the development of an industry of significant employment. We believe that our experience and united efforts will be able to determine the vector of development of the software industry of Kyrgyzstan into the future perspective.


Dr.Talaibek Koichumanov,
Head of the Investment Council under the President of the Kyrgyz Republic

Political will, taking into account our mentality, is one of the key factors in the development of the IT sector in the country. A declaration of the strategic importance of development of the IT industry from the highest political level could become a meaningful action by the State to promote and support the IT sector. Also, it is necessary to ensure valuable political support to the activities of Kyrgyz ICT companies in foreign markets.

Perhaps a unified strategy of public policy towards the development of the IT sector is necessary. Key elements of the strategy would include development of legislation on the application of IT, establishing legal frameworks for the sector and development of vocational education and basic science in training for the IT sector.

During a meeting on July 23, 2008 with Mrs. Yamomoto, Secretary of the Japanese Ministry of Economy, Trade and Industry, President K. Bakiev stressed the importance of developing the IT industry in Kyrgyzstan, highlighting the need to support the creation of an IT-Techno park. Such a park could combine Government efforts to promote the IT sector and to create the necessary conditions. The Secretariat of the Investment Council under the President is working closely with IT professionals on the subject; the initiative is ready to promote discussions on the problems of the IT sector with all stakeholders, to attract donor assistance and to support the preparation of the necessary normative regulatory documents.

опубликовано: http://investmentcouncil.kg/index.php?option=com_content&task=view&id=243&lang=ru