Inside Ukraine’s Thriving Tech Sector – Software Exports prop Up Ukraine

· Ukraine Corruption Capital of the World

Ukrainian technology companies have earned billions. But with most executives unable to meet foreign clients, the good times may not last.

The hassles never end for Yuriy Adamchuk, a Ukrainian executive who spends most of his waking hours coaxing 3,000 software coders to deliver projects on time, despite the obstacles and occasional horrors of war and a never-ending series of interruptions.

Sitting in his office, he starts to elaborate, then is interrupted. The sounds of air raid sirens fill the streets of this historic, elegant city and an automated voice is heard, from loudspeakers in all directions, urging citizens to head to the nearest bomb shelter.

From Mr. Adamchuk, the 43-year-old chief operating officer of Avenga, a software developer based in Lviv, there is no sense of concern. He resigns himself to evacuating the building and stands up, wearing a turquoise Lacoste shirt and the grudging smile of a world-weary man.

“It kind of kills off your productivity,” he says, gathering a few belongings and heading downstairs along with a handful of other employees. “Early on, it happened twice a day.”

Despite this and many genuinely terrifying intrusions, the tech sector is thriving in Ukraine, a rare bit of upbeat news in a nation in deep economic distress. Through supply chain disruptions, port blockades and even theft, Russia has throttled the grain industry and the trade in metals, Ukraine’s largest exports. The economy is expected to shrink a startling 30 percent this year, says the European Bank for Reconstruction and Development, helping to spark global inflation and adding to fears of recession and job losses.

But there is no way to lay siege to the 200,000 computer engineers and code writers in this country, professionals who need just a laptop and an internet connection to earn a living. Figures from the National Bank of Ukraine show that in the first five months of this year, technology companies brought in $3.1 billion in revenue from thousands of customers, many in the Fortune 500, a jump from $2.5 billion a year earlier.

Instead of exultant, executives and tech workers interviewed here sounded anxious about a looming drop-off — and worried that they had little recourse to stop it. One practical problem: Ukrainian men ages 18 to 60 are prohibited from leaving the country. That has ended almost all the glad-handing that is a part of client maintenance and the face-to-face interactions that are all but required to win new business.

Customers from Silicon Valley to Seoul have offered lots of ardent “We stand with Ukraine” affirmations during video calls, tech executives say, and many seem eager to support and enrich the country. The worry is that at some point, perhaps soon, this noble impulse will collide with the unsentimental imperatives of running a business.

“You have only a short period of empathy from customers,” Mr. Adamchuk said before the sirens went off that recent afternoon. “There is some period of empathy, and then it will pass. At that point the question is: Can you deliver or not?”

The answer now carries outsize weight. “These companies are getting paid in dollars and euros, and if we don’t have that, we won’t be able to pay for petrol for the army or for medication and our currency will depreciate and that will spur inflation,” said Hlib Vyshlinsky, director of the Center for Economic Strategy, a think tank in Kyiv. “I.T. is crucial.”

In mid-May, a group of tech companies met with Yulia Svyrydenko, the minister of economic development and trade, to ask for an exemption that would allow business leaders to exit and re-enter the country.

She sounded receptive, people at the meeting said, but no action has been taken yet. Konstantin Vasyuk, the head of the IT Ukraine Association, thinks his members, and with them the rest of Ukraine, will soon begin to suffer.

“We’ll be replaced with other I.T. providers,” he predicted. “It will happen gradually, over one, two, three months. Maybe four. But it will happen.”

Sleeping in the office

Best known as “the breadbasket to the world,” Ukraine has long put a singular focus on computer engineering, which started in the Soviet era when one front of the Cold War involved outclassing the United States in scientific fields. Since independence in 1991, parents and educators have pushed English as the language of international commerce.

Before the invasion in February, the administration of President Volodymyr Zelensky began pitching Ukraine to governments and investors around the world as if it were a shiny new gadget. It created the Ministry of Digital Transformation, which did road shows to present the country as the cutting-edge destination where taxes were low, paperwork was minimal and talent was abundant. Cryptocurrency entrepreneurs were vigorously beckoned.

The ministry says the country is home to roughly 5,000 technology companies, working in e-commerce, game and app development; cryptocurrency software; and web upgrades. Hourly rates are about 10 to 20 percent less than rivals in places like Poland, and the customers range from tiny operations looking for outsourced assistance to companies like Microsoft, Google and Samsung.

Every company that had a headquarters in eastern Ukraine has its own close-call story. On the day of the invasion, Oleg Chernyak, the head of business development at CHI Software in Kharkiv, got a call from a friend in the military who asked him to bring a shovel and an ax to help build a fortification in the north of the city. (“I’m a camping man,” Mr. Chernyak explained.) Soon after he arrived, a Russian fighter pilot dropped bombs that landed about 300 feet away.

“We spent some time laying face down on the ground,” he recalled. “That’s the moment I realized, I need to move my family out of the city.”

He drove his wife and child to the Polish border, and they now live in Barcelona, Spain, along with a baby born a few weeks ago. About 470 CHI employees also left Kharkiv, some 600 miles from Lviv, and have settled there, along with Mr. Chernyak. More than a dozen ended up living for weeks at the company’s office here, spread around a handful of rooms.

They used the office kitchen to cook borscht, meatballs, potatoes and other meals and showered in the restrooms. By June, about five employees were still spending their nights in an office cafeteria. There were sleeping bags on the floor and toiletries on a side table.

During a recent visit, about 20 people were working on computers in the kind of silence associated with chess matches. They took a break to chat about the odd purgatory of their current lives, a strange interregnum that is evolving into something more permanent.

When they all lived in the office, the place had the feel of a slumber party, with minimal debate about what movie to watch on the large-screen TV — one night it was “Taxi Driver,” another night an Avengers flick. The only rules were keep tidy and lights out at 10, part of a citywide prohibition to make Lviv a less visible target to the Russians.

“It was very comfortable for me,” said Ann Polevaya, the company’s office manager, after a quick walk through the premises.

She had recently moved to an apartment, and it isn’t close enough for her tastes. “I’m supposed to be here at 9 a.m.,” she said. “When I lived in that room,” and here she pointed over her shoulder, “I woke up at 8:45.”

A deadline interrupted by shelling

Technology companies have retained 95 percent of their contracts by volume, the IT Ukraine Association found. Mr. Adamchuk of Avenga knew of only one client that ended its dealings with the company, citing a protocol that barred it from hiring a vendor in a conflict zone. Other clients say that as much as they want to back Ukraine and help its economy, the war has given them pause. One problem has been turnover; about 5 percent of information technology workers have joined the military.

“My Ukrainian counterpart is replacing some of his team with temps, so it’s not always seamless,” said Nate Moshkovich of ClearLine Mobile, a Los Angeles company that works with a software developer, Allmatics, which is still based in Kyiv, though many of its employees now live in other cities and countries. “I care deeply about these people, but my project needed to move faster. So I augmented my team by hiring in India.”

Dr. John Salmon, a pathologist in Lynchburg, Va., was initially skeptical that Cleveroad, his Ukrainian I.T. vendor, could maintain its work pace as it helped him build and fine-tune a social media app called Delta Sport. When news of the invasion broke, he had to wonder if he should hire an outfit in a less volatile part of the world.

“I think I’d be a poor businessperson if I didn’t consider it,” he said. “I’ve got three employees in the U.S., we’ve got patents, and we’re looking for investors. I’ve got a family, and I owe it to them to be smart, and it wouldn’t do if I mismanaged this project and it dies.”

On Feb. 25, a day after Russia invaded Ukraine, Dr. Salmon got on the phone with the project manager, who provided reassurances, and work has continued smoothly. With one exception. On a Friday night in early April, a few weeks before launching on Google Play and Apple’s App Store, Delta Sport wasn’t loading properly in beta tests on Android phones. A message sent to Cleveroad went unanswered for 48 hours, far from the nearly instant response that is the norm. That Monday, Dr. Salmon learned why.

Much of the team had spent the weekend in basements, getting bombarded by Russian missiles.

That hiccup aside, the company shifted to a higher gear.

“They actually picked up speed,” Dr. Salmon said. “I mean, I approve every line of code, as it’s written, so I can see how fast they are working, in real time. They’ve worked harder. The project manager told me: ‘We have to do this. This is how we fight.’”

Recruiting new customers, as opposed to pleasing existing ones, has proved more difficult. Daryna Hameliak, who generates business leads at Avenga, once hastily ended a sales call at her parents’ home in Irpin because she heard missiles landing a few miles away.

She has been deflected by a few potential customers, and some bluntly explained that they were concerned that deadlines wouldn’t be met, given the precarious situation in many Ukrainian cities.

“What’s really frustrating are the clients who work with Russian companies and aren’t willing to change,” Ms. Hameliak said. “I try to be polite.”

The corruption problem

Last year, the Corruption Perceptions Index published by Transparency International ranked Ukraine as the second-most-corrupt country in Europe, behind Russia. For years, a small group of oligarchs owned a huge swath of the economy, and bribery was commonplace. As bad, a shadow economy of unreported transactions has long eroded the tax base. Four years ago, the Kyiv International Institute of Sociology estimated that 47 percent of Ukraine’s gross domestic product was essentially invisible to the government.

The situation is improving, many executives here say, as more companies vie for contracts in the international economy, where integrity is more highly prized. But young entrepreneurs understand that, before the war turned the country into a symbol of resistance, it had an image problem. And there was no point in waiting for the government to fix it, or even provide basic social services, like a safety net. People here live on what they earn or they don’t retire, or they live in misery.

Staffs understood that companies were at risk of hemorrhaging customers and would disappear if they could not prove that they were every bit as viable as they were the day before hostilities began. Plus, focusing on work was a good way to ignore unfolding horrors.

“We felt a lot of emotions, and most of them were pretty negative,” said Illia Shevchenko, a Ukrainian manager at EPAM Systems, a digital product design company that is based in Pennsylvania and has offices around Ukraine. “The best way to distract yourself from these emotions is to work. There’s a specific task. You sit down and think about it.”

Mr. Shevchenko was speaking over a video call from a small bedroom in an apartment in Kremenchuk, where his wife and two children moved soon after Kharkiv, their former hometown, was attacked. He wore a red T-shirt with an illustration of Einstein on it, and gave a tour of his new office that lasted about six seconds. He lifted his laptop and pointed it at the tiny table and chair where he now works.

“We found this place through friends of friends,” Mr. Shevchenko said. “It took two days to get a stable internet connection.” From this perch, he oversees 140 engineers, working on game tech and Java script projects.

Whatever the reason — fear of penury in old age or a work ethic that is “coded in the national DNA,” as a Cleveroad manager put it — Ukraine seems to burst with entrepreneurial drive. A good place to view this phenomenon is Promprylad, a 40,000-square-foot innovation center under construction in Ivano-Frankivsk, a town of 240,000 about 80 miles southeast of Lviv.

The structure is a former Soviet factory — the name translates to “Industrial Equipment,” which was what the factory produced decades ago — and about 15 percent of it has already been refurbished for a wide array of companies and projects. Wander around and you’ll find an art gallery, a co-working space, a dance studio, a restaurant, an espresso bar and dozens of other enterprises.

Then there’s the atelier of Anoeses, makers of erotic lingerie with a bondage theme — think leather underwear, gags, leashes, handcuffs, masks and collars with plenty straps, zippers and chains. Among the company’s fans is Madonna, who sported an Anoeses corset in an Instagram post in March as well as in a video and during shows.

Anoeses couldn’t capitalize on a surge of interest when fans figured out where Madonna had bought the $450 garment. At the time, the company had shut down its website so all 30 of its employees could flee its former headquarters in Kyiv as the Russian military threatened the city.

A handful of projects like Promprylad are under construction across the country.

“We have hundreds of old Soviet factories and brownfields like this in Ukraine,” said Yuriy Filyuk, the chief executive of Promprylad, which has $12 million in funds from more than 1,000 investors, some private (BMW, Bosch) and others public (the U.S. Agency for International Development).

He was talking next to a scale model of the complex, which has five separate, but connected, multistory buildings. It was either an urbanist’s dream or the febrile vision of a hipster utopian. When Mr. Filyuk walked by the restaurant, Promfood, he pointed down to an unfinished courtyard, little more than scattered bricks.

“We’re going to have craft breweries there,” he said.

Once completed, in late 2023, Promprylad will be home to 150 companies, a dozen or so of them in tech. The plans presume that the tech sector remains vibrant, hardly a foregone conclusion when you speak to people like Mr. Chernyak of CHI Software. He thinks the company is about to lose out on a lot of new contracts.

“I’ve been prospecting recently in countries like Kazakhstan and Uzbekistan, and for some reason, in-person meetings are absolutely essential there,” he said. “So I have two or three calls a day with clients saying: ‘Guys, please come to visit. We understand it’s difficult, but find a way.’”

Even with so much banter now comfortably online, there is a difference between sustaining a business relationship and starting one.

By this point in our interview, the air missile siren had forced him to head down four flights of stairs to a shelter at the end of an adjacent street. A line of people filed into the first floor of an old office building, then to the basement, where a fluorescent light flickered cinematically. About 30 workers from a variety of companies were soon mingling, as if at a social event that nobody had planned, in what looked like a changing room for employees, with racks of hangers and plenty of benches.

A cell signal was available for anyone who walked up the basement stairs and stuck a hand through the open door. People took turns, getting updates on Telegram channels and apps that regularly relayed government news. One said a missile had landed in Zolochiv, about 40 miles away.

The all-clear sign chirped on phones 90 minutes after the siren had first gone off. The group filed back upstairs, past an elderly woman who was sweeping the floor and who had never bothered to enter the basement. Without raising her eyes or pausing, she cursed all of Russia.

“Taking our youngest generation,” was the printable part.