Transcript Satellite ISP with WiFi - School of Business Administration

Ukraine
IT Investment Potential
Vince Anderson
Jason Artymovich
Betsy Oatley
Maurice O’Steen
Overview
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Background
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Geography
People
History
Government
Economy
 IT & Communications
 Business Climate
 Investment Recommendations
Geography
Geography
People
Ukraine
Belarus
 Population 47,425,000 (2004)  Population 10,300,000 (2005)
 Median age
 Median age
 38.2 years (2005 est.)
 37.0 years (2005 est.)
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male: 34.9 years
female: 41.2 years
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male: 34.3 years
female: 39.7 years
World - 27.6
U.S.A - 36.3
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Wealth Distribution (1999)
 lowest 10%: 3.7%
 highest 10%: 23.2%
 Below Poverty Line: 29%
 $5,430 Average Income
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Wealth Distribution (1998)
 lowest 10%: 5.1%
 highest 10%: 20.0%
 Below Poverty Line: 27.1%
Language
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Official
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Ukrainian
Spoken
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Ukrainian
Russian
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Surzhyk
Considered “native”
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55%
45%
Ukrainian
Russian
67.5%
29.6%
English speaking ability is rare
Education
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99.7% Literacy (over 15 read & write)
 20,900 schools
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1246 Vocational schools
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650,000 students
11 Universities
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compulsory education ages 7-17
1.5 million students
15,000 IT graduates per year
 Very educated population
History
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Former member of USSR
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Chernobyl accident – 1986
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Gained independence August 24, 1991
 Commonwealth of Independent States (CIS)
 Peaceful “Orange Revolution” in 2004
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forced overturn of rigged presidential election
Government
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Democratic republic with three branches
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Executive, legislative and judicial
2004 Presidential election had a recount due to
evidence of election fraud
 Yushchenko dioxin poisoning during campaign
Viktor Yushchenko won election recount
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Pro-western candidate
Government
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Second round recount results
Government
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National reform agenda includes:
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Join WTO, NATO, EU
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Technical criteria fulfilled to receive EU market
economy status
Encourage economic development and
domestic investment
 Create 5 million jobs
 Increase access to business credit
 Develop internal technology
 Decrease income taxes
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Economic Overview
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Since independence in 1991:
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Recent economic growth supported by:
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Loose monetary policies led to hyperinflation in
1993
1999 output 40% of pre-independence levels
Framework created for privatization and new tax
code
strong domestic demand
low inflation
solid consumer and investor confidence
Growth was 9.3% in 2003 and 12% in 2004
Economy
Economic data perspective
GDP (trillion USD)
U
kr
a
in
Be e
la
ru
s
U
SA
C
hi
na
Ja
pa
n
I
G ndia
er
m
an
R y*
us
sia
Tu *
rk
ey
*
$14.0
$12.0
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0
Per Capita GDP (thousand USD)
$50.0
$40.0
$30.0
$20.0
$10.0
U
kr
a
in
Be e
la
ru
s
U
SA
C
hi
na
Ja
pa
n
I
G ndia
er
m
an
R y*
us
si
a
Tu *
rk
ey
*
$0.0
*major
Ukrainian
trading
partners
All data from
2004
Foreign Trade - Exports
• $32.9 billion in 2004
• Metals, fuel & petroleum products, chemicals,
machinery & transport equipment, food
Russia
products
18%
Germany
6%
Turkey
6%
Other
56%
Italy
5%
China
4%
USA
5%
Foreign Trade - Imports
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$31.5 billion in 2004
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energy, machinery, chemicals & equipment
Other
32%
Russia
41%
Italy
4%
Poland
6%
Turkmenista
n
7%
Germany
10%
Communications Diffusion
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Ukraine's teledensity remains at comparatively low levels
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Land wireline telephone system:
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Wireline phones ~12.7 million (2004)
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Wireline teledensity is approximately 18%
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United States is roughly 65%
Belarus is about 32%
1991 telephone system was antiquated, inefficient, and in disrepair
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Belarus has 3 million
More than 3.5 million applications for telephones could not be satisfied
Fees for new line installation are ~ $1,000 and may require long waits
Only 30% of Ukraine's networks today are digital
Mobile cellular telephone system:
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Mobile phones ~11.1 million (2004)
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Belarus 1.1 million
Mobile teledensity penetration is about 1%
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Belarus is similar
Internet Diffusion
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Internet usage is held back
by bad phone system, high
fees for access and limited
PC ownership
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Internet users:
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Most still use dial-up access
120,000 (1999)
2.9 million (2004)
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Belarus 1.1 million
Few main ISPs with many
layers of resellers
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2.670 ISPs (2003)
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Belarus ~5,308
Internet Business Opportunities
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Ukraine ranks near the bottom worldwide in
terms of Internet-based opportunities
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Economist Intelligence Unit's e-readiness ratings
for 2003 assess a number of factors:
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Quality of the infrastructure for IT
Ambition of government initiatives
Degree to which the Internet creates real commercial
efficiencies
UKR placed 54th out of the 60 largest economies
UKR came in eighth out of ten E. Eur. countries
ahead of only Kazakhstan and Azerbaijan
Assets for IT Development
South-eastern European location
 Near universal literacy rate
 History as technology center for region
 23,000+ certified IT professionals
 Economy improving since low in 1990’s
 Recently high GDP growth
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IT Industry
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Outputs: software, computers, servers
Competition: India, Israel, Russia, China, & Belarus
Client Countries: USA, Canada, Israel, Germany,
France, Sweden, Denmark, Norway, Switzerland,
Italy, and Spain
Positives
Negatives
Improving political stability
State image
Dynamic market growth
Lack of available info about the Ukraine
Developing infrastructure
No official state IT development initiative
Geographic location
Steps toward WTO membership
Brain drain
Low English speaking rate
High dependency on foreign aid
IT Talent in Ukraine
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Skilled Labor Force
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Less-skilled Management
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History of being high-tech center of region
Ukrainian professionals are known for their technical and
engineering skills
Labor cost & quality are among the best in Europe
Ukrainians lack managerial and business skills due to lack of
free-market experience
International-level business schools offer MBAs now in Kyiv
Ukraine has the skilled workers, but would benefit from
more-skilled managers helping them run and grow the
businesses profitably
Advice for Investing in Ukraine
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US Embassy provides the following advice for
companies doing business in Ukraine:
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Dispute settlement in Ukraine can prove difficult,
expensive, time-consuming, and unfair to investors
Use competent legal counsel before and while
doing business in Ukraine
Take great care when choosing distribution and
marketing partners, and when establishing joint
ventures
Absentee investing does not work well so plan to
be on-site and directly involved to minimize risk
IT Investments to Consider
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Three areas stand out for IT investment:
Overcome poor telecom infrastructure
Satellite-based ISP using WiFi
 Maximize existing computer resources
Computer systems integration services
 Retain native programming talent
Consolidate existing small software
developers to create larger scale off-shore
software production
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Option 1 – Satellite ISP
Satellite ISP with WiFi
 Why it is attractive:
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Huge under-served
corporate and private
internet markets
Works without wires
Better service for
lower cost than dialup
Service already
works elsewhere in
region in Europe
Evaluation of Satellite ISP
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Satellite ISP with WiFi:
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Buyers: local SME and consumers
Risk-Reward rating: High - High
Factors to consider:
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Foreign firms are restricted by stringent regulations
Consequently, only Ukrainian private or state companies
are entitled to apply for operational licenses.
Communication service providers cannot obtain wireless
license without establishing some type of cooperation with
Ukrtelecom in the form of a 9% ownership share
Regulations would make this difficult to get started
Option 2: Systems Integration
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Acquire dominant local PC
manufacturers to develop and
market systems integration
services
Why it is attractive:
 Computing landscape is mix
of old and new hardware,
software and OS
 Natural extension of existing
hardware business
 Can serve current customers
now that won’t buy new HW
Computer Systems Integration
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Systems Integration services to provide new
services to existing customer base:
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Buyers: local SME with existing computers
Risk-Reward: Medium - High
Most requested IT services in Ukraine now:
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System integration services
PC repair and upgrades to allow WiFi
Design and deploy of computer networks
Upgrading software and OS
Investors can provide hands-on operations
management and business planning expertise
Option 3: Software Development
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Consolidate several leading local
software companies and develop
offshore software service
 Why it is attractive:
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UKR is low cost site for high quality
software development
Skilled workers in place
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Offshore software development
partners
http://www.wtec.org/loyola/bid/bi
dukr-eng.html
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800 software production companies
Growing interest among Ukrainian
computer companies to organize
software production centers
Location is attractive due to time
zone and links to Russian market
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Miratech –
http://www.miratechpro.com.ua/
Softline –
http://www.softline.kiev.ua/cont
rol/en/index/flash
Softserve –
http://www.softservecom.com/
Infopulse –
http://www.infopulse.com.ua/
Tessart –
http://www.tessart.kiev.ua/
TelesensKSCL –
http://www.telesenskscl.com.u
a/en/
Software Development
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Consolidate some leading local software companies &
freelance programmers to specialize in software
development
 Buyers: internal and external developers
 Risk – Reward: Medium – Medium
 Factors supporting it:
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Offshore software development is growing
Software in UKR growing at over 18% per year
Ukraine is well-suited for this within Europe
Ukrainian software development industry offers good
opportunities for U.S. firms willing to operate in this
business environment
Attractiveness for Foreign Investment
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Foreign investors look for the following when
evaluating the attractiveness of a country for FDI:
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Stability
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Predictability
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Investors want laws enforced in a fair and timely manner
Transparency
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Predictability flows from legal stability
Enforceability
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a country with an unstable legal system is not normally
viewed as an attractive destination for investment
Investors want incorruptible courts, regulators and
government officials
Ukraine does not rank high in all of these areas
Business and Legal Environment
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General business risk in Ukraine is relatively high
Summary of challenges:
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Political system is unpredictable and ineffective
Commitment to a liberal market economy is weak
Privatization is stalled and at risk of failing
Tax system is unclear and unpredictable
Effectiveness of the bureaucracy is poor
Discrimination against foreign businesses is common
Red tape remains pervasive
Vested interests distort commercial & administrative systems
Organized crime is a persistent problem
Required Actions in Ukraine
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To improve business climate, Ukraine needs to:
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Make landmark judicial reform a top priority and set a
legal framework for honoring private property rights and
contractual obligations
Earn “Market Economy” Status
Join the WTO which will provide some additional
impetus to reforms that target anti-competitive behavior
These steps would significantly improve Ukraine's
overall image as a stable investment market and
attract more FDI
Ukraine Investment Potential
Questions?