Why Is the Software Development Market Overheated in Eastern Europe, and What Do We Expect Going Forward?

Historic demand for software development services is putting enormous pressure on the market for IT professionals in Eastern Europe. I recently toured our Eastern European development centers to get a feel for the local markets and, in particular, how quickly salaries are rising in response to market pressures.
2 min read
11/09/21
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By Eugene Goland
President and CEO
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Why Is the Software Development Market Overheated in Eastern Europe, and What Do We Expect Going Forward?

In this post, I offer my thoughts on the primary causes of what I see as an “overheating” of the Eastern European IT market. In future posts, I will comment specifically on the example of Ukraine and offer some thoughts on what is likely to happen in the wake of the current overheating.

First, the causes. The overheating can be traced to the interaction of two factors—the very real need for digital transformation and the combination of unprecedented liquidity and low interest rates.

IT solutions have been quickly filling the gaps created by the pandemic-induced drive for physical separation. Businesses have been forced to adopt new technologies to continue operating and/or to keep up with their competition and new business models. Over the past 12 months, DataArt has on-boarded droves of “brick and mortar” businesses that are transforming themselves into online retailers. Meanwhile, a wide range of natively digital businesses (such as communications) have seen huge increases in demand that their systems were not equipped to handle.

On top of that, entirely new business models have emerged (delivery-only restaurants, virtual events, direct-to-consumer movie premiers etc).

Existing software solutions were simply no match for the transformational imperatives of business survival in the post-COVID era. Systems are having to be re-engineered or developed from scratch, and that means custom software development.

But the need for transformation is one thing; funding for transformation is another, and the spigot has been wide open. We have been in a period of unprecedented access to cheap capital for businesses in general and tech companies in particular.

Governments in the developed world have been pouring money into their economies to mitigate the economic consequences of the COVID-19 pandemic. This money flows through the usual channels of banks and investors, who look for the least risky and most potentially rewarding investment opportunities, with the tech sector attracting a disproportionate share of investment capital. At the same time, central banks have been aiming to keep interest rates low, giving businesses access to low-cost loans for IT spending.

Conclusion

In short, the overheating of the Eastern European IT markets is not hard to fathom. The need is unprecedented, the funding is cheap and plentiful, and the supply of talent is limited. But I don’t think this will last. More on that in future posts.

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