Exploring Armenia’s IT Landscape: A Compelling Case for Outsourcing Software Development
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Armenia: From Ancient Legacies to Democratic Progress
Cher, Charles Aznavour, System of a Down, Levon Aronyan, Alexis Ohanyan, Henrikh Mkhitaryan - you have probably heard these names before - what you might not have known though is that they are all of Armenian descent.
Now that we have got your attention, let’s take a deeper look into this little known, mountainous country whose history goes back to 4000 BC.
Armenia, officially the Republic of Armenia, is a landlocked country in the Armenian Highlands of Western Asia, in the South Caucasus. Thanks to its geographical position, the country has always been a crossroads between Europe and Asia, encompassing the best of both worlds. With its ancient and unique culture, breathtaking nature, and mouth-watering variety of traditional dishes, Armenia has become a desirable destination, a hidden gem, for those wanting to get off the beaten track.
A former Soviet republic, Armenia is now a unitary, multiparty, democratic nation state and prides in being one of the oldest civilizations in the world. It was the first nation in the world to adopt Christianity as its official religion in 301. Nowadays, despite all the geopolitical issues and the tragic war in 2020 that the country and its people had to and still go through, Armenia is a rapidly developing and thriving democracy.
According to the Economist’s Democracy Index, Armenia ranks 82 among 167 nations worldwide, beating its neighbors in terms of democracy, human rights, freedom of speech, and fair elections. The other countries in the region rank as follows: Iran, Armenia’s southern neighbor - 154, Georgia, on the north - 90, Turkey, on the west - 103, and Azerbaijan, on the east - 134. Considering the country’s difficult geopolitical position, the democracy score is worth the praise, since it makes Armenia basically the most democratic nation in the region.
Armenia is also one of the safest countries in the world. Yerevan is currently the 15th safest city among 347 cities worldwide,with a safety score of 78.2. Many foreigners mention the fact that no other major European capital is so child-friendly as Yerevan, with kids playing freely and safely outside without parental guidance until late hours.
After the fall of the Soviet Union, the economy in Armenia has greatly evolved, having its ups and downs as well as reflecting the changes in world economy over the years. Until recently, Armenia's economy has witnessed sustained growth, progressive reforms, inflows of capital and remittances, creating a market-centric environment for businesses of all kinds. However, the recent geopolitical tensions and COVID-19 did not leave the country’s economy intact. There are very few regions that have managed to escape the negative socioeconomic impacts of these events though.
In any case, despite these shocks, the Armenian economy keeps growing and improving, thanks to such factors as active inflation targeting, adherence to prudent fiscal policy, and sound financial sector oversight. The country has also implemented important reforms to reduce corruption and enhance transparency. Of course, there are also numerous challenges. Since Armenia is a developing country, it does not attract much foreign direct investment (FDI), it has limited human capital, and an undiversified economic structure.
In the past year, Armenia has had a massive inflow of migrants, businesses, and capital as a result of Russia’s invasion of Ukraine. This resulted in some economic changes, improving domestic demand and leading to an appreciation of the currency. The increased inflows of money transfers added up the reserve levels and decreased credit dollarization.
In March 2023, a $100 million loan was approved by the World Bank’s Board for the Armenia Green, Resilient, and Inclusive Development Policy Operation (DPO). The key objectives of this program are to help the country to promote climate change mitigation, improve the regulatory framework for environmental management, foster equity and encourage human capital development, and reinforce the anti-corruption system efficiency.
Armenia’s GDP growth hit 12,6% in 2022 which is an indicator of quite a strong economic performance. The main sectors responsible for these results were finance, IT, transport, and hospitality. The unemployment rate also dropped to 11.6% in the third quarter of 2023, from 15.5% at the end of 2021.
IT in Armenia
Armenia’s IT sector is responsible for a large portion of its economic growth. Emerging as one of the country’s fastest-growing industries, it has turned the country into the IT hub of the region, with an increasing number of local and international companies, startups, and IT service providers. Within just a few years, Armenia has managed to produce top companies whose names have a say in the international market (Krisp - the company was listed in the ‘Forbes AI 50 2020’ and the ‘TIME Best 100 Inventions 2020’, Podcastle, PicsArt, etc.)
Over the past few years, the Armenian IT industry has witnessed a stable annual growth of 20%. Today, there are over 28,460 employees working in the ICT sector, 16,212 of which are employed in IT companies. As of December 2019, there are 2300+ registered IT companies. According to non-official data, there are, in fact, 4,000 IT companies, 20% of which comprise one-person-only organizations.
As of 2022, the Armenian tech market value amounted to $684.3 million. The latest data on the Armenian startup ecosystem displays a total of $200 million investment.
Armenia’s tech achievements did not just start now, though. The country was the “Silicon Valley” of the Soviet Union. Yerevan Computer Research and Development Institute, also known as the Mergelyan Institute, was carrying out the lion’s share of the technological research and production in Armenia - nearly 40% of the mainframe computers for the military were designed and manufactured here. From 1958 to 1965, the Razdan family of general purpose computers was developed in this institute. Among the Soviet countries, Armenia was 2nd in the production of electric machines, 4th in military equipment production, and 5th in instrumentation.
The collapse of the Soviet Union, the following hardships, the war, the outflow of human talent, and the supply chain breakdown slowed down the development of the IT sector immensely. However, over the years, Armenia was able to recover its reputation as an IT hub, one step at a time, despite all the difficulties. Soon after, such big player companies as Synopsis, Intel, Microsoft, IBM, National Instruments, Oracle, VMWare, Cisco, Mentor Graphics, D-Link, and Teamviewer established their offices in Armenia and expanded their teams as years went by, laying the foundations for the country to become a popular tech destination in the region.
Today, there are dozens of IT companies in Armenia, from startups to tech corporations and small and large software outsourcers.
Armenian STEM Education and the Tech Workforce
Armenia boasts a highly skilled and tech-savvy workforce, consisting of juniors and seniors with 10-15+ years of experience. Many state and private educational institutions and universities focus on such subjects as mathematics and sciences. In general, STEM is given considerable focus from primary school to higher education. It should also be noted that children learn chess at schools which is a compulsory subject now at primary and secondary schools.
Such higher educational institutions as the National Polytechnic University of Armenia, Yerevan State University, American University of Armenia, and the Russian-Armenian University offer different IT-related programs and degrees. About 1800 students graduate from IT-related faculties every year. Not to mention those who prefer private institutions, such as Armenian Code Academy (ACA) which offers a wide array of tech programs and courses to students, from computer science and software engineering to data science and AI.
Armenian IT companies often collaborate with universities through internships, joint research projects, guest lectures, as well as participation in different industry-led initiatives. This helps future IT professionals and their employers connect and network, helping the former gain more practical knowledge about the industry.
Companies and universities also organize IT competitions and hackathons, both nationally and internationally. These events help students to show their skills, work with their peers, learn from industry experts, and gain practical experience.
The illiteracy rate in the country is as low as it gets, only 1%, with just 0.2% among the younger generation.
Especially noteworthy is Armath, a program through which multiple robotics laboratories were established in rural schools across Armenia. The initiative gained huge support from the local IT companies. Today, there are 575 Armath labs spread across Armenia, Georgia, and India. The Armenian Armath labs boast a total of 15,000 students with 84% continuing their education in universities.
The IT sector is also highly supported by the government. The latter recognizes the strategic importance of investing in the development of IT companies and has implemented supportive policies and tax incentives to help startups pave their way in the competitive market. Additionally, technology parks and innovation centers have also been established to create a more favorable business environment.
On that note, it should be mentioned that the Armenian startup ecosystem is quite vibrant and dynamic as well. The country creates lots of space for growth for startups through startup incubators, accelerators, and venture capital funds.
Armenian IT companies have managed to gain international recognition, receiving accolades and taking part in global tech events. A great example is PicsArt, a mobile photo editing tool with a global user base.Armenian IT companies have managed to gain international recognition, receiving accolades and taking part in global tech events. A great example is PicsArt, a mobile photo editing tool with a global user base.
Tech Conferences in Armenia
Armenia hosts multiple local and international tech conferences annually which enable people to expand their skills and knowledge, make new connections through networking with visitors from all over the world. Some of the globally and locally prominent conferences that have been held in Armenia are:
- EMERGE 2022
- STARMUS Festival
- ORION Summit 2022 - Orion Worldwide Innovations
- Silicon Mountains 2022
- International Technology Summit
- Global Innovation Forum 2022
- WCIT 2019
- Sevan Startup Summit
- Tech Weeks (organized in different Armenian cities each year)
Tech Companies in Armenia
As already mentioned, there are over 2,300 companies registered in the IT sector in Armenia, each with varying areas of focus. However, they can be broadly classified into the following two categories:
Armenian tech companies offer products and services that cover the diverse sectors and fields of modern technology:
- Custom Software Development
- Web and Mobile App Development
- CMS/Website Development
- Artificial Intelligence / Machine Learning
- Blockchain/Web 3.0 Development
- Internet of Things
- SaaS Products
- Cloud Computing
- DevOps/Cloud Management
- Game Development
The numerous product development companies indicate a thriving culture of innovation and entrepreneurship in the country. These firms are instrumental in creating cutting-edge solutions, products, and technologies that address a wide range of market demands both domestically and internationally.
On the other hand, the prevalence of software development outsourcing companies highlights Armenia's emergence as a significant player in the global IT outsourcing industry. These organizations offer specialized skills and expertise to clients worldwide, leveraging Armenia's talented workforce, competitive costs, and favorable business environment.
The synergy between product development companies and software outsourcing companies creates a virtuous cycle of knowledge exchange, skill enhancement, and economic growth.
As Armenia continues to foster its IT ecosystem and promote innovation, it is poised to remain a compelling destination for IT investment and collaboration, contributing to the country's progress on the global technology stage.
Women in Tech in Armenia
Women play a huge role in the development of the Armenian tech sector. They make up about 30% of the Armenian IT community, whereas globally, the number rarely exceeds 20%. Armenian women are not only working in the design, marketing and business development departments, but they also have leading engineering roles.
According to Forbes, around 50-60% of applicants in the IT departments of different universities in Armenia are women. Despite the promising numbers, as anywhere else in the world, women have it harder in Armenia as well, when it comes to career growth in the tech sector, or in any other sector, for that matter.
However, things are getting better - slowly but steadily. The proof of this are the many female startup founders. A great example is Seda Papoyan, the founder and managing director of Armenia’s chapter of Girls in Tech (GIT), a global NGO aimed at minimizing the gender gap in technology by focusing on the engagement, leadership, education, and empowerment of women looking to pursue a career in IT.
Apart from organizing a number of different networking and skill-sharing events and programs in Yerevan, GIT established several projects that brought together girls and women from the regions of Armenia. One such program was STEMpower Girls Armenia, which helped over 250 girls from the rural areas of Armenia take part in STEM workshops.
Another noteworthy event is FemInno - the first and only woman-centered innovation conference in Armenia and the Caucasus region. The goal of the conference is to empower women in business, science, and technology. The conference features 30+ speakers and special guests from all over the world, 10+ workshops and masterclasses, 1500+ on-site attendees, 15+ countries represented from Europe, Asia, Africa, and America.
Software Outsourcing in 2023
Now that we covered the Armenian tech scene, it’s high time to discuss the ways Armenians deliver software development outsourcing services for international companies.
First, let’s discuss the impact of recession and the geopolitical turbulence on software outsourcing.
The global recession has driven companies to mass layoffs and cost reductions in all possible ways. There is no precise prediction as to when the situation will get back to normal - a recession can last months and even years, causing decreased consumer spending, higher unemployment rates, and business stagnation. It’s natural to expect a decreased GDP for global economies. The latter does not indicate poor economic progress of a given country. It is simply the expected outcome of the global recession and how each country is coping with its challenges.
How Can Software Outsourcing Help Businesses Navigate the Recession?
It goes without saying that software providers themselves are having a hard time facing the challenges that the new economic situation has come with - for example, having to cease relationships with partners who were hit hard by the recession and could not afford their services anymore. Those are specific cases though.
Outsourcing can actually help businesses stay afloat, especially in times of recession. Other than the conservative measures (product/service quality, size, and/or benefits reduction, raising the prices, funding cuts for marketing campaigns or new initiatives, delaying investments, layoffs, etc.), businesses should be open and flexible to rethink their internal processes and practices, if need be.
You should look at the positive sides of recession, such as:
- Less competition
- Ease of access to top talent
- Consumer demand shifts - more focus on the quality
- Headcount optimization
Outsourcing can become a non-traditional way of helping your business survive the difficult times. You can outsource activities that you don’t directly deal with, thus saving time for core tasks, retaining your top talent, and cutting back costs.
The benefits of outsourcing in times of recession are not mere words. They proved to actually work back in 2008, during the global economic crisis which did not go without recession. That was when such big player companies as Google, IBM, Apple, Microsoft, and Netflix chose to outsource their IT needs to companies on the other side of the world to handle the negative impact of economic turbulence.
Why Should You Outsource to Armenia?
Outsourcing to the right country and to the right company is a business strategy within digital geopolitics - a relatively new term that’s been gaining momentum lately in the light of recent events, referring to the intersection of digital technologies, cyberspace, and international relations.
Armenia is located between Asia and Europe - a strategic location that creates opportunities for trade, connectivity, and business connections between Europe, Asia, and the Middle East. It perfectly combines Western culture and mentality with the exotic and somewhat traditional Eastern feel.
Let’s look at the benefits of outsourcing your software needs to Armenia:
- Cultural Compatibility and Proximity: Armenian IT workforce stands out with strong work ethics, flexibility, and dedication. They are great communicators, willing to understand your business goals and act accordingly. Western companies won’t have a cultural shock when working with Armenians because, as noted before, the country is essentially European, culture- and mentality-wise. Thanks to the shared cultural values and similar work practices, you can expect a smoother collaboration and fewer cultural misunderstandings. Other than that, Armenians have relatives spread all over the world. The Armenian diaspora is bigger than the population of Armenia proper. Such a global connection fosters a broader cultural understanding and enables most Armenians to be more knowledgeable about and appreciative of various cultures. Additionally, the so-called Southern openness of Armenians adds a distinct flavor to the collaboration and communication with Western companies. In other words, Armenians are quite flexible and easy to work and build strong business partnerships with.
- Convenient Time Zone: Armenia’s time zone - GMT+4 - is also quite favorable for Western businesses. The difference in time with European countries is 2-4 hours which allows for real-time communication and better project management.
- High-Quality Services: Provided you choose the right company (there is always a black sheep in every family), you can rest assured that you will be provided with the highest quality services and solutions that meet the international standards and accepted practices.
- Cost Efficiency: It goes without saying that the costs of hiring IT talent in Armenia are lower compared to many Western countries. As a result, you get high-quality services at a more affordable price which will let you allocate your resources more wisely and effectively. Armenian software developers get nearly 20-50% less than their colleagues in Germany, France, or England.
- Language Skills: The IT sector in Armenia speaks English. Companies provide English courses to employees who don’t know the language yet. Those in charge of communicating with clients from English-speaking countries are definitely fluent in English. Some companies even offer other languages, such as German or Spanish, for clients who don’t speak English. This way, the language barrier is minimized, ensuring a successful collaboration and clearer understanding of project requirements.
- Ease of Travelling: Armenia’s location is also quite favorable, in case you want to travel and meet your partners face-to-face. There are direct flights from many European cities (Rome, Venice, Prague, Sofia, Vienna, Dortmund, Milan) to Yerevan and back. You will be greeted with incredible hospitality and care and get a chance to learn more about the ancient culture of Armenia. Moreover, entry to Armenia is visa-free for the citizens of all EU member states and all the countries that are part of the Schengen Agreement (including Switzerland, Norway, and Iceland). Citizens of other countries, such as the UK, the USA, Australia, and Japan, can also visit the country visa free.
- Digital Geopolitics: Armenia is a great choice for those Western companies which had remote IT teams operating in Russia before the war started but cannot stay there anymore. Moving your IT team to Armenia or hiring a new one from the local companies will be the most painless switch. Other than that, Armenia can also be a favorable location for those wanting to strengthen their partnerships with companies in the Middle East or North Africa.
- Internet: The internet speed in Yerevan is on par with that of major German and other European cities. Despite the fact that the connectivity may be poor in the remote regions and villages, you don’t have to worry about it, since most IT companies are located either in Yerevan, or the other big cities of Armenia, such as Gyumri, Vanadzor, or Dilijan. The average download speed in Yerevan is 77.12 Mb/s and the upload speed amounts to 87.05 Mb/s. According to a research by Surfshark VPN service experts, Armenia has the most affordable home Internet tariff in the world.
- Compliance with the International Standards: Armenian IT companies meet all the international standards, thus displaying their dedication to excellence through the acquisition of essential certifications, including those from PMI (Project Management Institute) and ISO (International Organization for Standardization). These prestigious certifications demonstrate their adherence to global benchmarks in various domains.
Ease of Doing Business
Another reason that makes Armenia an attractive destination for software development outsourcing and/or making various investments in general, is the legal flexibility of doing business in this country.
First of all, Armenian-based businesses have the privilege of low costs of rent, utilities, registration, and other startup-related expenses. You don’t have to worry about having a minimum capital as there are no such requirements. Moreover, your company’s paid-up capital can be only $1.
There are no fees for registering a business, or renewing the registration. Company registration can be carried out within a single day, provided you are in Armenia. The bureaucratic requirements are also brought to a minimum - the documents you need for company registration include the passports of the shareholders and directors. As soon as you submit your documents, you will get a registration certificate with a taxpayer ID number and be ready to have your business start its activities. If you are a foreigner, worry not - you can own 100% of your company in Armenia without the need to have local partners or agents.
As for the citizenship and residency of the shareholders, there are no restrictions applied so far. Neither the directors, nor the employees of an Armenia-based organization have to be Armenians. Moreover, they will not be required to live in Armenia or even have a local address. However, if you happen to want citizenship, the country offers temporary, permanent, and special residence to business people from abroad. Important investors have the possibility to get a citizenship-by-exception.
Dormant companies are released from paying taxes or filing tax returns. There are no obligations to rent an office or hire local talent. In other words, compliance requirements are the bare minimum.
Additionally, newly registered IT companies get the benefit of tax holidays. There is a 5-year income tax or VAT exemption for businesses founded in Armenia. Some companies, such as micro-businesses or organizations operating in free economic zones, industrial zones, specific border towns and villages have the advantage of getting a zero-tax status. The sales tax is as low as 1.5-5% for small businesses whose annual sales does not exceed $240,000.
The Armenian government also provides essential support to the IT sector. Important investment projects can get government assistance in the form of privatization of real property, financing under public-private partnership, loans, guarantees and subsidies, export insurance, and more.
Nowadays, many IT companies in Armenia, as well as worldwide, are having a hard time navigating the global crisis caused by the turbulent geopolitical situation. The latter has led to numerous layoffs for some businesses, while others have gone bankrupt or been completely dissolved. To help handle the difficult situation, the Armenian government provided several large-scale IT companies as well as startups with a significant amount of financial aid. Nearly $1 million was distributed to several companies based on their size and needs. Such support makes the country a more reliable destination for business owners because they will find more stable and long-term partnerships here that might not be harmed or failed because of the global crisis.
All the required intellectual property (copyright, trade secrets, know-how, confidential information, trademarks, etc.), IP and data protection laws and regulations have been successfully adopted and are enforced in Armenia. They all comply with the accepted international standards and best practices.
What are the Software Outsourcing Rates in Armenia?
According to a recent report by Accelerance, software outsourcing, nearshore or offshore, can save a business from 40% to 70% of its expenses. Here is a comparative overview of the global software outsourcing rates (Accelerance, 2023):
- North America - $62-$209
- Latin America - $34-$96
- Central Europe - $65-$95
- Eastern Europe (Armenia, Romania, Ukraine, etc.) - $26-$65
- South Asia - $24-$71
- Southeast Asia - $18-$70
Rates per hour by country as of 2020-2021
- Armenia - $25-$49
- Czechia - $60-$149
- Hungary - $50-$99
- Poland - $60-$70
- Belarus - $35-$50
- Ukraine - $30-$60
- Bulgaria - $50-$99
- Croatia - $35-$99
- Romania - $35-$49
Armenia has emerged as a highly attractive destination for IT outsourcing, offering numerous advantages for businesses looking to leverage the benefits of global talent and cost-effective solutions. The country's thriving IT industry, fueled by a strong educational system and a vibrant startup ecosystem, has positioned Armenia as a hub for innovation and technological expertise.
The cultural compatibility and a strong work ethic make Armenian IT professionals highly sought after partners. They are known for their dedication, attention to detail, and a collaborative approach to problem-solving.
Armenia presents a compelling proposition for businesses considering IT outsourcing. With its talented workforce, cost-effectiveness, favorable business environment, strategic location, government support, and cultural compatibility, Armenia stands out as a reliable and attractive destination. By leveraging the benefits of outsourcing to Armenia, businesses can gain a competitive edge, accelerate their growth, shake off the harms of global recession, and achieve success in today's digital age.