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It’s a terrible time to be a Russian (or a Belorussian, for that matter). The war in Ukraine has led to massive sanctions against Russia, and an exit of Western companies like Ford, and capital, from the country as well.
Even companies that are not sanctioned have faced their own sort of self-censorship, with outsourced software engineers particularly hard hit. No one wants to have an outsource partners in Russia anymore, as good (and low cost) as they are. It might look bad.
Some Russians have left. Some have gone to Estonia. Others have spread out throughout Europe. And a handful have moved to Tashkent, of all places, an ancient city deep in Central Asia, in landlocked Uzbekistan.
Their government has spent a small fortune training IT workers, too, in hopes it can now pitch itself to Silicon Valley as an outsource partner. The tech talent is there. A lot of it is Russian anyway. And the English language skills are there. But who knows anything about Uzbekistan?
“Among ex-Soviet countries we have had the biggest population increase, so the human capital is here,” says Sherzod Shermatov, Uzbekistan’s IT Minister in a phone interview during a trip to San Francisco the last week of June. “And in the last three-and-a-half years, we implemented government projects called English Speaking Nation and another one called IT Nation, with the goal that most of our graduates would speak English fluently and be able to make a living in the IT field,” he said, adding that they have “the best tax regime for companies” – as in there is no federal income tax. “You can’t find this anywhere else,” he says. Shermatov was in the U.S. last week to sell Uzbekistan as an IT services center alternative to Russia and Belarus for software development to business processes outsourcing (or BPO).
An Uzbek delegation from the IT sector met with U.S. executives from the start-up accelerator Plug and Play Tech Center, Apple
According to Shermatov, about 6,000 Russians and Belorussians have arrived in Tashkent since the conflict began, some as part of relocations by U.S. companies. EPAM Systems and Exadel reportedly took “thousands” of software engineers out of Minsk, Belarus and put them on flights to Tashkent organized by Uzbekistan’s IT Park.
Silicon Valley’s Loses, IT Outsourcers’ Gains
San Francisco is in somewhat of a slowdown and laying off workers. If Uzbekistan is successful, will they be gobbling up the software and back-office jobs being shed throughout Silicon Valley this month?
India is another clear winner. Job losses in U.S. IT tend to turn into job gains for outsourcers. Four companies announced sizeable layoffs in the last week of June, right around the time the Uzbeks were pitching their wares to Silicon Valley. Pokémon GO developer Niantic said it is cutting 8% of its staff, according to TechCrunch.
The company is scrapping numerous projects, including “Transformers: Heavy Metal,” a collaboration with Hasbro
Substack is laying off 13 of its 90 employees about a month after it gave up on its IPO plans.
Silicon Valley wasn’t alone. Parallel Wireless Vice-President Eugina Jordan announced in a LinkedIn post that the New Hampshire-based global telecommunications company is in lay-off mode.
Seattle-based data storage provider Qumulo is said to be cutting 80 people including IT staff.
Who will pick up the slack when they return to growth season? Bangalore? Manila? Tashkent? It definitely won’t be Minsk and Moscow.
A few years ago, around 2017, Uzbekistan ran a program for coders called The One Million Uzbek Coders program. Millions signed up. It is unclear what licenses they were granted upon completion of the course, but in conjunction with this move, the government and private sector created an IT park in the city in 2019.
It now has around 650 companies including Exadel and EPAM Systems. Both companies did not return requests for comment.
“Last year, EPAM employed around 300 people in Uzbekistan, but for next year it has a plan to increase employment up to 3,000,” Shermatov says. “So, 10 times more within three years. Right now, we are much more successful with the companies who are already working in the region but we want to convince other companies to look at Uzbekistan as an emerging market.”
Nodir Ruzmatov, co-founder and CEO of the NY-headquartered BPO company RevoTech, is one of the globe-trotting Uzbeks trying to bridge California to the far away land of Uzbekistan. He is also an investor in the Irvine, California-based Loadstop, a subscription software company for logistics operators.
“We were offering our (BPO) services to a (U.S.) insurance company and they were saying they were not very happy with an Indian company they work with,” Ruzmatov says. “So I said ‘OK, we have an option’ and then I start talking about Uzbekistan and my back office based in Tashkent, and slowly started the introduction to Uzbekistan that way. They’re not familiar with Uzbekistan. But the quality of the work is good and the rates are competitive compared to India.”
RevoTech was a startup in 2018 with just four employees. It now has more than 450 workers in Tashkent and is building a 20-story office tower in Tashkent’s IT Park.
“Tashkent is an ancient city with a super modern landscape and is growing faster than any city in the region,” says Izzat Shukurov, CEO of Payze Central Asia, a payments infrastructure company based in Tashkent. “I have had clients from all over the world. I would never say that price is the main factor of their choice. Our engineers can make products on a very high level and the government is super supportive of the IT sector,” he says about the three-year-old IT park.
Uzbekistan’s goal is to reach $1 billion in annual IT exports by 2028, from about $100 million estimated for 2022. While that’s just a sliver of the U.S. outsourcing market, it could make IT outsourcing the country’s second biggest export after gold and a key pillar in this ancient world’s effort to reduce poverty.
About 80% of Uzbekistan’s IT exports currently go to the U.S., which accounts for the lion’s share of the global IT outsourcing market.
When Russian tanks rolled into Ukraine, Uzbekistan’s IT recruitment efforts went into overdrive. In an operation dubbed “Tash Rush,” the country organized flights to the Belarusian capital, Minsk to ferry technology professionals to Tashkent. The IT Park laid out a package of perks, visas, credit cards, and helped finding apartments and schools, to lure even more workers to the Russian-speaking city.
Between 50,000 and 70,000 tech workers have left Russia since late February, Sergei Plugotarenko, the head of the Russian Association of Electronic Communication, told a parliamentary hearing on March 22. He warned that a “second wave” of as many as 100,000 IT specialists could leave in the following month.
Russia had about 1.8 million IT professionals in 2000, the Moscow-based Association of Computer and Information Technology Companies estimated.
The Uzbek trade mission held meetings in New York, Washington, DC, and Silicon Valley before wrapping up its tour in Irvine, the home of Ruzmatov’s Loadstop. “This is an opportunity for Uzbekistan to become a developed country through IT,” says Farhod Ibragimov, CEO of IT Park Uzbekistan.
Few know where it is. It has a lot of competition. The question is also whether Russia and Belarus techies – used to a more high-end lifestyle in Minsk and Moscow – will find Tashkent life suitable to what they are accustomed.
For American firms going through layoffs, Tashkent doesn’t need rooftop bars and bike paths. But if Uzbekistan can build up a fresh and new tech ready IT labor market from next to nothing, and assuming the price is right compared to the go-to outsource hubs in Manila and Bangalore, then that could be all that matters. Silicon Valley’s downsizing will lead to a search for new, low-cost outsourcers if companies want to maintain their growth trajectory during the current economic downturn.
“I’d like to attract every western companies’ attention to Uzbekistan market,” says Shukarov in an email from Tashkent. “We might not have the global experience, but we’re not scared to take the risks.”