Friday, September 08, 2006

The Armenian IT Sector

The global market for western spending on IT services is about $50 billion (The Economist). It will be a major feat if Armenia were able to capture any portion of it, as many hope it will.

Much of the western Business Processing outsourcing is captured by India. China is far behind, but is gradually catching up. For instance, consider the city of Xian in Western China. The government, at a cost of USD 12 billion, is in the process of expanding a technology park to 90 sq km, housing 7,500 companies, supported by more than 100 universities with annual graduates of 60,000 in computer science alone (from the Economist).

Given its size and development stage, can Armenia truly compete? Could western outsourcing represent a significant source of income to Armenians? A cursory look at the prevailing monthly salaries in Asian counties (below in USD, from The Economist), with over half the world’s population, should be a clear indicator of the limited potential of outsourcing to Armenia. Indeed, the IT sector in Armenia employed only 3,000 individuals in 2003, with annual salaries of about USD 5,000 for experienced developers.

Outsourcing is unlikely to contribute in any significant way to economic growth in Armenia. In all likelihood, the IT sector will expand with domestic opportunities, and the demand for it in the telecom, travel, hospitality, and healthcare sectors, as well as the growing accounting and business services. In turn, the IT sector will enhance the productivity of the Armenian economy. Today, for instance, it takes much less time to make a hotel reservation, or clear through immigration and customs at the airport in Yerevan then it did less than a decade ago.

I am sure there is some IT component in the export of services from Armenia. Are there any statistics on their magnitude or potential volume? Is Armenia a net exporter or importer of IT intensive services? Also, do we know much about the educational system and training available in Armenia, both at the technical and managerial levels?

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