armenian information technology sector: 2011 state of of industry report

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2011Stat teofIndustr ryReport

Arme nInf matio A enian form on Tec ology ctor chno ySec 2 2011Stat fInd ryRe rt teof dustr epor Softw S wareand rvice dSer es

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EnterpriseIncubatorFoundationArmenianInformationTechnologySector ARMENIANINFORMATIONTECHNOLOGYSECTOR SoftwareandServices 2011StateofIndustryReport 20042011EnterpriseIncubatorFoundation 123HovsepEminStreet, Yerevan0051,Armenia Phone:+37410219797 Fax:+37410219777 Email:info@eif.am http://www.eifit.com Allrightsreserved.

ThisReportmaybefreelycopiedanddistributedaslongastheoriginalcopyrightisdisplayedandno modifications are made to its content. Copies of the Report are available for download from http://www.eifit.com. All respective trademarks, brands, and names are the property of their respectiveowners.EnterpriseIncubatorFoundationdoesnotguaranteetheaccuracyofthedataand information included in this Report. The Report was developed as of December 2011 and, unless otherwisespecified,isbasedoninformationavailableatthattime.

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2011StateofIndustryReport

CONTENT

Foreword.....................................................................................................4 ArmenianITSectorataGlance...............................................................6CompetitiveAdvantagesofArmenia.................................................................................6 2011/2008MainIndicators..................................................................................................7

IndustryOverview ....................................................................................8 .History ....................................................................................................................................8 . Industrybackground..........................................................................................................13 Turnover...............................................................................................................................18 Productivity..........................................................................................................................24 Workforce.............................................................................................................................26

OtherAreas...............................................................................................29ManagementPractices........................................................................................................29 ResearchandDevelopment...............................................................................................29 . Telecommunications...........................................................................................................30 EducationalSector...............................................................................................................31 PolictDevelopments...........................................................................................................36

Appendices...............................................................................................40 .Armenia,KeyFacts.............................................................................................................40 . ScienceandTechnologyinArmenia,Timeline...............................................................44 MinistryofEconomyoftheRepublicofArmenia..........................................................46 EnterpriseIncubatorFoundation......................................................................................47 UITE,ArmenianITAssociation.......................................................................................48 Methodology........................................................................................................................49 IndustryStatistics................................................................................................................51 ArmeniaontheInternet......................................................................................................54 Abbreviations.......................................................................................................................55

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EnterpriseIncubatorFoundationArmenianInformationTechnologySector

FOREWORD Information Technologies (IT) industry has grown to oneofthekeysectoroftheArmenianeconomy,which promotes the technological innovation and productivity in the country. IT and Telecommunications industry is among the rapidly growing segments, which has been recognized by the Government of Armenia as the primary constituent of theeconomicprogress. Duetotherichresearchandeducationaltraditionsand skilled human resources, Armenia has attracted numerousglobalhitechfirms.TheR&DcentersofvarioushitechcompaniesfromEurope, Russia and the USA are already based in Armenia. These facilities work on cutting edge technologies and tools employed by many corporations around the world to develop productsandservicesorsolveavarietyofbusinessproblems. AnewcomprehensiveITindustrystrategyadoptedbytheGovernmentofArmeniain2008 focuses on developing telecommunications and business incubation infrastructure, improvingthequalityandincreasingthenumberoftechnicalgraduates,expandingsupport and financing mechanisms for technology startups, and developing other areas important for the growth of the Armenian IT industry. On behalf of the Government I would like to expressourbeliefthatthesuccessfulimplementationofthisstrategywillstronglycontribute tothecompetitivenessoftheArmenianITindustryandrankingthereofamongstotherhi technationsoftheworld. Sincerely, TigranDavtyan MinisterofEconomyoftheRepublicofArmenia

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2011StateofIndustryReport

Enterprise Incubator Foundation is a business development andincubationagencysupportingITcompaniesinArmenia. Our objectives are to improve competitiveness of Armenian IT companies in the global marketplace, build linkages with business communities in key technology markets, improve access of local companies to knowledge and information on bestpracticesandexperience,andassistArmenianfirmswith attractinglocalandforeigninvestors. TheReportisbasedonoursurveysofthesectorconductedin 2004 through 2011. The goal of this Report is to promote deeperunderstandingofArmenianITsector,itsmainneeds, aswellasgaininsightsonpossiblesolutionstoitskeyproblems.Itcoverskeyaspectsofthe industry including history, revenues, productivity, workforce, educational sector, policy developments,andothers. In 2011, the Armenian IT industry recorded a number of achievements, including the growthintotalturnoverandexport,newlocalandforeignstartups,aswellastheeffortsin furtherance of the overall industry progress such as the Microsoft Innovation Center, the ArmenianIndianCenterforExcellenceinICT,RegionalMobileApplicationsLaboratoryfor EasternCIS,SouthCaucasusandCentralAsiaandothers. The Report could not have been prepared without numerous interviews with managerial andprofessionalstaffofITcompanies,facultyofeducationalinstitutions,representativesof development organizations and others. We are immensely grateful to all those individuals fortheirtimeandhelp. Sincerely, BagratYengibaryan DirectorofEnterpriseIncubatorFoundation

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EnterpriseIncubatorFoundationArmenianInformationTechnologySector

ARMENIANITSECTORATAGLANCE Historically, Armenia was on the forefront of hightech research, development, and manufacturing. Since early 1950s, Soviet Armenia has been a main hub of USSRs critical scientific and R&D activities in a number of technology industry segments such as mainframe and industrial computing, electronics, semiconductors, software development, andothers.Aftertheindependenceof1991,theindustryswitcheditsfocustothesoftware development,outsourcing,andITservices. The software and services segment really gained its momentum during the last 12 years, duringwhichthesectorgrewat27%perannum.

COMPETITIVEADVANTAGESOFARMENIA WorldclassR&Dcapabilitiesinengineering,computerscience,physics,and mathematics, WelleducatedandtalentedworkforcewithhightechnicalskillsandEnglishlanguage proficiency, StronguniversityprogramswithspecializationsinITandrelatedsciences, Highlycompetitivecostoflaborandlowoperatingcosts, SolidGovernmentsupportofthesectorandcommitmenttoimprovetheinvestment climate, SustainableandcontinuousgrowthofITsector, StrongandsuccessfulDiasporainEuropeandNorthAmerica, Extensiveexperiencewithlargemultinationalcompanies, SoundlawsandregulationsforIPprotection.

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2011StateofIndustryReport

2011/2008MainIndicators OperatingCompanies Industrytotal Localfirms Foreignbranches

2011 281 174 107

%from Industry 100% 62% 38%

2008 175 119 56

%from Industry 100% 68% 32%

%change 2011/ 2008 61% 46% 91%

CAGR 2011/ 2008 17.1% 13.5% 21.1%

IndustryRevenues,million USD Industrytotal Localfirms Foreignbranches Industryaveragerevenue percompany Localfirms Foreignbranches Domesticmarket Exports SoftwareandITconsulting InternetServices

$205.1 $87.0 $118.1 $0.73 $0.5 $1.10 $115.4 $89.7 $143.1 $62.0

100% 42% 58% 100% 56% 44% 70% 30%

$111.3 $50.1 $61.2 $0.64 $0.42 $1.09 $41.9 $69.4 $96.0 $15.3

100% 45% 55% 100% 38% 62% 86% 14%

84% 73% 93% 19% 10% 16% 175% 29% 49% 304%

22.6% 20.2% 24.5% 9.0% 4.7% 7.6% 40.2% 8.9% 14.2% 59.3%

Productivity(averageoutputpertechnicalemployee,excludingISPs),USD Industrytotal $36,311 100% $26,100 Localfirms $36,508 93% $22,400 Foreignbranches $36,115 107% $29,800

100% 86% 114% 100% 87% 13% 50% 50%

39% 63% 21%

11.6% 17.7% 6.7% 11.4% 7.1% 33.8% 6.2% 6.3%

HumanResources(persons) Industrytotal Technicalprofessionals Managementandadministrative Localfirms Foreignbranches

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