ARKA News Agency – Interview
March 16 2005

COUNTRIES BUT NOT COMPANIES COMPETE IN IT INDUSTRY TODAY

Exclusive interview of the Enterprise Incubator Foundation Director
Bagrat Yengibaryan, to ARKA News Agency.

ARKA – How would you evaluate the last year for Enterprise Incubator
Foundation (EIF)?

B. Yengibaryan – Our Foundation is functioning about three years, and
this year turned out to be quite successful for us. We managed not
only to develop already operating programs, but also to achieve
exceptional success in some areas. In particular, in 2004, we opened
our first representative office in Canada and have quite good
results. Armenian Embassy in Canada rendered us substantial support
in this initiative. Through our representative office we provide
quite detailed information about information technologies (IT)
industry in Armenia. At the recent teleconference, in which 15
Canadian companies participated, we became convinced that their
entrepreneurs knew nothing about our country.

In June, OpenSource International Conference was held in Armenia. It
was an exclusive event for Armenia. 150 specialists arrived to
Yerevan from abroad to participate in the conference. Also, it’s very
important to note that in 2004 we have applied our stock
participation model for establishment of new companies: jointly with
Lycos Company we established Sorcio Company. The new company
(estimated at over $1 mln.) will be engaged in software development
for programs with open source/code. Thus, we managed to define the
priority directions we should work for establishing new companies and
combining this with foreign investments.

Up to now we were providing consulting and other services for free,
then in 2004 for the first time we received requests that required
more serious and specific assistance. These activities defined, that
we were on the right track and local companies highly evaluated EIF
experience of in directing business development in IT industry

We continue our traditional activities targeting at Armenia’s image
making abroad. In particular, we have participated in 5 expositions,
published a manual with a detailed analysis of IT field, and updated
our directory of IT-companies in Armenia. Besides, we continue
implementing our education program that comprised of 8-12 short-term
education programs on management and programming implemented each
year by EIF. In 2004, about 300 students were involved in our
programs.

I suppose our most serious achievement was the highest evaluation for
our activities we received from the World Bank. A decision has been
taken to discuss the issue of expanding the scope of our programs,
i.e. EIF activity model will be applied not only in IT industry, but
also in other fields.

ARKA- Your evaluation of IT industry in Armenia?

B. Yengibaryan – In the region, which included the CIS and Asian
states, Armenia ranks the second after Russia. We rather share the
second place with the Ukraine. Our neighbor countries: Georgia,
Azerbaijan, Turkey and Iran may only dream of such results within the
next five years. In the long-term perspective Armenia may face
problems, but currently we have excellent achievements and in fact
have no potential competitors in this field. Our most serious
competitor is Russia, with whom it is difficult to compete due to the
large potential of that country.

In 2004, a 10-15% growth was recorded in IT industry. New companies
were establishes, , in particular, well-known foreign companies
started their activities in Armenian market. The results of their
activities will be obvious in the near future. I consider all this to
be serious and positive tendencies.

Especially I would like to mention the Synopsys Company’s entering
the Armenian market. I think that it’s a great achievement, since
Synopsys is not just an average company, but also one of the world
leaders. Its presence in Armenian market will not only create new
work places, but will positively influence the IT image of Armenia.

It’s also worth mentioning that such a company like Lycos doubles the
volume of its work in Armenia, closing down some offices in Europe.
In total, 10 new companies were established in Armenia in 2004, half
of which are companies with foreign capital. Today IT industry in
Armenia is a quite developed and attractive field.

ARKA- According to some specialists, IT industry in Armenia yet shows
declining tendencies. What do you think of such estimates?

B. Yengibaryan – Despite all the above-mentioned facts, in a
long-term perspective we should be careful if we want to preserve the
ambitions of an IT-developed country. If our goal is to increase the
value of IT programs from for example $50 mln. to $1 bln., we can’t
continue working in this way. One of the major problems is the issue
of human resources / IT professionals. Already now when we have
serious vacancies, they are not occupied immediately because of the
lack of professional staff. Local companies have difficulties in
`digesting’ large projects. For example, a project worth $1 mln.
cannot be implemented by any such company.

Apart from this, our neighbors realizing that they give up to Armenia
in IT industry grant serious privileges to that field. Thus, in
Turkey organizations working at Techno-parks at Universities are
exempted from any taxes. RF President also recently has promised to
grant serious privileges in IT industry. If it becomes a reality, I
expect a serious drain of our specialists to Russia. If Armenia
doesn’t take adequate measures, we will lose the regional
competition, since IT industry in Armenia has no privileges at all.
Nowadays not companies but countries compete in IT industry.

Completely, the IT industry development should be evaluated on the
background of the economic development of the specific country. Our
calculations showed that, if tasks are solved in an integrated way
with the use of IT, automation or electronics, then added value in
technological industry might be increased ten times. If proper
reforms would be introduced in Armenia in cooperation with donors and
Diaspora, then IT industry will keep developing, and by 2010 it will
have supplied $300-400 mln of income, providing 14 thsd work places.

ARKA- Many people think that ArmenTel telecommunications monopolist
is the major obstacle for the development of IT in Armenia.

B. Yengibaryan – I do not think that the problem in the
telecommunications field in Armenia is something exclusive. I do not
think that if tomorrow everything is settled in this area, IT will
prosper. ArmenTel monopoly definitely has an adverse impact, but in
general its share accounts for only 30% in total area of
telecommunications. I think that it’s wrong to ascribe all problems
to telecommunications. There are many other problems such as those
connected with radio frequency, which nobody pays attention to.

ARKA- What was the amount of investments in IT in 2004? How much was
the total value of programs implemented in IT industry in Armenia?

B. Yengibaryan – The investments made in 2004 were estimated at about
$10 mln. On the whole, I still estimate the capacity of IT industry
of Armenia at $50-60 mln of annually , though the real value of
programs is much higher (about $150 mln.). IT industry products are
exported to over 20 countries of the world. In this portfolio, shares
of USA and Canada accounts for 68% of the export. The second largest
market is Russia and the CIS (16%), followed by Europe (10%). In
2005, IT field will still ensure 2-3% of GDP of the country.

Today about 100 organizations work in IT field in Armenia and about
3-5 thsd people are employed in this industry. Annual salary of
experienced programmers ranges from $3000 to $7200, and salary of
project managers – from $6000 to $14000. By the way, salary of
Armenian programmers may compete with salary in major outsourcing
countries, such as China, India, Ireland, Israel and Russia.

ARKA- What are EIF plans for 2005?

B. Yengibaryan – In 2004 we developed a model of a venture investment
company. We hope that within a month we will put it into operation.
Such an initiative is an innovation for Armenia, and I think it will
positively influence on the development of IT sector.

We have also conducted a serious research, based on which will
develop scenarios for the development of the IT field. In particular,
we intend to introduce specific calculations regarding the
privileges, investments, changes in infrastructure and legislation
that will positively influence the development of IT industry.

EIF new premises will start operating in March. We can host there
about 10-15 organizations, provide them with high quality service
going beyond consulting one, and open up an education center. The
territory will be leased out, and currently we are holding
negotiations with four companies. In 2005, we plan to participate in
the establishment of two-three more companies, and to open
representative offices in Europe and US.

Also, we are going to introduce certification in programming CMM
(Software Capability Maturity Model) in Armenia. We will develop a
model, which if fails to assist in introducing certification itself,
then will support the local companies to apply for certification.
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