Armenia seems on the verge of losing its competitive advantage in IT sector– World Bank report

YEREVAN, June 19. / ARKA /. Since 2006, the sector, excluding Internet service providers, has grown with a CAGR of 22% reaching the total output of $294m in 2013, according to a World Bank report titled “IT skills assessment in Armenia”

It says the number of companies operating in the sector has reached to about 380, the number of employees- 8,000. About 13% of the companies operate in High-technology domain, while the rest are IT companies. 

One of the driving factors of the sector growth was its attractiveness for foreign companies to establish branches in Armenia. The prime competitiveness pillar is the availability of relatively cheap and competitive human resources in Armenia. Currently, Armenia seems on the verge of losing this competitive advantage. 

Due to growing number of IT companies in Armenia, demand in IT specialists will continue to increase. According to the conservative estimation, if the market and productivity continue to grow with an average rate of 18% and 1% respectively, the absorption potential of additional IT specialists will grow at a rate of 17% annually and reach 15,000 by 2017.

The sector is undergoing a major transformation right now: there is an increasing shift from the outsourcing model to the model of own product development and entrepreneurship in the sector. This model of growth requires a higher level of knowledge, new skills (such as sales skills), entrepreneurial knowledge. 

The outsourcing model mostly fostered the growth of the sector as well as attraction of international companies and FDI. The model is based on the outsourcing activities, which can be sustained because of low-cost on a global labor market and high-quality workforce, beneficial to foreign companies. Thus, the model is built on the basis of cost-competitiveness. 

The current developments in the sector are towards higher value added entrepreneurship model. The presence of international companies, which bring sector-specific culture into the country, and international startup boom force the development of the model among IT and high-tech specialists. 

The further developments are expected to drive the market towards the more value-added and growth of the sector. Educational sector needs to quickly adapt and reflect these challenges in order to sustain the sector competitiveness. 

In order to sustain the growth based on the high quality labor force, the country currently faces the issue of providing sufficient supply. The increasing demand for IT skills is a global trend, but in Armenia it is more constraining due to small size of the labor force and the country and increase in competition between the local industry and multinationals. At the current point of development of the sector, this is a complex issue, as the skills gap increases with the positive dynamics and development of the industry. This implies that the shortage of the skills is increasing in parallel with the sophistication of the industry.

IT and High-technology companies view the mismatch between the supply and the demand of the skilled IT labor as a key factor that hinders the growth of the sector. 

Currently, the university degree is not viewed as a crucial decision factor in recruitment by companies, indicating the diminishing role and image of higher education in the sector due to the insufficient quality of graduates. Companies consider the Master’s degrees to have a limited benefit on top of knowledge gained through undergraduate studies. This observation demonstrates that Master’s Degree programs in IT and High Tech are not adequately meeting market expectations. 

Also, there is a possibility of a limited sophistication of the IT market that doesn’t yet require high end skills obtained from Master’s Degree.

Overall, the higher education system in Armenia lacks the competitive dynamism and efficiency when it comes to IT skills. The quest to join European Higher Education Area pressures Armenia to reform. Armenia is undertaking reforms through the Bologna process in order to join the European Higher Education Area. 

Currently, the number of graduates with IT specializations annually closely coincides with the annual demand in the overall market, but only 45% of the graduates consider or qualify to be employed in the sector, thus, creating a quantitative imbalance of workforce. -0-