Information technology (IT) has long been a major driving force for economic growth and job creation in Armenia. Promoting technological innovation and boosting productivity was a priority for the government of former Prime Minister Tigran Sargsyan, helping to make the industry one of the most successful and fastest-growing in the country. Under Hovik Abrahamyan’s new administration, IT continues to grow and outperform other sectors of the economy.
While Armenia may lag behind many other countries when it comes to technology in general, economists say the country’s progress in the IT sector is nonetheless promising. Earlier this year, Armenian engineers proudly showed off the first Android tablet designed in Armenia—the ArmTab. In a country with limited sources of revenue and scarce natural resources, there are high hopes for the potential of the IT sector.
In the 1980s, thousands of skilled engineers transformed Armenia into an IT powerhouse, ranking above all of its 15 Soviet neighbors. The country became known as the “Silicon Valley of the Soviet Union.” But with the fall of the Union of Soviet Socialist Republics (U.S.S.R.) in the early 1990s came economic hardship that overshadowed Armenia’s technological potential.
At the end of the 1990s, there were 35 to 40 computer-programming companies and Internet providers operating in Armenia, employing nearly 1,000 professionals. In the following decade, however, technological ingenuity flourished, serving as a major driving force for job creation. By 2010, the number of IT companies had grown fivefold. Global technology giants like Microsoft, D-Link, National Instruments, Synopsys, Mentor Graphics, Nokia, Intel, IBM and GFI Transnational are all doing business in Armenia.
There are currently 11,000 professionals employed at more than 380 IT companies in Armenia, with total revenue of nearly $380 million. Between 2008 and 2013, the IT sphere saw 22.8 percent average annual growth. To underscore the importance of that growth to the Armenian economy, consider that just three days after his appointment in April, Prime Minister Hovik Abrahamyan held a meeting with IT representatives—his first as the country’s chief executive.
Armenia’s First IT Baby
Armenia celebrated the birth of the ArmTab tablet in February. The tablet’s maker, ArmTab Technologies, describes it as world-class quality at an affordable price, ideal for use in both the boardroom and the classroom.
Established in Yerevan’s Free Economic Zone, ArmTab Technologies is run by founder Vahan Chakarian. Its parent company, Technology and Science Dynamics (TSD), got its boost not from China, where most IT manufacturing takes place, but from an American company headquartered in Washington State named Minno.
TSD designs and assembles the tablets with materials imported from Minno’s supply chain in China. The company also writes and maintains the tablet’s software, providing technical support when needed.
The company says ArmTab tablets are geared towards both local and regional markets, and Minno-brand tablets will also be exported from Armenia worldwide.
The company retails its tablets in specific markets—Orange Telecommunication carries Minno in its retail stores in Armenia and college bookstores offer Minno in the United States. Minno targets sales to schools, retail franchises, trade show/meeting organizers and healthcare facilities.
“Armenia’s technical depth, intellectual capital and work ethic will enhance our product’s quality,” said Eric Ryan, one of Minno’s founders. “The Armenian government’s commitment to technical education, entrepreneurship and foreign trade, coupled with favorable terms in the Yerevan Free Economic Zone, make the country an attractive base for production. It’s time for Armenian brands to extend the country’s technical influence into international markets.”
Working with local software companies and educational content partners, ArmTab Technologies have also agreed to supply tens of thousands of educational tablets to Armenian grade schools beginning in early 2015.
Before 2005, Armenia-based IT companies were mostly completing orders from outside the country and 80 percent of the production was destined for export. Now, however, the percentage of exports has dropped to 60 percent.
Bagrat Yengibarian is the director of the Enterprise Incubator Foundation (EIF), which was formed in 2002 as part of a World Bank initiative to support the development of technology. He points out there is a strong commitment among international and government bodies to advance the IT industry in Armenia.
“What we have achieved by now in Armenia is amazing to us as it is,” he noted. “However, something new took shape over the past three-to-four years and we are now building an entirely new strategy on that foundation. Locally manufactured products appeared here, world IT companies are now conducting research here.”
“Our objective now is not only to provide a workforce, but also to spur entrepreneurship and the establishment of new companies. The state is assisting us in that matter financially and by creating a venture fund,” added Yengibarian.
The vast majority of entrepreneurs with bright ideas struggle to come up with the necessary $30,000-$50,000 in startup costs as Armenian banks refuse to grant loans to newly-founded companies. Without a venture fund for successful pilot projects, these ideas would never progress.
Banking on “Surprise Engineering”
According to Karen Vardanyan, executive director of the Union of Information Technology Enterprises (UITE), doubling Armenia’s current IT growth rate would require developing infrastructure, such as incubators and technoparks; fostering close cooperation with the military; and changing public opinion about the engineering profession through early IT education in schools. UITE approaches each through forums, expositions and competitions designed to enhance the profile of the IT industry.
“Armenian IT needs to have three features: quality, creativity and adaptability,” said Vardanyan. “I believe flexibility separates Armenian IT specialists from their foreign colleagues, since the field is changing rapidly in Armenia and we have to give to our clients more than they ask for. We have dubbed this concept ësurprise engineering’ and we hope it becomes the Armenian IT brand within the next five years.”
Vardanyan’s other objective is for Armenia to be among the world’s top 20 most innovative countries, a goal he has been working towards for the past 14 years.
“Many may see this as wishful thinking,” he acknowledged. “But we believe we can achieve it and we are working hard to move in that direction.”
Preparing capable IT specialists is the principal challenge for the IT industry today. By his estimates, Armenia annually needs some 2,000 new employees in the IT sector with four to five years of professional experience and average monthly salaries of $1,200-$1,500.
“The more IT workforce we create, the more businesses we found and the more jobs we will have,” said Vardanyan.
To overcome this challenge, UITE is proposing to create “mentality and education” programs in public schools. The organization furthermore is seeking to open robotics or engineering clubs in 50 schools, with the goal of reaching all regional schools within three to four years. Students selected from these clubs would receive help to continue their IT education at the university level on the condition they agree to work in their home regions for the minimum IT salary (around $400 to $500 per month) upon graduation.
Through IT development in the different regions of the country, Armenian authorities are trying to ensure territorially balanced economic development. There are already Armenian IT companies in Gyumri, Vanadzor, Stepanakert, Goris and Kapan operating for American clients.
In June, Gyumri hosted the opening of its first technopark, which is the centerpiece for the technological development plan of Armenia’s second largest city. It will operate as an incubator for both existing and yet to be established labs and companies.
“Who would have guessed that D-Link would open its research center in Gyumri’s technological park and would construct a building right next to the technopark?” asked IT specialist Bagrat Yengibrian. “If someone had told me, I would not have believed it nor would I have thought that the Digital Pomegranate company would select Gyumri rather than Yerevan,” he said as he listed the companies who have put their trust in the technopark’s prospects for success.
Gyumri’s technopark is the first and most vivid example of a local IT environment. Plans are underway to build others in Vanadzor and Nagorno-Karabakh.
“The biggest token of Armenia’s success is its smallness. In today’s IT world, demand is shifting from programming in general to niche programming, geared specifically towards math, physics and biology. Because Yerevan is so small, there is a dense concentration of specialists. A good programmer and a good biologist can easily find one another and meet a niche programming need,” explained Yengibarian. “We are now taking this 'Yerevan effect’ to the different regions of Armenia.”
Despite a relatively low IT growth rate compared to some of its neighbors, Armenia is proving that it can offer high-quality technological solutions to the world as global leaders in the industry continue to open branches and offices in the country. And both business leaders and politicians hope that this growth in the IT sector will give a badly needed boost to other areas of Armenia’s struggling economy in the long-term.