country level
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Digital

Can Armenian IT sector
companies close the skill gap?

Armenia’s IT and high-tech sector companies are facing increasing difficulties in recruiting high skilled employees they need. Even after finding them, they face the challenge of the high level of turnover. The highly competitive market drives the already high salaries in the sector, to even new heights, which puts an enormous cost pressure on the local IT companies.
IT and High technology sectors are one of the fastest growing sectors in the economy of Armenia. Since 2010, the sector, excluding Internet service providers, has grown with a CAGR of 26.3% reaching the total output of $765m in 2017. The number of companies operating in the sector has reached to about 650, the number of employees- ~15,350.

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In the past, one of the driving factors of the sector growth was its attractiveness for foreign companies to establish branches in Armenia. The prime competitiveness factor is the availability of relatively affordable and competitive engineering talent in Armenia. Currently, Armenia seems on the verge of losing this competitive advantage. Currently, the sector is undergoing a major transformation: there is an accelerating trend towards shifting from the outsourcing model to the model of own product development. This model of growth requires a higher level of knowledge, new skills (such as sales skills), entrepreneurial knowledge. Coupled with the accelerating trend towards proliferation of disruptive technologies, these shifts may become more and more intense. The presence of international companies, which bring world class technologies and organizational culture into the country, and startup boom force the development of the entrepreneurial model among IT and high-tech specialists. The further developments are expected to drive the market towards more value-added segments. Educational sector needs to quickly adapt and reflect these challenges in order to sustain the sector competitiveness.

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.
Commissioned by the World Bank / Enterprise Incubator Foundation, EV Consulting conducted a thorough research on the quantitative analysis of the sector’s skill gap a few years ago. The insights of the report remain very relevant for the current state of the development of the sector. According to our study, annual need of new specialists in the sector was about 2,000. This number closely coincided with the number of graduates with IT specializations. But only 45% of the graduates considered or qualified to be employed in the sector, thus, creating a quantitative imbalance of workforce.
The number of specialists demonstrates the demand only in IT and High technology sector and does not include non-IT and non-high technology companies, which are also in need of IT specialists. Thus, the actual demand in the market might be much higher than 2,000 new specialists per year.
In addition, due to the positive and fast industry dynamics there is also a qualitative skills gap conditioned by the following factors:

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The university funding needs considerable increase as well as diversification through research grants and endowment foundations.
The government approach to supporting skills development need to be focused on solving and comprehensive.

The number of university-based laboratories, which are established with the help of multinationals, should be scaled up. Similar to the establishment of ANEL together with National Instruments, USAID and Government, more laboratories need to be established on the university premises to enable the technical environment for the students.
Creating an alternative program such as certifications and associates degree to prepare software programmers in less than 4 years will help increase the supply of labor in the medium term.

The universities may consider revitalizing their career centers in order to support their graduates.

If Armenia aspires to transition from outsourcing, development center destination to one of innovation centers functioning under entrepreneurship model, it has to integrate fundamental research and development practices into its university system. The development of innovation, R&D capabilities is easier to inculcate if students are accustomed to performing fundamental research from early years of their study.
High tech accelerators can become a valuable resource for entrepreneurs.

As the entrepreneurship model will require more innovative and high end solutions and product development, it eventually requires high level graduate and post graduate base and radically new approaches to education and skill development to move up the innovation value chain.