Uzbek IT Sector Is on a Mission to Build a Business Process Outsourcing Hub for U.S. Businesses

Uzbekistan is planning to sharply increase the value of its business process outsourcing (BPO) market by 2030 to $5 billion annually as the country’s IT sector rapidly develops.

“The task we are facing now is how to deliver the message to U.S. based and other companies around the world that Uzbekistan is a rising IT destination,” said Sherzod Shermatov, Minister of Digital Technologies. 

“Uzbekistan can help western companies make more money in a world where fuel prices are rising and there is a cost-of-living crisis; companies who outsource can do it better.”

Speaking to Grit Daily during the Tashkent ICT Week – a series of events, round-table discussions, and presentations by tech specialists and companies held in late October – Mr. Shermatov said that last year, IT and BPO exports represented 63% of all Uzbek exports to the U.S.

The IT sector brought in $145 million of foreign earnings last year out of a total of $19 billion in exports, he said. This year, IT exports were on track for $300 billion.

The spike is driven by generous tax and customs incentives that free companies that become residents of Uzbekistan’s network of 14 IT parks of virtually all taxes. The influx of senior IT specialists from Russia in the past couple of years is also a factor in that growth, Shermatov said.

The Yale-educated minister believes the bottom line for companies – particularly those in the U.S. and the West – can drive a huge expansion in the value of Uzbek IT outsourcing solutions to them.

“Outsourcing gives the most benefit when there is a huge difference between the cost of living in one country and that in a developing country,” Shermatov points out. 

Uzbek IT specialists can now handle virtually any back-office outsourcing task, Mr. Shermatov emphasizes: an American company operating a fleet of delivery trucks in New York may save a small amount a month by outsourcing its despatchers to New Jersey. By setting up a call center in Tashkent for the same work, it could save millions.

“By hiring 1,000 people in Uzbekistan at $1,000 a month compared to $5,000 in the US, a company can make $4 million a month by keeping the difference between local salaries at home, and cheaper rates here,” he said. “It is win-win, where the major profit goes to the US company.”

In a country where the average salary is $300-$400 a month, there were major savings for international customers to be made in outsourcing any type of clerical task, from accountancy to legal paperwork or documents related to processing insurance claims or repairs.

National education programs on English-language and IT teaching are designed to ensure a sufficiently skilled talent pool is available for growth; locally trained young software engineers can also now benefit from the influx of more than 6,000 senior IT specialists who have relocated from Russia, Ukraine, and Belarus in the past couple of years, industry insiders say.

One example of the growing success of the country’s ‘digital nomad’ strategy can be found in EPAM Systems, a $12 billion New York stock-exchange listed software engineering outsourcing company, which has set up an Uzbekistan office and hired 1,000 highly qualified engineers.

Another sign of success is attracting global IT innovator and startup accelerator Silicon Valley-based Plug and Play, which last year added Tashkent to its global network of more than 50 offices.

An early investor in companies that are now global brands, such as Google, PayPal, and Dropbox, it counts Walmart, DHL, Maersk, VISA, Coca-Cola, Pepsico, Mercedes-Benz, and Shell among its 500-plus corporate customers.

“We are still at an early stage of developing the IT startup ecosystem in Uzbekistan, be our aim is to make Uzbekistan and Central Asia the central hub for start-ups in this region,” Sascha Karimpour, managing director of the Uzbek office, and a partner in Plug and Play, said during a presentation at the ICT Week in Tashkent.

“We’re trying to help existing starts-ups [in Uzbekistan] to come to an international level, market themselves internationally and find customers.”

In the first year of its program to support Uzbek startups, the company provided “hundreds of hours of mentoring,” helping local firms raise $500,000, and saw more than half of them increase their revenues.

Plug and Play was looking to invest in five local companies this year after studying the most promising firms, Mr. Karimpour added.

Uzbekistan is also a growing market for IT solutions itself, with companies such as Tashkent-based Uzinfocom developing sophisticated facial and hand-print recognition software among a raft of services designed for business and government. The company, based in offices near the Ministry of Digital Technologies, is 51% owned by the Uzbek government.

Farkhod Ibragimov, CEO of IT Park Uzbekistan – which incorporates a network of 14 IT parks throughout the country that now hosts 1,500 companies – says Uzbekistan now offers the “best conditions” for attracting outsourced business solutions in the entire Eurasia region.

“The strongest advantages we have are our talent pool, its availability, and government support with tax and customs benefits,” he told OCA.

Those benefits include no corporation or social taxes for IT Park resident companies and personal tax rates of 7.5% instead of the general rate of 12%. In return, IT Park resident companies pay 1% of their turnover to fund the network. Those revenues are expected to top $1 billion this year, Mr. Ibragimov says.

Companies that relocate to IT parks outside of Tashkent can also benefit from free office rental for their first year and a range of other generous incentives.

“Our main mission is to attract foreign companies and show local companies the potential of the foreign markets,” Mr. Ibragimov said.

Most foreign companies that have relocated to Uzbekistan are involved in IT services, with 20% (around 200 companies) offering BPO services, including dispatching, call centers, and accountancy. The vast majority (95%) of such services are delivered to US clients.

Uzbekistan is active in identifying potential business around the world, Mr. Ibragimov added, with monthly trade missions to the US, Europe, and other parts of the world.

For all IT and BPO services, the US represents the biggest market (43%), followed by the UK (14%) and Europe (10%).