Most observers looking for paths of development for Armenia point to the success of the tech industry, in particular software development. It’s a good story: 20+% annual growth, salaries much higher than the national average, an independent, well-educated workforce, and significant participation by well-known foreign companies. In the space of just over 15 years, the industry grew more than 15-fold in the number of firms, 10-fold in number of employees, and total industry revenue now represents 5 percent of GDP, and 11 percent of exports for Armenia.

As we dig further, though, we see that the story is more complicated. First, 30 percent of industry revenue comes from the Telecom/Internet Service Provider (ISP) sector, primarily due to the significant investment in developing a world-class mobile telephone and Internet network. While the vast improvement in Internet availability, reliability, speed and affordability has been a major driver for the rest of the industry, this is an indirect effect, rather than contributing directly to the competitiveness of the IT sector on the global market. Next, demand for talent far outpaces the current educational system’s ability to produce qualified graduates – this has led to increased poaching and a general increase in salaries, which reduces competitiveness for pure outsourcing/offshoring businesses. Lastly, most firms have structured their operations on a cost-plus basis, meaning that the real market value of software and services is realized abroad, and is not reflected in the size of the industry.

Still, many observers believe that current trends in the global IT market are creating new opportunities for growth and relevance for Armenian tech companies. If the industry at large – as well as government and educational institutions – react quickly and earnestly to these trends, Armenia has an opportunity to capture an inordinate share of the new value being created as a result of these trends.