The information technology (IT) industry remains the priority sector of the economy of Armenia , and the existing volumes and prospects of software export are considered promising. The statistics used below to summarize last year's results for the IT sector in Armenia are taken from a recently published report by the Enterprise Incubator Foundation (EIF). According to the report, the annual turnover of the IT industry in Armenia in 2003 was about $38 million, of which foreign companies account for two-thirds and local companies one-third. Almost the same ratio is registered between the shares of export and local market. The annual revenue from IT industry exports amounted to $24 million. Let us stress the following characteristic fact - whereas the internal market is almost completely dominated by local companies (88 percent), foreign companies have similar domination in export (84 percent). According to the same source, the annual growth of the industry is about 30 %. Moreover, under certain favorable conditions, a higher growth rate - up to 45 % - is considered possible, which will make it possible to reach $300-500 million in annual revenue by the year 2010. This is a very large figure, and we will try to see to what degree such expectations are well-founded.

In many countries, no sequential software export statistics are compiled, or the statistical data are not published and, as a rule, the data published by companies is overstated, since it has a marketing value and such exaggeration is advantageous for both the state and the companies. It may be possible that in case of Armenia as well, we are dealing with overstated data.

In 1990s the experience of the most successful exporters - India, Ireland, and Israel - greatly inspired the developing and less developed countries, and as E. Carmel put it, many countries "have been trying for ten years now to become the next India." For several years, this ambition has been proclaimed on behalf of Armenia as well.

Therefore, it may be useful to make a tentative attempt at placing Armenia in the international software market, guided by a recently developed model for the classification of software exporting countries ( E. Carmel ). Based on a study of the experience of countries that have achieved success in the software export sector, various authors ( R. Heeks and B. Nicholson , E. Carmel ) have formulated a set of so-called Success Factors that makes it possible to both understand the reasons for these countries' success and evaluate other countries' prospects for success. Using the available data and this methodology, we will try to evaluate Armenia's potential, its advantages and shortcomings, meanwhile comparing it with such countries as Iran (Armenia's neighbor and a potential competitor) and Ukraine (a major center for information technology in the former USSR, which, according to 2002 data, surpasses Armenia in volumes of software production by several times). At the same time, one of our main goals will be to examine the question of how the development of this sector might impact the overall economic progress of our country and the welfare of the people.

Model of taxonomy of software exporting countries

The four-tier taxonomy of software exporting countries was introduced by E. Carmel (see EJISDC (2003) 13, 2; www.ejisdc.org ). The taxonomy is based on three threshold principles - maturity, cluster, and export revenues - according to which the exporting countries are divided into four groups or tiers. This model can include all countries which to a lesser or greater degree participate in the global software market, although it nevertheless leaves some room for vagueness even if statistical data is present. For example, it is not clear which tier a country that overcomes the threshold according to two principles but fails to do so according to the third principle belongs to.

	Maturity	Cluster / Critical Mass (Number of organizations)	Export Revenues  (US$)
Tier 1	> 15 years	Hundreds	> $1 billion
Tier 2	> 10 years	100	> $200 million
Tier 3	> 5 years	Tens	> $25 million

Table 1: Thresholds of the tiers in the taxonomy

Table 1 needs some explanation for the purpose of clarity. The first principle, Maturity, relates to the years of exporting and means the duration of export not by one or two companies but by a sizable number of companies, which makes it possible to speak about an accentuated export capacity. One may say that the principle of maturity implies the existence of an exporting tradition and is characterized by the duration of this tradition. The Cluster principle relates to the number of exporting companies that put forward a certain "critical" mass, creating at the same time conditions for the development of various secondary/auxiliary services. At the same time it implies, even if not explicitly, the origination of a united orientation among a certain number of enterprises, or their association to occupy a market niche.

The third principle , Export Revenues , is clearer. But here too, as we have described, precise assessments meet with a number of difficulties.

Naturally, these threshold principles and their quantitative expressions are stipulated by the present situation and might change in the future, since the market itself is subject to rapid and manifold changes.

To be continued.