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Pros and Cons of Outsourcing to the Eastern Europe

by Mary Kolisnyk

Eastern Europe is now rapidly becoming the most attractive location for offshore software development. Until recently, software companies in the United States, United Kingdom, and Western Europe preferred outsourcing the development services to India or the Philippines. However, the only benefit that they could get were lower prices while the quality of the services was below average. Outsourcing to Eastern Europe has brought the clients affordable prices, high-quality services, wide talent pools, convenient time zones and smooth communication. Moreover, A.T. Kearney and Tholons consulting companies highly rate the Eastern European countries as preferable outsourcing destinations.

In this article, we will talk more about the pros of offshore software development in Eastern Europe and also highlight some risks that you should be aware of.

Outsourcing to Eastern Europe: Which Country to Choose?

The outsourcing conditions offered by developers in Eastern Europe may vary from country to country. As an example, let’s take three popular offshore software development destinations – Poland, Ukraine, and Romania – and compare them in terms of outsourcing.

Poland

With the fastest growing economy in the European Union, Poland has quickly reached economic stability, and this growth has also influenced the IT industry in the country. Here are some quick facts about Poland:

  • The country’s talent pool now totals to more than 140,000 developers working in about 450 offshore companies.
  • The skills of Polish software engineers are ranked 4th by TopCoder and 3rd by HackerRank.
  • The rates of software developers in Poland start at $50/hour.
  • Every year the country’s tech universities release over 15,000 graduates.

Ukraine

Ukraine has just started its way to becoming a member of the EU, but the country has already demonstrated excellent results in terms of tech innovation and offshore software development. Some successful global startups such as Grammarly or Petcube were established and built in Ukraine. Here are some other interesting facts about the country’s tech industry:

  • Ukraine is the "Outsourcing Destination of the Year" as of 2017, according to the Global Sourcing Association (GSA).
  • The skills of Ukrainian software developers are ranked 6th by TopCoder and 11th by HackerRank.
  • HackerRank has ranked Ukraine as a country with the best software engineers in the security domain.
  • The country’s talent pool totals to nearly 116,000 developers working at over 1,000 tech companies.
  • An average cost of software development services in Ukraine is about $37 per hour.

Romania

Being a member of the EU since 2007, Romania is now among the top 5 EU countries with the fastest growth of the economy. Romanian offshore software development companies focus mostly on the fintech industry. This is because the bank commissions in the country are among the largest in the region, so the fintech startups offer cheaper alternatives for younger generations. According to Saxo Bank analysis, Romania is a perfect place for fintech revolution. Other facts about the country’s IT industry are as follows:

  • There are over 100,000 software engineers in Romania.
  • Hourly rates of Romanian developers are 75% lower as compared with other Eastern European countries such as the Czech Republic and Poland, but the quality of the services remains at the top level.
  • The skills of Romanian developers are ranked 16th by TopCoder and 20th by HackerRank.
  • In 2017, the tech industry in Romania had grown up to $4.2 billion and generated 5% of the GDP.
  • Java and PHP are the core technologies that the Romanian software engineers specialize in.

Offshore Software Development in Eastern Europe: Pros

To summarize the given information about the three major outsourcing destinations, here are the key advantages of outsourcing to Eastern Europe and hiring remote developers from Eastern Europe:

  • Advanced skills at favorable prices. Software engineers in Eastern Europe charge more the developers in India or the Philippines, but their rates are still almost two times lower than those of the developers in the US. However, the relatively low rates do not impact the quality of their work, and this is good news for companies that are looking for offshore software development partners.
  • Convenient time zones. Eastern Europe has a great geographical location for working with Western Europe and even the US. For example, a head office in the US can have several hours of overlap with the offshore team in Poland or Ukraine. Besides, afternoon in Eastern Europe corresponds with morning in the US. As a result, the offshore developers have already completed some work, so the US clients can review it early in the morning.
  • Large talent pool. Unlike the citizens of other countries, Eastern Europeans are passionate about the IT trends, and the IT degree is becoming more and more popular with the younger generation. They do it not only for good compensation but also because they want to stay up to date with the current trends in the world of technology.
  • Communication. As compared with their Asian counterparts, Eastern European developers are more open-minded when it comes to communication. If they experience problems in the process of work, they report them immediately and are not afraid of criticism. As a result, all possible issues are handled in a timely manner and not escalated when it gets too late.

Offshore Software Development in Eastern Europe: Cons

Like anything else, outsourcing to Eastern Europe poses certain risks, which are as follows:

  • Obscure taxation. The taxation system in some countries of Eastern Europe may confuse the offshore clients. We recommend checking the business entity to which you issue the payments. If we take Ukraine as an example, most of the country’s software developers work for their employees as private entrepreneurs to pay less tax. It means that when outsourcing software development to Ukraine, you sign a contract with a vendor that in its turn signs contracts with the developers as private entrepreneurs. This scheme is legal but complicated, so some of the offshore agencies can benefit from these complications and misuse the system. Therefore, we advise that you carefully check the legal documentation and ensure complete transparency of financial transactions between your company and the agency.
  • Complex payments. Unfortunately, money transfers to Eastern European countries are not a matter of one click. For example, clients sending payments from the US in dollars may run into double conversion issues and hidden exchange fees, as the offshore countries have different currencies. Moreover, PayPal is not supported in countries such as Ukraine or Russia. Finally, some vendors can forge the invoices to avoid taxes. However, these issues are being constantly addressed, and we can already see the improvements. For example, the National Bank of Ukraine is going to introduce the International Bank Account Number (IBAN) in 2019. This will add more transparency to the cross-country financial transactions.
  • Developers leaving the project. The highly competitive offshore software development market in Eastern Europe and the local software agencies that fail to retain the developers result in losses for the team. The main reason is that the developers see no perspective in working on a particular project and start looking for new job opportunities. As for the local vendor, it is easier for them to find a replacement than to retain the existing workforce; however, such replacements can negatively impact your project.
  • Lack of communication. In many cases, collaboration with a local software development agency may involve communication only via a project manager, so the client has no direct access to the developers. As a result, you may end up working in a “telephone game”-like environment, where the initial message is completely distorted until it reaches the destination. In such cases, you need to find out if you can personally interview and communicate with your team before you sign the contract.
  • Leaks of sensitive information. Many offshore development contracts are signed in a hurry without an additional NDA, so later you may find your commercial secrets leaked to the web. Some developers may include parts of code in their GitHub portfolios because they did not know that it was not allowed. So, again, make sure that all agreements between your company and the vendor are completely transparent.
  • Lack of flexibility. If your company is a startup, it means that the project objectives and technology stack may change in the course of the project, so you will need to de-scale the team. However, in many cases it won’t be possible when collaborating with offshore vendors in Eastern Europe. When looking for a vendor, make sure that they have experience working with startups and know about the dynamic startup environment where the course can change multiple times within a short period.

The Bottom Line

Eastern Europe is now in the process of becoming the most attractive offshore software development location. Countries such as Poland, Ukraine, Romania, and many others are highly rated by A.T. Kearney and Tholons consulting companies as preferable outsourcing destinations because of the following benefits:

  • Advanced skills at favorable prices.
  • Convenient time zones.
  • Large talent pool.
  • Good communication.

However, outsourcing to Eastern Europe poses certain risks, such as:

  • Obscure taxation.
  • Complex payments.
  • Developers leaving the project.
  • Lack of communication and flexibility.
  • Leaks of sensitive information.

To prevent all of the above risks, you need to carefully choose the outsourcing vendor and ensure complete transparency of each agreement and transaction between the two companies. We hope that the information given in this article will point you in the right direction. Good luck!

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