How to Set Up an Offshore Development Center in Eastern Europe in 2021

Are you a startup struggling to hire software development experts to create your product? Maybe you are a business willing to improve your main platform to support continuous growth? Or perhaps you are a global enterprise in need of implementing innovative digital solutions to transform your range of offers and strengthen the market positions? In all of these cases, the answer you’re looking for might be to set up an offshore development center, or ODC.

The high cost of hiring and the lack of available experts in the US and EU make businesses consider setting up an offshore development center in Eastern Europe. And compelling reasons like lower wages due to a lower cost of living, simplified taxation for IT companies, and access to a vast pool of skilled talents tip the scales in favor of doing so.

Over the last eight years, Relevant has mastered several approaches to delivering various types of projects, and now, we want to share them with you. Keep on reading to discover the differences between building offshore development centers and outsourcing, the offshore development center benefits, the possible destinations, and why you should decide on Ukraine to set up an offshore software development center in 2021.

What is an offshore development center?

An offshore development center (ODC) is a physical office opened by a company in any country other than the one it’s headquartered in. ODCs get established to expand software development, cybersecurity, and other capabilities of a company. Countries with access to a wide pool of skilled IT talents, good business climate, low cost of living, and high price/quality ratio of resulting products make perfect environments for ODCs.

The process of setting up an offshore development center in Eastern Europe is pretty straightforward. Here’s our checklist:

1. Find a local legislation expert to cover various administrative issues.
2. Register your company and find a suitable office.
3. Hire a head accountant with expertise in local taxation.
4. Hire administrative staff, HR, recruiters, and the marketing team.
5. Launch a promo campaign to market your brand as a great employer.
6. Start hiring developers.

As you can see, a decision to set up an offshore development center is no different from opening a branch in a new location for any other industry. However, many businesses prefer not to invest so much effort and opt for outsourcing instead of building their own ODC.

What is the difference between building an ODC and outsourcing?

While many businesses use these terms interchangeably, some significant differences can be found between outsourcing and setting up an ODC.

IT outsourcing refers to the approach of hiring external expertise to speed up software development and deployment, cut costs, or scale up faster. However, these experts stick around for the duration of the project only and remain the employees of the technology service provider. Timely completion and the results of the project are the vendor’s responsibility. After the project is over, these talents transfer to their employer’s next project.

All this makes IT outsourcing a perfect choice for one-time, short-term projects, be it a landing page redesign or an MVP development.

On the other hand, an offshore development center becomes a part of your company. You only need help from a local technology partner to assemble the team. The talents you hired are your employees, and they may be more engaged and committed than temporary workers. All the project outcomes are your team’s responsibility. When the project is finished, you handle the staff, either relocating or firing them.

We will discuss the pros and cons of both approaches later, and for now, let’s define when going for an ODC makes a wise business strategy.

When to consider setting up your own center for your business?

Generally, there are three prominent cases when outsourcing doesn’t cut it, and you need to set up your own ODC.

A large project scope 

There’s a vast difference in the scope of work between developing a mobile dating app and building a corporate ERP platform for a global supply chain. Assessing project requirements helps define the scope of work intended, as well as the time and cost estimates. If you think the development might take more than a year and the product will require ongoing support and improvements, ODC is your way to go.

Big team required

You usually only need a backbone team to develop a mobile app, but delivering an enterprise solution requires more than a dozen people. And if developing it means you’ll be working with machine learning, analyzing big data, and operating mission-critical information, you will also need rare experts like data scientists, cybersecurity and machine learning pros. When your project needs more than 40 specialists, ODC becomes preferable to outsourcing.

See how to hire a site reliability engineer and cybersecurity expert.

Security-sensitive software

If your product is going to handle security-sensitive data (mission-critical business information, partner’s financial data, customer’s personal details, or any information where disclosure can result in devastating reputational, financial and political consequences), ensuring secure storage and management of such data becomes a top priority. Engaging an internal cybersecurity team or forming a long-term partnership with a reliable vendor is essential, and the ODC model suits this approach best.

How does the offshore development center model work?

There are two distinct approaches to running an ODC that differ by the degree of involvement your headquarters have in running the branch office.

• The contractor model. With this approach, your in-house account manager communicates with the ODC project manager, who oversees all tasks performed offshore and reports to the headquarters. Thus, you concentrate on growing your business while your remote team covers all the tasks needed to build a product.

This is a perfect model for startups and small to medium businesses that lack in-house resources and need end-to-end results from their offshore development center team.

• The customer model. With this approach, your ODC team are your direct subordinates, so your in-house team is much more involved in their operations and has to interact with them more frequently.

This is the best solution for enterprises with sufficient in-house resources to provide complete and timely input needed for ODC to operate efficiently.

Benefits of ODC

And now, we can discuss the advantages of the dedicated offshore development center in more detail. These are:

• Reduced software delivery costs. From smaller back-office payments to lower developer salaries and IT infrastructure expenses, ODCs allow saving a ton on CapEx and OpEx.
• Tapping into a massive talent pool. Offshore development centers are usually opened in countries with lots of skilled software engineers. On top of that, when a country becomes an IT outsourcing and offshoring hub, increasingly more new talents enter the market and improve their skills, allowing more US and EU companies to open their ODCs there.
• Decreased upfront and infrastructure costs. You can rent an office space and pay all the upkeep costs and utility bills — or you can let the technology partner establish your ODC in their office, greatly reducing expenses on bills, furniture, equipment, etc.
• Increased software delivery speed. When your technology partner builds an ODC for your project, they provide tried and tested processes, toolchains, and software project management best practices. This ensures lower managerial and operational overhead, leading to faster software delivery cycles. Besides, being in different time zones means your daily tasks are often done overnight, which further speeds up the software development process.

Speaking of Eastern Europe and India, let’s compare the two IT hubs.

Eastern Europe vs. India: where to set up your ODC?

India was traditionally considered an affordable IT hub because Indians know English well, are generally good at math and are willing to work for low wages compared to the US or EU. However, the low quality of the Indian code has long since become a byword. No doubt, there are some IT outsourcing companies in India with decades of experience under their belt, yet most Indian developers trade quality for speed quite often.

For example, when Addison Lee, a respectable London-based private taxi company, decided to transform their digital presence, they faced a choice between a team from India and a team from Russia, with nearly equal pricing. The customer prepared an identical test task for both teams, with intentional bugs, room for improvement, and structural inefficiencies in the code.

The Indian team delivered the result in four days without asking for any clarifications. None of the bugs were fixed or even reported. The team simply delivered the result according to specifications.

The Russian team, on the other hand, started with gathering input from the customer. Over the course of two weeks, they analyzed the source code and the project requirements to clarify the business model the client was going for. By splitting their goals into short-term and long-term scaling plans, the Russian team was able to focus on and improve both. They also pointed out the bugs and intentional mistakes in the code during the analysis phase and offered solutions for the structural flaws.

Do we need to tell you who was chosen as a long-term technology partner?

Another problem, partially stemming from the first one, is that India was considered the world’s best IT outsourcing destination throughout the early 2000s. Due to cheap price tags, customers were willing to trade quality for speed and iron out the mistakes later. Hundreds of billions of USD were invested in the Indian economy, leading to India having the third world’s largest startup community and more than five million software developers.

However, while growing in numbers, most of these developers barely grow in skills, though their services become increasingly expensive. The value of the rupee is growing due to a steady influx of foreign investments, but the quality of IT services doesn’t improve, making the customers wonder if there’s an alternative. 

There is, indeed! Eastern European countries — Poland, Ukraine, Bulgaria, Romania — rise in prominence as reliable and affordable IT outsourcing destinations. Aside from costs, the benefits of outsourcing to Eastern Europe include:

• Time zone overlap. Eastern European countries have full or partial overlap with Western European and American businesses. This considerably speeds up the software delivery pace.
• Cultural fit. Unlike Indian teams who celebrate multiple state and religious holidays, technology providers from Eastern Europe share the same cultural background with their Western customers, so their days off and holidays coincide most of the time.
• High technical literacy level. The total number of technical institutes and universities in Eastern Europe by far surpasses the number of their Indian counterparts. Besides, the levels of overall technical literacy of Eastern European students tend to hugely outrank those of their Indian colleagues. This provides a steady influx of talented developers that quickly rise in seniority, master new technologies more quickly, and obtain new skills more efficiently. This is proven by various coding tournaments, challenges, hackathons, GitHub, and Hacker’s World ratings, where software engineers and teams from Eastern Europe quite often achieve high positions.
• Growing recognition. As more and more global corporations discover the advantages of outsourcing to Eastern Europe over India, they start opening their R&D centers there. This helps to further promote the region as a reliable IT outsourcing hub, which is recognized by Gartner’s Magic Quadrant, Bloomberg Innovation Index, and other reputable sources.

Let’s take a closer look at the popular IT offshoring destinations in Eastern Europe.

Popular offshoring locations to go for

Continue reading to discover the offshore development center benefits you’ll gain from offshoring to Poland, Ukraine, Bulgaria, or Romania. 

Poland

Poland is home to nearly 300,000 software engineers working in seven major IT hubs: Krakow, Warsaw, Wroclaw, Poznan, Lodz, Katowice, and Tri-city (Sopot, Gdansk, Gdynia). Polish developers regularly win awards and retain high positions in international developer rankings.

Poland was named the 24th most attractive IT outsourcing destination in 2019, takes the 40th position in “ease of doing business” ranking by the World Bank, and houses more than 640 software development companies. They specialize in Java, Python, JavaScript, .NET, PHP development, DevOps and QA services, as well as iOS and Android mobile app development.

The salaries vary from 9 to 31 Euros/hr, depending on the technology, seniority level, and geographical location.

Ukraine

Ukraine is a powerful competitor for Poland in terms of costs, quality, and variety of IT services. Its IT community consists of almost 200,000 software engineers, 35% of whom are Seniors, and 30% are Middle-level developers with 3-10 years of experience, according to research from DOU, the leading IT portal in the country. The IT industry grows by nearly 30% YoY due to favorable taxation for IT companies. The quality of technical education in Ukraine is quite good, so almost 20,000 talented tech graduates join the industry annually. 

From 2012 to 2020, Ukrainian software developers have mastered a wide range of technologies, from Java and JavaScript to Python and Ruby.

The largest IT hubs are Kyiv, Kharkiv, Lviv, Odesa, and Dnipro.

There are more than 1,600+ IT service companies and over 4,000+ tech companies in Ukraine. Global corporations like Samsung, Boeing, Apple, Microsoft, Sony, and others opened more than 100 R&D centers in Ukraine

The average software developer’s salary in Ukraine ranges from $10/hr to $26/hr*, depending on seniority, technology stack, and location.

* Note that the salaries mentioned above don’t equal the cost of hiring software developers through Relevant. Read more about how offshore software development cost is formed in our article.

Bulgaria

The IT sector is booming in Bulgaria, showing 30-45% YoY growth since 2017. The country is home to more than 2,000 IT companies, 70% of which are exporting their services through outstaffing and outsourcing. The Bulgarian IT market is valued at around $3,2 billion as of 2018 with a 2,5 billion Euros turnover. The country currently has the 5th largest IT economy sector in the EU, and it is estimated to grow 4-5% YoY due to steady support from the government.

There are more than 70,000 software developers in Bulgaria, and the demand surpasses the supply two or three times, so all talented STEM (Science, Technology, Mathematics) students get employed instantly. An average hourly wage of an IT engineer in Bulgaria ranges from $9/hr to $31/hr, based on seniority level, technology stack, and location.

Romania

Romania is the 6th country in the world in terms of the number of certified IT specialists, ahead of the UK, Canada, and Germany. Global corporations like Oracle and IBM established their customer support and R&D centers in Romania, as it is a multicultural and multilingual country with nearly 80% of IT specialists fluent in English and customer support specialists speaking 15 European languages.

More than 17,000 Romanian companies employ 70,000 IT specialists, with nearly 5,000 tech university graduates joining the workforce each year. Due to the attractive taxation model, the Romanian IT sector grows at a steady 15% YoY. According to Payscale, the average IT engineer’s salary in Romania ranges from $5/h to $78/hr, depending on their technology stack (Java, C++, SQL, Python, PHP, JavaScript, etc.) and seniority level.

As you can see, each of these countries can be a viable choice for setting up an offshore development center in Eastern Europe. So…

Why build an offshore development center in Ukraine?

We have covered the ten most compelling reasons to offshore or outsource to Ukraine in detail, so you’re welcome to read that overview. But if you don’t have the time, here are the six most important reasons for setting up an offshore development center in Ukraine.

• Global recognition in the tech domain. Ukraine is regularly named the number one outsourcing destination in CEE, with the biggest pool of certified Senior-level IT engineers. The country is also often featured by Gartner, Colliers, and Kearney as one of the top locations for offshoring and IT outsourcing.

• Thriving tech community and infrastructure. Every IT hub in Ukraine has an active IT cluster hosting various conferences, seminars, hackathons, and other events. Several of the largest IT conferences in CEE take place in Ukraine — Lviv IT Arena, PyCON, Agile Conference, and more. Ukrainian developers are always eager to master new technologies and have ample opportunities for doing so.
• Quality and quantity. Nearly 200,000 IT engineers form the developer community in Ukraine. According to Skillvalue, many of them are among the best in the world, and HackerRank proves this: Ukrainian developers scored more than 88% across all HackerRank challenges.
• A favorite destination for global leaders. As we mentioned earlier, Ukraine is home to more than 100 R&D centers for Microsoft, Boeing, Oracle, Samsung, Huawei, Sony, Ring, and other Fortune 500 global corporations.
• Home to several unicorns. Some of the world’s most known startups are from Ukraine: Grammarly, PetCube, Gitlab, YouTeam, TemplateMonster are only some of Ukraine’s notable startups.

• Convenient business hours: Ukraine’s time zone (GMT+2) conveniently overlaps with working hours in most of the EU and borders those in the US, so many tasks can be done the same day or overnight. 

As you can see, Ukraine really is a great destination to set up an offshore development center. And should you decide to outsource instead of building an ODC, Ukrainian technology partners can help you deal with those kinds of tasks too!

Outsourcing – an alternative to ODC

If you feel like setting up an ODC is too much work, outsourcing is a nice alternative. In software development outsourcing, there are usually two price models that vary based on the scope of your project: fixed-price contracts and dedicated development teams. 

Fixed-price contracts

Fixed-time contracts are an excellent choice for launching a product or building an MVP for a startup without a tech team. A technology partner gathers your requirements, provides project estimates, and signs a contract to design, develop, and deliver the required software. But mind that the project scope cannot be adjusted easily, and an additional agreement should be formed for every case. However, this is the best choice for limited-budget projects.

Dedicated development team 

This is one of the most popular project engagement models, where you pay for quickly scaling up your expertise by hiring ready teams from the service provider. Hiring a dedicated development team is the best solution for projects with tight deadlines, startups that need to scale fast and without issues, or enterprises needing instant access to specific expertise. Due to fluid workflows, staffing can happen in under a week, and you get an external development team under your control while avoiding administrative hassle.

Summary

As you can see, setting up an offshore development center in Eastern Europe is a wise choice if your company wants to get access to a pool of skilled IT engineers quickly and save money in the process. You can select from a variety of locations and choose the most fitting collaboration model for your business. The most important aspect of this process is finding a reliable technology partner who will handle all administrative and managerial tasks, so you could concentrate on growing your business while having your back covered.

At Relevant, we’ve got you covered. We are a software development company with over eight years of experience and 200+ projects delivered to customers globally. Our teams work under various project management models, from dedicated teams and talent outstaffing to building offshore development centers for customers from retail, real estate, fintech, travel, and construction industries. 

With a commitment to do more with less, deliver services that amaze, be proud of what we deliver, and build outstanding teams, we have a vision of becoming your software engineering partner of choice in Eastern Europe. So don’t hesitate and contact Relevant today.

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