Your Own Offshore Development Center in Ukraine vs. Third Party Vendors: Which Should You Choose?

Feb 08, 2018

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If you’re interested in partnering with an offshore software development company in Ukraine, you’ll definitely want to consider a few different providers. There are quite a few cooperation models that currently exist on the Ukrainian tech market, and making sense of them can be challenging if you’re new to outsourcing.

We’re here to offer you an insider’s perspective on what cooperation models are the most common among Ukrainian development companies, how they function, and what pros and cons you can expect in each case. We’ll also talk about when it’s best to open your own offshore development center in Ukraine, and when other options could be a better choice. So let’s get right into it.

1. Project Outsourcing

Project outsourcing is probably the most popular cooperation model offered by Ukrainian software development companies. This is known as a turnkey solution — the outsourcing company takes care of all the aspects of software development. The good news is that you don’t need to have in-house tech expertise to manage the development process. The bad news is that you don’t need to have in-house tech expertise to manage the development process. You get the idea.

Type of Contract: Time and Materials

One of the most common contract types used in project outsourcing is time and materials (also known as T&M). Within this model, the client pays only for the hours developers actually spend working on the project.

Pros

The biggest advantage of the T&M model is its flexibility. You’re free to adjust requirements, shift goals, replace features, and even stop the development process altogether at any moment.

Cons

While the flexibility of T&M is definitely a positive aspect, it also has an unfortunate side effect — low budgeting control. With this model, you can’t accurately predict how much money you’ll end up spending.

Another aspect of T&M that could be seen as a drawback is the fact that some software development companies count “idle time” as time spent on development, and charge for it. An example of idle time is a period when developers are unable to work on a project as they’re waiting for client feedback. So despite being very cost-efficient, a T&M contract might require you to pay for the time the developers are essentially doing nothing.

Type of Contract: Fixed Price

Unlike the T&M model, fixed price contracts are a single-sum agreement. The development company is fully responsible for completing the project and meeting all the client’s requirements within the agreed timeframe.  

Pros

Fixed price models are very predictable in terms of budget and timing. However, this only works when your project’s requirements and specifications are easy to predict, and if you’re able to clearly explain your vision of the desired outcomes to developers.

A landing page or a corporate website are both good examples of projects that work well with a fixed price arrangement.

Even if the development ends up taking longer than expected, the extra time developers have to spend on your project comes at no cost to you (provided the initial scope of work hasn’t changed).

Cons

This model isn’t nearly as flexible as T&M. Any changes to project scope you want to initialize after the contract has been signed will trigger additional charge. More often than not, these changes will shift the deadline, which also becomes your responsibility.

The fixed price model often turns out to be the most expensive for the client, without them realizing it. This is because vendors are aware of the fact that project development can take longer than initially planned, so they add an extra 30 percent to the project’s real cost to cover the risks.

Another commonly cited pitfall of project outsourcing in general is that developers who work within this model usually juggle several projects at the same time. As a result, they aren’t fully committed to any of the projects, which can hurt the end result.

2. Dedicated Team

It’s not unusual for Ukrainian offshore development companies to offer both project outsourcing and dedicated team models side by side. The latter works well for clients who are interested in a long-term cooperation because their projects require a significant volume of work. Within the dedicated team model, the vendor provides you with all the staff required to complete your project, and they work on it full time.

Type of Contract: Rate Card

In this type of agreement, the vendor normally gives you a list monthly rates for the developers who will be involved in your project, and bills you on a monthly basis.

Pros

You don’t overpay because the offshore development company doesn’t need to add any risks to the total cost — you pay for a full month of work anyway.

You also get a team of full-time developers that work exclusively on your project, so they’re much more involved than they would be in standard project outsourcing projects. And you don’t have to spend time and money on recruitment — the developers are already employed by the vendor.

Cons

You don’t have much say in deciding which developers are assigned to your project, so it’s hard to judge how well they actually fit your needs. Usually, the dedicated team model doesn’t allow you to communicate with the development team directly. Instead, you get to talk to a project manager, who then passes your requirements on to the team.

This isn’t a disadvantage if you have little interest in personally managing the development process in the first place. If you do, however, having a middleman between you and the team can lead to miscommunication and significantly slow down the team’s progress. If this is the case, you may want to consider the next cooperation model.

3. Extended Team

Just like a dedicated team, an extended team works exclusively for you on a full-time basis. However, there’s one important difference between these two models: each developer in an extended team is hired by the vendor with your exact requirements in mind. You don’t work with the vendor’s existing employees, you get new ones hired specially for you.

Type of Contract: Cost+

Cost+ means that you pay your developers’ monthly salaries and a fixed fee for the vendor’s services. These include payroll, taxes, office infrastructure, workstations, and support staff for your extended team.

Pros

None of the members in an extended team are people from the vendor’s bench. The vendor pre-screens developers based on your specific needs, after which you can personally interview them and choose the best ones.

Furthermore, the extended team model is the only cooperation model that gives you full control over the development process. There will be a contact person who you can reach out to if you run into trouble with your team, but other than that, the team is all yours. That is why this model is also referred to as outstaffing.

Other terms you’re likely to see on the Ukrainian tech market are “offshore team”, “nearshore team”, “dedicated team” (yes, we’re painfully aware of the ambiguity of this term), “team augmentation”, and “offshore development center”.

You, your CTO, tech lead, or someone else you choose will manage the extended team directly, with no middlemen involved. This direct communication often results in higher team commitment, which in turn leads to better team performance and outcomes.

In simple terms, working with an extended team is like having your own offshore development center, but without the need to spend on office space, support staff, and recruitment.

Cons

When you work with an extended team, the responsibility for time, cost, and quality is entirely yours. You’re the one who picks the team members, and you’re the one who manages them. If something goes wrong, you won’t be able to blame the vendor and get your money back. 

 

Project outsourcing

Dedicated team

Extended team

Contract type

Time and Materials

Fixed Price

Rate Card

Cost+

Flexibility

+

-

+

+

Predictable costs

-

+

+

+

Predictable timing

-

+

-

-

Potential risks included in price

+

+

-

-

Long-term cooperation

-

-

+

+

Personal interviews with developers

-

-

-

+

Direct communication with developers

-

-

-

+

High developer commitment

-

-

+

+

So When Does It Make Sense to Open Your Own Offshore Development Center in Ukraine?

There are two main reasons to set up your own development center rather than work through a third party:

  • You have a large software solution and are planning to hire at least 40 offshore developers.
  • You produce security-sensitive software, and its source code can’t leave the premises of your company.

If neither of these is the case, going through the process of opening your own office may not be worth the hassle. As a minimum, you’ll need to:

  1. Hire a local legal consultant to help you with administrative issues
  2. Register your company as a legal entity
  3. Find and rent an office
  4. Renovate and furnish the office
  5. Get to grips with the local tax system
  6. Hire recruiters
  7. Hire administrative and support staff (office managers, system administrators, accountants, etc.)
  8. Run a brand-building campaign to establish yourself as a good employer in the new location
  9. Recruit developers

Alternatively, you could work through the Build-Operate-Transfer model — hire an offshore vendor to open an office on your behalf. At the end of a period of time specified in the contract, or when the defined metrics have been achieved, the vendor will transfer ownership and operation of the offshore development center to you.

Whether you set up an office yourself or work through the BOT model, months will pass before you finally have a team of developers ready to get to work. On the one hand, if your software is truly massive and/or security-sensitive, it may well be worth the wait. On the other hand, if you only need to hire between one and 40 offshore developers, the extended team model is likely to be a much smarter choice.

Building an Extended Team with Daxx

We’ve been helping clients from all over the world hire skilled Ukrainian software engineers since 1999. We know exactly what it takes to set up an efficient offshore development center. Here’s why over 85 companies have chosen to build their offshore teams with us:

  • Top tech talent. We thoroughly pre-screen developers based on your requirements. You then personally interview and approve the best candidates as members of your offshore team.
  • Fast setup. We have access to over 50,000 software developers in Ukraine, so it normally only takes us only four to six weeks to find the right talent for your team.
  • Direct communication. You personally manage the offshore team using your preferred methods and tools.
  • Commitment. We don’t share your developers with other clients. Your team works exclusively for you, and they’re motivated to deliver quality.
  • Dedicated contact person. You work with a dedicated HR/Client Manager who helps you build effective working relationships with your developers. They are always there in case of questions and emergencies.
  • No back-office hassle. For a flat monthly fee, we handle payroll, taxes, workstations, office management, HR, and retention.
  • No upfront payment. You don’t have to pay us anything until you decide to hire software developers with us.
  • Flexibility. You can increase or decrease the size of your offshore team with only one month’s prior notice.

Daxx is an established company with over 18 years of industry experience. Our clients include small, medium, and large businesses operating across a number of different industries. Whether you’re a small startup or a multinational corporation, we can help.

If you’d like to explore the opportunities that hiring offshore developers with us can bring, sign up for a free consultation below. Simply fill out the contact form, and we’ll get back to you as soon as we can.

Read also:

10 Reasons You Should Hire Developers in Ukraine

The Only Checklist You’ll Ever Need to Select a Reliable Outstaffing Vendor

How to Recruit Software Developers | Tips for Making the Right Hiring Decisions Quickly

Hiring Developers Overseas: How Does the Ukrainian Mentality and Work Ethic Compare to Western Europe, the USA, and Asia?

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