Convenient geographical location makes Eastern Europe a viable option for businesses that are looking to build a successful offshore cooperation with top tech talent and are based in the UK, Germany, the Netherlands, Denmark, Norway, Belgium, Austria, Sweden, and other European countries. Besides, US companies have shown increasing interest in the region as well. In this article, we decided to focus on the current state of the Eastern European IT industry to help you make an informed decision when choosing your perfect outsourcing location.
- The Benefits of Outsourcing to Eastern Europe
- Why Ukraine?
- Popular Locations and Current Tech Market Trends
- Why Build Your Offshore Team in Eastern Europe with Daxx?
Eastern European Countries have a lot in common as most of them used to be a part of the USSR and share vestiges of that period. However, what connects these countries even stronger is their invincible desire to reach for improvement. Today, Eastern Europe is developing at the speed of light, which has resulted in an outbreak of innovative specialists in different industries, among which tech professionals really stand out.
While Eastern European software developers have achieved great results and are renowned around the world for their high-quality work, economies of their countries still lag behind. This makes cooperation with software developers in Eastern Europe rather beneficial: you receive a high-quality product for a price that is lower than the average rates in Western European countries. However, reasonable rates aren’t the only benefit that attracts business owners to build extended teams in Eastern Europe countries. Here are five reasons to cooperate with Eastern European developers:
Massive Talent Pool
Western Europe has been suffering from a tech talent shortage for quite some years now. It touched the Nordic countries in particular. By contrast, Eastern Europe is now facing the opposite tendency — the number of talented developers has been constantly growing, and currently there are more than a million skilled software developers in the region. Western business owners can benefit from these tendencies — choose skilled software developers from the vast tech talent pool in Eastern Europe and cooperate with them through the extended team model.
High-Quality Technical Education
The quality of technical education in post-Soviet states is very high. According to the QS World University Rankings, 30 universities out of the 369 top educational institutions in Europe are located in Eastern Europe. Education is one of the main reasons Eastern European tech workers rank among the best software developers in the world.
Convenient Geographical Location and Timezones
The time difference between Eastern and Western Europe is one to two hours on average, which is practically negligible for efficient daily communication. Moreover, traveling within Europe is very convenient, as you can reach most Eastern European tech hubs within a couple of hours from any part of Western Europe.
There are also direct connections with major US cities. Although travel time takes obviously longer, a maximum time difference of ten hours still makes it possible to set up efficient cooperation with the help of daily sync-ups and flexible working hours.
Similar Cultures and Mentality
Eastern and Western Europe have multiple cultural and economic ties and only a few serious differences. Moreover, Eastern European providers usually follow international business codes of conduct, which makes it easier to set up transparent and efficient cooperation.
According to the English Proficiency Index, most Eastern European countries have moderate or high English proficiency levels. Furthermore, English skills among IT professionals are traditionally higher than the country’s average.
Some of Eastern European countries such as Belarus and Ukraine enjoy a solid governmental support in the field of IT outsourcing. This and many other factors make Eastern Europe one of the leading outsourcing destinations worldwide.
In recent years, the tech market in Ukraine has been rapidly growing, and now there are plenty of international companies that run their R&D operations here. According to studies from Gartner and the A.T. Kearney Global Services Location Index, the country is one of the largest outsourcing markets in the Eastern Europe.
Only in four years, from 2011 to 2015, the Ukrainian IT market grew by 150%. If the pace of growth stay the same, the sector will be worth $5.7B by 2020.
The information technology industry was worth $3.6B in the last year and is expected to reach $4.5B by the end of 2018. Should current trends be maintained, IT outsourcing is expected to increase by 500% in the next couple of years. Nowadays, the IT sector is the third largest export segment in Ukraine, accounting for over 3% of the country’s GDP. This way the IT industry is becoming one of the leading export branches in Ukraine.
Dynamic IT Community
There are more than 165K developers in Ukraine, 60% of which are currently employed in outsourcing. These professionals are mostly located in Kyiv, Kharkiv, Lviv, and Dnipro — the largest Ukrainian IT hubs.
Annually, Kyiv and other Ukrainian tech cities hold dozens of IT events, which present plenty of opportunities to exchange innovative tech ideas. Among the most popular events are: Outsource People, Lviv IT Arena, ITEM, and Mobile Beach Conference.
Most major IT hubs in Ukraine have dedicated organizations that aim to promote the local tech industry. Apart from creating clusters, communities, and clubs, these bodies organize and hold various events, build partnerships with other organizations (local and international), and foster a favorable business environment for the tech industry.
Reasonable Costs of Stay
According to lonelyplanet.com, the average daily budget needed for traveling to Ukraine ranges from $20 to $75. This sum covers a room with breakfast in a good hotel, a three-course dinner in a nice restaurant, and transit costs. To put this into perspective, a similar experience in Poland would cost you $60–$90 per day.
This means you can visit your offshore development team as often as you wish while investing minimal efforts and costs.
The Ukrainian government has recently simplified legal and financial regulations that control the IT services export. Besides, tech specialists who act as individual entrepreneurs enjoy simplified tax policies and only contribute 5% of the revenue and $30 of social tax per month. What’s more, many Ukrainian banks offer special service terms for tech specialists.
Citizens of the EU and the US don’t need a visa to travel to Ukraine. However, the stay is limited to 90 days within a 180-day period. Since 2017, Ukrainians have also been able to travel visa-free to the Schengen Area.
Currently, the IT sector in Russia is developing dynamically and shows great capacity. The GDP generated by tech sector makes 2.1% at the moment and grows each year by 11%.
The fast development of the IT sector in Russia is prompted by active governmental support. For example, there are special technology parks in major IT-oriented cities, where Russian programmers can enjoy lower taxes and a favorable customs system. The biggest Russian IT hub is Moscow, which collects around 37% of all Russian programmers, 19% reside in the Northern regions, 13% in the Ural region, and the rest are distributed throughout the country.
Even though there are approximately 2M tech specialists, who make 2.4% of the Russian workforce, tech market analysts predict that by 2027 Russian IT sector will be suffering from lack of tech specialists. Thus, Russian government is now elaborating an extensive education model to increase the annual number of tech graduates all over the country.
The Polish IT industry is one of the fastest growing in the region. In 2014, it accounted for 6.1% of total GDP and has shown a steady growth ever since. The average annual increase is more than 8.6%, which is one of the highest in Europe.
The production value of the Polish ICT market is growing as well. It increased to €32M in 2016 and is expected to reach €54M by 2026, according to various forecasts.
Business processes outsourcing (BPO) and IT outsourcing (ITO) account for over 20% of the Polish tech industry. The average annual growth of the outsourcing sector in Poland is estimated at around 20%. According to the Polish Investment and Trade Agency, over 40% of all outsourcing R&D centers in Eastern Europe are located here.
The actual number of people employed in the IT sector in Poland ranges from 140K to 430K people. The latest StackOverflow data collected by infoShare reveals that Poland currently has around 254K engineers. The average annual increase in the workforce is around 6%.
Almost 90% of the Polish IT workforce is located in seven cities and metropolitan areas: Kraków, Warsaw, Wrocław, Katowice, the Tricity area, Łódź, and Poznań. Kraków currently has the highest number of Polish IT specialists, with over 50K developers working there.
The Bulgarian IT market is currently one of the most dynamic markets worldwide. The tech industry has recently become an important part of the Bulgarian economy, as its share of the market is constantly growing. In 2016, the local IT market hit €1.02B in revenue, showing a 600% growth on the 2006 figure.
For sure, IT outsourcing has played its role in this rapid progress. In 2016, it generated €1.5B, equal to 3.6% of the country’s GDP. These numbers are expected to reach €2.5B (4.2% of GDP) by 2020. One of the major players on the market is HP Inc. The company currently employs 6K employees in its office in Sofia.
There are at least 48K IT specialists employed across more than 400 companies operating in Bulgaria compared to less than 5K people in 2006. However, this growth has slowed recently, and many employers are suffering from a talent shortage and an inability to fill their positions with qualified specialists.
The Bulgarian tech talent pool is relatively young, with 90% of all specialists younger than 35 years old. Software developers make 85% of all specialists employed in the IT industry.
In the Bulgarian outsourcing industry, 80% of operations are concentrated in Sofia, the country’s capital city.
The Czech Republic is another popular outsourcing destination in Eastern Europe. The local IT sector adds $3B in annual revenue to country’s economy, which is also 1.5% of GDP.
However, software development outsourcing is not the largest export for the country, because 32% of service providers specialize in finance and accounting, 21% in customer operations, and only 12% of the market accounts for tech services.
Based on various sources, the country’s IT industry currently employs somewhere between 65K and 155K people. According to StackOverflow data, the number of developers is slightly over 100K, and employment in this sector is expected to grow by 17% in the next two years.
The Czech Republic is home to over 180 service companies and R&D centers, almost half of which are located in Prague. Brno is another popular IT hub, hosting a number of international R&D centers. Some of the major companies with R&D centers in the Czech Republic are Microsoft, Skype, IBM, and SolarWinds.
The Romanian IT industry was worth $3.4B in 2015. Currently, 8% of Romania’s GDP comes from the tech sector. There has also been a 31% increase in the export of software services and products over the last few years, which clearly indicates the growing significance of the Romanian IT outsourcing sector.
Today, there are around 80K specialists employed across 250 outsourcing companies in Romania. According to a report by CBRE, the local talent pool is growing at the rate of 10% per year.
More than half of all Romanian IT specialists — between 50% and 78% — live and work in the capital city, Bucharest. Other popular locations are Cluj-Napoca, Iasi, and Timisoara.
The tech sector accounts for almost 10% of GDP in Hungary, which makes the country another high-performing Eastern European IT hub. The Hungarian tech industry focuses mainly on software development of anti-virus products and security services.
The Hungarian IT market currently employs up to 150K specialists in various fields, which is 1.5% of the country’s population. However, the number of developers is much lower than the total number of IT workers: only around 80K people are certified as software developers.
The main IT hubs in Hungary are Budapest, Debrecen, Pécs, Szeged, Miskolc, and Veszprém.
Some of the major companies that have opened development centers in Hungary over the past five years are Lufthansa, IBM, Microsoft, Nokia, and HP.
The IT market in Belarus is currently on the rise, largely due to solid governmental support. Local companies enjoy reduced taxes or even complete tax exemption. Moreover, tech companies can join the Hi-Tech Park and avoid bureaucratic procedures altogether.
Despite the country’s relatively poor economic and political conditions, the Belarusian market has been growing steadily in terms of both the number of IT workers and their production. Local IT companies generate 1.5% of the country’s GDP.
Belarus is home to over 970 IT companies, 24 of which are state-owned. According to StackOverflow data, the industry employs over 45K software engineers. The workforce is constantly growing, as 2K new specialists graduate from local technical universities every year. Most IT companies are located in Minsk, Vitebsk, and Homel.
Choosing the right country for setting up your nearshore development center is just as important as picking the right vendor and hiring the best candidates. There are many factors you should consider before making the final decision: your specific business needs, the technologies you require, the availability of developers with the required skills, the cost of operation, tax policies, and the legal aspects of running a business in the examined country.
Our team is here to conne ct you with top engineering talent in Ukraine. We help you hire and retain skilled software developers, set up an optimal working environment for your team, and handle accounting and taxes. You can focus on managing your team directly without any third party interference, while we take care of everything else.
For more information, get in touch with us using the contact form below.
- Growth Perspectives for Polish ICT Sector by 2025, report by INVESTIN and Polish Agency for Enterprise Development
- Central & Eastern Europe Developer Landscape 2017, report based on StackOverflow data
- Bulgarian News Agency
- A.T.Kearney 2017 Global Services Location Index
- Business Services Destinations in Central Europe, report by CBRE