Risks of Offshore Software Development in Eastern Europe

Is Eastern Europe a new offshore software development paradise?

Many software companies in the United States, the United Kingdom, and Western Europe now prefer outsourcing software development to Eastern Europe over Asia—as was common just a couple of decades ago. Eastern European countries are now the new offshore software development paradise with favorable custom software development rates, IT specialists with diverse tech stacks, convenient locations, and well-developed business ethics. However, there are also certain risks to consider before outsourcing software development projects to Eastern European IT companies. This article discusses those risks along with some solutions and workarounds to help establish fruitful partnerships with Eastern European software development outsourcing companies.

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IT Outsourcing in Eastern Europe: Locations

According to the Global Services Location Index, Poland, Bulgaria, Romania, Ukraine, and the Czech Republic are the best countries to outsource software development in Eastern Europe. We give brief overviews of each country and its IT industry.

Poland

Poland is the most economically stable country in Eastern Europe, with the fastest growing economy in the entire European Union. The IT industry in Poland is also booming, with over 400,000 professionals working in nearly 450 offshore software development companies. Polish universities graduate over 15,000 tech graduates every year, so the country can boast of its deep tech talent pool. As for the technology stack, the most popular programming languages among Polish developers are Java, PHP, C#, C++, Python, .NET, and JavaScript. Krakow is among the top 100 digital innovation cities, while other major tech hubs are located in Warsaw, Poznan, and Wroclaw.

Bulgaria

Bulgaria started “nearshoring” software development back in the 1980s—the country specialized in the export of large-scale computer technologies to other Eastern Bloc countries. Today, the Bulgarian economy ranks 53rd out of 137 countries in the World Economic Forum’s Global Competitiveness Index 2022. As for the IT sector, it grew at an annual rate of 26% in 2022, generating 10% of the country’s GDP. Clutch ranks Bulgaria as the world’s 5th most popular IT outsourcing country.

Romania

Romania is in the EU’s top 5 countries with the fastest-growing economies. The country features about 100,000 IT professionals, with nearly 7,000 tech talents graduating from the local universities yearly. Romanian developers are also known for their high English proficiency. Since 2017, the IT industry in Romania has grown to $4.2 billion and generated 5% of the country’s GDP. The IT market growth rate is 15%.

Ukraine

With its tech capital in Kyiv, Ukraine still has plenty of room for improvement. However, despite its past, the country has been actively growing its IT industry since 2014, after the government changeover, and now has been producing impressive results. Despite these great results, many foreign customers worry if it is safe and efficient to hire developers from Ukraine or assign them tasks due to the ongoing war. Many Ukrainian IT companies had preemptively moved their development teams to safer cities in western Ukraine or abroad before the war started, where they continued developing software efficiently. Providing for their families and bringing stability to the Ukrainian economy motivates these IT developers to continue providing their services. Additionally, many Ukrainian software development teams demonstrate a high level of English proficiency. Ukrainian tech companies such as Preply, Grammarly, and Petcube are known worldwide.

Czech Republic

The Czech Republic joined the EU in 2004 and has since steadily demonstrated a stable economy and legal environment. Its popularity has attracted software giants such as Microsoft, Red Hat, and IBM—they have their Research and Development (R&D) centers there. The Czech Republic and Hungary are considered the lowest risk options in the region. English proficiency of Czech IT professionals is also very high. On average, the country features approximately 22,000 skilled software developers specializing in most programming languages.

Offshore Software Development in Eastern Europe: Benefits

So why is Eastern Europe so attractive for outsourcing, offshoring, and nearshoring? Here are some advantages:

• Excellent skills at a reasonable price. East European developers charge almost twice as much as their counterparts in India or the Philippines. However, their hourly rates are still significantly lower than those of US developers. At the same time, the quality of IT services that Eastern European software developers deliver is nearly identical to that of their USA counterparts.
• Low context culture. Unlike their Asian counterparts, Eastern European countries are more straightforward and, overall, culturally more similar to North America and Western Europe. They actively participate in discussions, do not blindly agree with everything, do not copy the buggy code of others, and provide their own insight on different issues. On the contrary, software developers in countries such as India, the Philippines, China, etc., are afraid of criticism. Therefore, they would prefer to agree with the team lead or PM and do not show that they have misunderstood some of the requirements. As a result, even the critical issues are hushed up and not escalated further, being discovered only when it gets too late.
• Convenient location and time zones. East European time zones are especially convenient for nearshore and offshore software development teams. Outsourcers from the UK, for example, have only a couple of hours difference with the EET. Time zone differences with the US are, of course, greater, but still, they allow a few hours of overlap for synchronization between the teams. And the most competitive advantage is that the US morning corresponds with the afternoon in Eastern Europe, meaning that the developers have already completed a great deal of their work.

Offshore Software Development in Eastern Europe: Risks

Despite the positive outsourcing climate in Eastern Europe, employers may still encounter problems while choosing a vendor and navigating the outsourcing process. These drawbacks include:

Poor Quality of Code and Development

It is difficult to thoroughly pre-vet a software engineer or IT outsourcing company and to ensure that they are the best fit for a project. It is especially hard to do so as a startup founder trying to meet tight deadlines and needing a stable workforce as soon as possible. As a result, clients may get poor, buggy code because:

• The outsourcing company is running several projects simultaneously and “throws” the developers from one project to another, not providing you with a dedicated team. As a result, the devs lose focus and thus make mistakes.
• The vendor tells you that they have assigned their best team to work on your project and charges you accordingly. However, the truth is that the job is actually done by junior, low-qualified software engineers who have neither the skills nor expertise and, thus, cannot meet quality standards.
• The web development shop may even deceive employers by intentionally decreasing the quality of the code and charging extra for changes.

Software Developers Who Tend to Leave or Disappear

After outsourcing custom software development services to a local software agency in Eastern Europe, companies may discover that the developers leave the team to look for other job opportunities. The IT market of most East European countries is highly competitive, meaning that the developers will not remain on a project with bad working conditions for long. This is the fault of the local vendor, who is not making any effort to retain the developers because it is easier for them just to replace the workforce. However, such unexpected and frequent replacements of a development team may disrupt projects.

Another issue is that freelancers can disappear suddenly. Freelancers are typically self-employed and do not work for any web development shop. As a result, they are not bound by loyalty or long-term commitments and may leave the project and stop responding.

Ambiguous Billing Methods

Some offshore software development teams bill clients hourly but pad the invoice by charging for more hours than were spent on the project. For example, Jake hired an outsourced dev shop to create a WordPress theme from a completed design. He chose one of the best teams in terms of rates, rankings, and communication. While the team was working on the task, Jake was also working on the same task. At the end of the project, he compared his own hours with the hours billed by the team and got a stunning result. It took him 4 hours to complete the project, whereas the team billed 35 hours. Therefore, Jake recommends agreeing upon a flat rate (fixed price) to make sure that clients get exactly what they pay for. Be sure that this payment amount is included in your agreement.

Leaked Information

One of the worst outsourcing nightmares is to find your sensitive data and trade secrets leaked to the web. This is because many offshore software development agreements are signed in a hurry and without an NDA.

Complicated Payment System and Money Transfers

Even in today’s tech era, there are no one-click solutions to transfer money overseas, including to Eastern European countries:

• You may run into the currency conversion issues, such as double currency conversion and hidden currency exchange fees—see more here.
• Offshore vendors can issue falsified invoices to avoid taxes.
• Freelancers from Ukraine or Russia cannot receive payments via PayPal because PayPal does not work in their countries.

Complicated Taxation

Clients from outside Eastern Europe may get confused with the local taxation system, so it is important to know who to pay. For example, most Ukrainian software developers working as private entrepreneurs pay less tax. That means that if outsourcing software development to Ukraine, companies need to sign a contract with a vendor that, in turn, signs contracts with the developers as private entrepreneurs. As a result, the company pays less tax. This scheme is legal but complicated, and some vendors can misuse this system. Therefore, it is important that employers carefully check the legal documentation to ensure that the transactions between the company and the vendor are completely transparent.

How YouTeam Tech Talent Marketplace Can Help You Avoid Risks

All of the above issues and risks can make you think twice before you decide upon outsourcing software development to Eastern Europe. However, there is a universal solution that can help you prevent those issues and make outsourcing to Eastern Europe easier and more reliable. The YouTeam tech talent marketplace is a platform where employers can find reasonably priced, pre-vetted tech talent at a risk-free. YouTeam has access to a dynamic talent pool of 50,000+ vetted software developers from different parts of the world, including Eastern Europe. Moreover, we offer IT professionals with expertise in almost all programming languages and with experience in booming industries, such as eCommerce, telecom, fintech, and healthcare. Let’s see how YouTeam can help companies solve these issues.

Issue # 1: Low-Quality Code

YouTeam Solution: Strictly pre-vetting software engineers and web and app development shops

We at YouTeam do not accept low-quality code and do our best to ensure that it never happens. Here’s how we select software development companies that work with us:

1. We look for dev shops with the best reputation, proven track records, and high external rankings.
2. We check the legal documentation to see if the vendor’s collaboration with the developers is transparent and trustworthy.
3. Each developer goes through several stages of internal interviews before collaborating with a software development agency. YouTeam features only upper-middle and senior developers.
4. Our software developers dedicate all of their time only to a single project.

If developers continue to demonstrate skills lower than advertised, we block the responsible vendor from our platform and help our clients find a replacement ASAP. However, we rarely need to take such measures. Our vendors’ goals are to maintain their good reputation and thus help us pre-vet only the best talent.

Issue # 2: Disappearing Developers

YouTeam Solution: Official Employment by a Dev Shop

Developers featured on YouTeam will never disappear and let you down. Of course, anything can happen as we are all human However, in such a case, the customer will be informed promptly with a full explanation, and we will find a suitable replacement in a timely fashion. YouTeam developers are not freelancers. They are “officially” employed at dev shops that we cooperate with, so they just cannot leave without notice, as is often the case with freelancers. You will know of any changes beforehand, and we will recommend solutions in a timely manner.

Issue # 3: Complicated Payment Systems and Money Transfers

YouTeam Solution: Payment Through the Platform 

With YouTeam, employers don’t need to worry about transferring money to Eastern Europe or other offshore countries. Instead, customers securely make all of the payments via our platform while we handle the rest of the process. Furthermore, the software development company is responsible for overhead expenses, including payroll, taxes, and administrative issues. Finally, any payments for work rendered are released to the developers only after being approved.

YouTeam: Other Advantages

Here are other YouTeam competitive advantages that make it the best choice for offshore software development in Eastern Europe:

Scalability for Startups

According to Eric Ries, author of The Lean Startup, a startup is “a human institution designed to create a new product or service under conditions of extreme uncertainty.” We at YouTeam have created our platform with these conditions in mind because we were also working in a dynamic startup environment. Therefore, we give our startup clients an opportunity to scale the team to a necessary extent because the scope of their project can often change. With as little as a two-week notice, we can quickly find a solution.

Quick Setup of the Team

YouTeam gets offshore software development teams up and running within a couple of weeks. For example:

1. Team shortlisting – several minutes.
2. Contract signing – within 48 hours.
3. Starting the project – two weeks maximum.

Employers will not experience such speedy organization by collaborating with a traditional outsourcing agency because they need much more time to set up each stage.

Direct Communication

There are no third-party intermediaries between the company and their offshore software development team hired via YouTeam. Employers are able to interview the software engineers and communicate with them directly during the project. However, if an external project manager is still needed, we can help with that.

Offshore software development in Eastern Europe: FAQ

The Bottom Line

Eastern European countries are now the new offshore software development paradise because of:

• Excellent skills at a reasonable price. Despite charging almost twice as much as their counterparts in India or the Philippines, Eastern European developers maintain the same quality as the onshore developers in the US.
• Being close to the western mentality and culture. Eastern European professionals are not afraid to alert their managers of any issues nor to voice their opinions—before the problem(s) escalate and it is too late to easily rectify the problem. It means that business processes in Eastern Europe are quite similar to what people are used to in North America and Western Europe. 
• Convenient location and time zones. The Eastern European countries have a small time difference from the UK and an acceptable time difference from the United States.

However, despite the advantages, outsourcing to Eastern Europe can pose the following risks:

• Low-quality work. It is difficult to thoroughly pre-vet a developer or webshop and make sure that they are the best fit for your project.
• Developers tend to stop responding or leave. Developers can either leave the webshop because of unfavorable working conditions—which is the dev shop’s fault—or just stop responding if they are freelancers.
• Overbilling. If an offshore software development team bills hourly, companies run the risk of being billed for more hours than they have actually worked. Therefore, it is recommended that employers insist on fixed-price contracts.
• Data leaks. Without a signed NDA with developers, a company’s sensitive data and trade secrets are more likely to be leaked.
• Complicated payment and money transfers. When transferring payments overseas, companies may run into issues such as double currency conversion, hidden exchange fees, or even falsified invoices.
• Complicated taxation. For companies based outside of Eastern Europe, the local taxation system can be very confusing, so it is important to know who is getting paid.

All of the above issues can be prevented and solved with YouTeam—a unique tech talent marketplace. Here’s how:

• Strict pre-vetting of the software engineers and software development shops ensures top-quality work.
• The developers hired are officially employed by IT companies and have all of the necessary working conditions, so there is very little chance that they will leave the project.
• Payment for offshore software development services are paid via our platform by using the most convenient payment methods, and we handle the rest of the process.