Risks of Offshore Software Development in Eastern Europe

Is Eastern Europe a new offshore software development paradise?

Many software companies in the United States, United Kingdom, and Western Europe now prefer outsourcing to Eastern Europe over Asia, as it used to be just a couple decades ago. Eastern European countries are now the new offshore software development paradise with favorable pricing, convenient location, and well-developed business ethics. However, there are also certain risks that you should consider before you decide to outsource your R & D to Eastern Europe. In this article, we are going to discuss those risks as well as elaborate on possible solutions and workarounds.

Software Development in Eastern Europe: Locations

According to the Global Services Location Index, the top 5 best countries to outsource software development in Eastern Europe are Poland, Bulgaria, Romania, Ukraine, and the Czech Republic. Now we will give a brief overview of each country and the state of its IT industry.

Poland

Poland is the most economically stable country in Eastern Europe and has the fastest growing economy in the entire European Union. The IT industry in the country does not stand still either. According to the Top Coder ranking, Polish developers are currently ranked 4th in the world for their coding skills. The country features over 140,000 professionals working in nearly 450 offshore software development companies. Every year Polish universities release over 15,000 tech graduates, so for sure, the country cannot complain about the lack of tech talents. The Tholons Globalization Index 2018 features Krakow among the top 10 digital innovation cities. Other major tech hubs are located in Warsaw, Poznan, and Wroclaw.

Bulgaria

Bulgaria started “nearshoring” the software development back in the 1980s – the country was specializing in the export of large-scale computer technologies to other Eastern Block countries. Today, Bulgarian economy is ranked 49th out of 137 countries in the World Economic Forum’s Global Competitiveness Index 2017 – 2018. As compared with the same index from 2014 – 2015, Bulgaria has risen from the 54th place, leaving behind Poland, Romania, and Ukraine, which means the stable growth of the Bulgarian economy.  As for the IT sector, since 2017 it has been growing annually by 17 %, generating 10 % of the country’s GDP. Bulgaria is ranked at Clutch as the world’s 5th top outsourcing country.

Romania

Romania belongs to the EU’s top 5 countries with the fastest growing economy. The country features about 100,000 IT professionals, with nearly 7,000 tech talents graduating from the local universities on a yearly basis. Romania is the 20th country in the world that has the best developers, according to HackerRank challenges scores. In 2017, the IT industry in Romania has grown up to $ 4.2 billion and generated 5 % of the GDP. The IT market growth rate is 15 %. Finally, Romania is ranked 13th in the A.T. Kearney’s 2016 Global Services Location Index because of the favorable business environment, financial attractiveness, excellent tech skills, and availability.

Ukraine

A former member of the Soviet Union, Ukraine still has a lot of room for improvement. However, despite its past, the country has been actively growing its IT industry since 2014 when the government changed, and now has impressive results. In 2017, the Global Sourcing Association (GSA) named Ukraine the “Outsourcing Destination of the Year”. The country’s IT export is expected to grow to $ 4.5 billion by the end of 2018. Ukraine is the world’s 11th country that has the best developers, as per HackerRank challenges scores, being the first in the security domain. Ukrainian startups such as Preply, Grammarly, Petcube, etc. are known worldwide.

Czech Republic

Having joined the EU in 2004, the Czech Republic was steadily demonstrating the stable economy and legal environment, thus having earned an A1 rating from Moody’s in 2016. The Czech economy is ranked 31st among the 137 countries in the World Economic Forum’s Global Competitiveness Index 2017 – 2018. Software giants such as Microsoft, Red Hat, and IBM have their R & D centers in this country. The skills of Czech developers belong to the world’s top 10, according to HackerRank. At an average, the country features approximately 22,000 skilled software developers.

Offshore Software Development in Eastern Europe: Benefits

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

  • Excellent skills at a reasonable price. East European developers charge almost twice as much as their counterparts in India or the Philippines. However, their rates are still significantly lower than those of the US developers (between $ 105 and $ 163, according to the 2018 Guide to Global Software Outsourcing Rates by Accelerance). At the same time, the quality of work that they deliver remains close to the quality provided by their US counterparts.
  • Low context culture. Unlike their Asian counterparts, the East Europeans are quite straightforward. They actively participate in discussions, do not blindly agree with everything, do not copy the buggy code of others, and provide their own insight into different issues. On the contrary, software developers in countries such as India, 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. The East European time zones are especially convenient for the 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 part of the work.

Offshore Software Development in Eastern Europe: Risks

Despite the positive outsourcing climate in Eastern Europe, you may still encounter certain problems while choosing the vendor and arranging the overall process of outsourcing. They are as follows:

Poor Quality of Code and Development

It is hard to thoroughly pre-vet a developer or webshop and make sure that they are the best fit for a certain project. And it is especially hard to do so when you are a startup founder who has tight deadlines and needs the workforce as soon as possible. You may get poor, buggy code because of the following reasons:

  • The webshop 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 the 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. But the truth is that the job is actually done by junior, low qualified developers who have not enough skills and expertise and thus cannot meet your quality standards.
  • The webshop can even fraud you by intentionally decreasing the quality of the code and charging you extra money for the amendments.

Developers Who Tend to Leave or Disappear

If you outsource the development services to a local software agency, after a time you may discover that the developers start leaving the team and looking 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 a long time. 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 may harm your project.

Another issue can be with freelancers who suddenly disappear. Freelancers are typically self-employed and do not work for any web dev shop. As a result, they are not bound with any long time commitments and can leave the project and stop responding at any time.

Ambiguous Billing Methods

Some offshore software development teams can bill their clients on an hourly basis and charge for more hours than they actually spent on the project. For example, Jake Carlson, a software development manager at Oracle, shares a story on how he experimented with hourly billing. 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 you get exactly what you pay for. Be sure that this payment amount is included in your agreement.

Leaked Information

This is probably the worst outsourcing nightmare – 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 era of technology, there are no one-click solutions to transfer the money overseas, including the Eastern European countries:

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

Complicated Taxation

Clients from outside Eastern Europe may get confused with the local taxation system, so it is significantly important to know who you pay money. For example, most Ukrainian software developers work for their employees are private entrepreneurs to pay less tax. It means that if you outsource software development to Ukraine, you sign a contract with a vendor that in its 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 of the vendors can misuse this system. Therefore, it is important that you carefully check the legal documentation and ensure that the transactions between your company and the vendor are completely transparent whereas all identities are proven and revealed.

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 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. YouTeam tech talent marketplace is a platform where you can find the pre-vetted tech talents at a reasonable price and in a risk-free manner. Let’s see how YouTeam can help you solve the issues that we have just described.

Issue # 1: Low-Quality Code

YouTeam Solution: Strict pre-vetting of the developers and web shops

We at YouTeam do not accept any low-quality code and do our best to ensure that this will never happen. Here’s how we select the vendors to work with us:

  1. We look for web shops with the best reputation, proven track record, and high external rankings.
  2. Before we sign an agreement with a webshop, we personally visit them onsite. We do it to see how they organize their working processes and how much effort they invest in the retention of the developers.
  3. We also check the legal documentation, to see if the vendor’s collaboration with the developers is transparent and trustworthy.
  4. Each developer that collaborates with a webshop must go through several stages of internal interviews. YouTeam features only the upper-middle and senior developers.
  5. Each offshore software development team that you outsource through our platform will dedicate all of their time only to your project.

If still some of the developers demonstrate skills lower than advertised, we block the responsible vendor at our platform and help our clients to find a replacement asap. However, we assure you that it happens quite rarely. Our vendors are interested in having a good reputation and thus help us pre-vet only the best talents.

Issue # 2: Disappearing Developers

YouTeam Solution: Official Employment by a Web Shop

Developers that are featured on YouTeam will never disappear and let you down without good reason. Of course everything can happen as we are all people, but in this case, you will get an explanation and timely replacement of a missing team member. YouTeam developers are not freelancers. They officially work at web shops that we cooperate with so they just cannot leave for no reason as it can happen with freelancers. You will know of any changes beforehand and we will suggest you the solutions in a timely manner.

Issue # 3: Complicated Payment Systems and Money Transfers

YouTeam Solution: Payment Through the Platform and Money Back Guarantee

With YouTeam, you will not need to bother about how to transfer money to Eastern Europe and other offshore countries. You securely make all of the payments via our platform while we handle the rest of the process for you. At the same time, the web shop takes over all of the overhead expenses, including the payroll, taxes, and administrative issues. Besides, your payment is released to the developers only after you approve their work. In the case of disapproval, you will get your deposit back within a two-week notice.

YouTeam: Other Advantages

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

Scalability for Startups

According to Eric Ries, author of the “The Lean Startup” book, 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. Just notify us within two weeks and we will quickly find a solution.

Quick Setup of the Team

With YouTeam, you will get your offshore software development team up and running within a couple of weeks. Here are the time estimations:

  1. Team shortlisting – several minutes.
  2. Contract signing – within 24 hours.
  3. Starting the project – two weeks maximum.

You will not get such speed if you collaborate with a traditional outsourcing agency because they need much more time to set up each stage.

Direct Communication

There will not be any third party intermediary between you and your offshore software development team that you hire via YouTeam. You will be able to directly interview the developers and communicate with them during the project. However, if you still need an external project manager, product manager, or account manager, we can help you with that.

No Recruitment Fees

We do not charge our clients for our services – instead, we get payments from the vendors. Our clients pay only for the software development services but use our platform for free.

The Bottom Line

Eastern European countries are now the new offshore software development paradise due to the following reasons:

  • Excellent skills at a reasonable price. Despite charging almost twice as much as their counterparts in India or Philippines, Eastern European developers maintain the same quality as the onshore developers in the US.
  • Being close to the western mentality and culture. The East Europeans are not afraid of confrontation with their managers and can voice any issues immediately, not waiting until they are escalated when it gets too late.
  • Convenient location and time zones. The East European countries have a little time zone difference with the UK and acceptable time zone difference with the United States.

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

  • Bad quality of work delivered. It is difficult to thoroughly pre-vet a developer or webshop and make sure that they are the best fit for your project.
  • Developers tending to stop responding or leave. The developers can either leave the webshop because of unfavorable working conditions – which is not your fault but the web shop’s – or just stop responding if they are freelancers.
  • Too many hours billed. If your offshore software development team bills you on an hourly basis, you risk that they bill more hours than they have actually worked. Therefore, it is recommended that you always insist on a fixed price contract.
  • Data leaks. If you do not sign an NDA with your developers, it may appear that your sensitive data and trade secrets are leaked to the web.
  • Complicated payment and money transfers. When transferring the payments overseas, you may run into such issues as double currency conversion, hidden exchange fees, or even falsified invoices.
  • Complicated taxation. If you are based outside Eastern Europe, you may become confused with the local taxation system, so it is important that you know who you pay money.

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

  • Strict pre-vetting of the developers and web shops ensures the top quality of work delivered.
  • The developers that you hire are officially employed by web shops and have all of the necessary working conditions, so there is a very little chance that they will leave the project.
  • You pay for offshore software development services via our platform by using a payment method that is most convenient for you, and we handle the rest of the process. Moreover, you can get a full refund in case of dissatisfaction with the deliverable.

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Anastasiia Myronets

Anastasiia Myronets

Technical writer, IT copywriter, content manager, translator with 12 years of experience.

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