Why Ukraine Is So Popular For IT Outsourcing
Let’s be honest, software development in Western and Central Europe is expensive. High taxes, high salaries, and other employee benefit-related costs, tight labor regulations, and many other factors make most of Europe the most expensive place in the world for developing software. Taking this into account, many European and global corporations completely or partially outsource development to Ukrainian IT companies.
A convenient location and time zone, high qualifications and an extensive stack of developers, great command of English, significant cost savings, reliable dedicated development teams, and absence of legal or financial risks among other advantages – all of these have made Ukraine the most popular outsourcing destination for software development among European companies. In this article, we will analyze and explain in detail why and how such a state of affairs has come to be, and how your company can successfully begin outsourcing to Ukraine as well.
Why Software Development in Europe Is So Expensive
First, it is necessary to define what we mean by “expensive”. After all, what is considered expensive for one company can be cheap for another. When we say that software development in Central and Western Europe is expensive, we mean that development costs are much higher compared to other locations such as Eastern Europe or Asia. Let’s review each cost factor in detail.
The key factor which makes software development expensive in Europe compared to other locations are the salaries. Let’s see the average salaries of software developers in the major European states:
- In the UK, the median rate of a software engineer is £45.00 or $56.64 per hour.
- In Germany, a software developer’s median rate is €20.13 or $22.75 per hour.
- In France, this figure is similar, with €35,565 of median annual salary or approximately $23 per hour.
- In Belgium, the median rate is €32.90 or $37.17 per hour.
- In Switzerland, a software developer on average earns $150 per hour.
- In Spain, the median hourly rate is €21.00 or $23.07 per hour.
It would be also interesting for some readers to see actual numbers for Scandinavian countries:
- In Norway, the median rate for this position is $25.11 per hour.
- In Denmark, this figure is slightly higher – $31.52 per hour.
- In Finland, an average developer can expect to earn at least $17.25 per hour.
- In Sweden, the median hourly rate is $27.27 per hour.
To compare, in Ukraine, a software developer’s rate ranges from $9.83 to $15.13 per hour. The average rate is $11.05 per hour or $24,652 a year. This is at least two times less than in Central or Western Europe. Therefore, by outsourcing to Ukraine it is possible to cut software development costs up to 60%. Taking this into account, it should come as no surprise why European clients choose Ukraine for outsourcing.
High Employee Benefit Costs
Employing an individual implies numerous additional costs besides the actual salary such as payroll taxes, insurance, and other benefit-related expenditures. In major European countries, labor laws impose a significant financial responsibility for employers which converts into high workforce costs. Therefore, when calculating development costs related to hiring local developers, European companies must also take into account payroll taxes, retirement contributions, medical and insurance costs, etc.
Payroll taxes, in most cases, constitute a significant fraction of total workforce costs. In France, the rate ranges from 4.25% to 20% depending on the salary level. However, payroll taxes are not the main concern for most companies. Social security and other benefits make up a larger portion of costs. Once again, in France an employer’s contributions related to social security on average amount to 50% of the gross salary. In Germany, this figure amounts to 21% on average.
Therefore, European employers incur additional costs when hiring local software developers. These costs may vary from 20% to 50% depending on the country of choice and a developer’s salary. Besides salaries and employee benefits, the costs of running a business in Europe must be considered as well. Hiring software developers requires office space, additional utility costs, furniture, electronics, and many other necessities. All of these can significantly increase the final cost of development.
Having briefly analyzed the main cost factors of software development in Central and Western Europe, let’s talk about the other side of the issue – Ukraine.
Ukraine - The Ultimate Outsourcing Destination
Ukraine is the second largest country in Europe with a population of around 42 million people. It is one of the top 25 IT exporters in the world, and the top offshoring destination in 2017. With over 160,000+ IT professionals, an extensive technology stack ranging from Java to Ruby, tens of thousands of graduates every year, thousands of IT companies including Microsoft, Google, Apple, Oracle, and others, it now becomes clear why Ukraine is the most popular country for outsourcing software development among European clients.
There are countless reasons why Europe successfully outsources development in Ukraine. We are going to highlight and describe in detail the most important ones.
An Extensive Stack of Developers
Java constitutes 20.67% of the entire stack
- C# – 14.11%
- PHP – 13.05%
- Python – 9.76%
- C++ – 4.96%
- Swift – 3.4%
- Ruby – 2.97%;
However, an extensive stack alone is not enough. It is also important to ensure that the developers are qualified and proficient in the languages required.
Proficiency and Qualifications, Quality and Expertise
Ukrainian developers are globally recognized for their qualifications and expertise. High rankings by Colliers International, Outsourcing Journal, and other reputable sources prove this. Ukrainian developers occupy the 5th position on the global rating of developers by TopCoder, and the 11th on HackerRank’s list. Over 85% of developers have a university degree.
Finally, the fact that the largest IT companies such as Google, Apple, Microsoft, and others outsource to Ukraine confirms the high level of expertise of Ukrainian IT specialists. Otherwise, these IT giants would not hire Ukrainian developers, would they? Therefore, European companies needn’t be concerned about the reliability and qualifications of Ukrainian IT professionals. On the contrary, they can reasonably expect to receive the highest quality/price ratio.
Some clients might be concerned about the communication side of the issue and the developers’ command of English. Fortunately, almost all developers speak English. According to the most recent DOU report, 11,5% have an advanced level of English, 33% upper intermediate, 37,5% intermediate, 15% lower intermediate, and 3% elementary. This removes any doubts about possible communication issues.
Cost Savings and Other Outstaffing Advantages
As we have already shown, the salaries of Ukrainian developers are up to 60% lower than in most European countries. This allows cutting development costs by the corresponding percentage. Also, we have already seen that employing local developers creates additional costs for European employers. However, no such costs are incurred when outsourcing to Ukraine since your trusted development company takes care of all those costs themselves.
When outsourcing, you are not directly employing any people. Therefore, you don’t have to worry about paying any payroll taxes, social security contributions, and so on. You’re paying only for the services of the chosen company. Usually, this a fixed price or a specific hourly rate. In any case, it is simple.
The best option, however, is a dedicated development team or outstaffing. In this case, you’re working with a fully dedicated team while paying a flat monthly fee. In fact, this is identical to employing full-time developers without having to take care of their social security, insurance, retirement, taxes and so forth (the local outstaffing company employs them and is correspondingly responsible for all these things).
The bottom line is, outsourcing to Ukraine allows to cut development costs up to 60% and rids you of the need to hire any employees.
Convenient Location and Time Zone
Ukraine is just one hour ahead in time of Central Europe (UTC +2) and two hours ahead of London time. This removes any concerns about the convenience of the time zone and consequential communication complications. Your development team in Ukraine is always online during the working hours when you are.
Besides the time zone, the location itself is perfect for outsourcing from Europe. Ukraine is just around 900km away from Berlin, 850km from Prague, 1800km from Paris and 1900km from London. This means most Ukrainian cities are just one or two flight hours away from major European capitals.
In turn, this means that you can always visit your development team or meet with the potential development partner in their office in Ukraine. This also means that your development team can visit your office wherever you are in Europe. These two advantages make Ukraine an ideal place for outsourcing software development for your company.
No Financial or Legal Risks. Ease of Doing Business
Some European clients might wonder whether Ukraine is safe to do business with and if there exist any financial or legal risks to outsourcing to Ukraine. Fortunately, most risks are held by your chosen development company. Then a question arises whether there any risks to working with a development company from Ukraine.
If you sign an official contract with a trusted company with a proven track record there is no reason to worry about risks. Rather, it is a matter of choosing a reputable company. Once you select a development partner you can trust you may proceed to sign an official contract and then pay a flat monthly fee in most cases. The developer takes care of the rest.
We have spoken about microeconomic risks. What about the macroeconomic ones? Well, the ease of doing business is growing every year, with Ukraine currently occupying the 71st position in the list. Slowly but surely, Ukraine is moving toward prosperity and complete integration into the EU.
With this being said, some might be concerned about the current political situation and conflict with Russia. Fortunately, most Ukrainian IT clusters are far away from the zone of conflict which removes a high degree of risk. In extra case, you might want to work only with teams from Lviv which is right by the Polish border. This will surely remove any risks due to the political turbulence.
The bottom line is, a diligent and thorough selection of your development partner will minimize all micro- and macroeconomic risks. Now that we have reviewed the key advantages of outsourcing software development to Ukraine, a logical question arises – how to actually begin outsourcing to Ukraine?
How to Begin Outsourcing to Ukraine?
The first step to beginning outsourcing to Ukraine is to select the cluster your potential development partner is in. At the moment, the best cluster is Lviv because of its geographical proximity (right by the Polish border) and a vast stack of qualified IT professionals.
The next step is to choose the right model of outsourcing: standard outsourcing (with a fixed price per project or hourly rate) or outstaffing with a fully dedicated development team (usually comes with a transparent monthly fee). The latter option usually provides more advantages such as more control, flexibility, faster development, and even lower costs in some cases.
Having selected the cluster and outsourcing model you may proceed to the search and selection process. Some of the key things to look for in your potential development partner are a proven track record, experience in projects similar to yours, a qualified and certified stack of developers, a justified price/quality ratio.
Having conducted the necessary negotiations, you should proceed to sign the contract. It is better that you meet with your partner in person whether you visit them in Ukraine or their representatives meet you in your office. The bottom line is, approach the selection process very carefully and take your time to find the development partner whom you can fully trust.
Talking about trusted partners, we can’t help mentioning Cybercraft – a trusted software development company from Ukraine with a proven track record which provides remote dedicated development teams to European clients. With Cybercraft, you get access to qualified IT professionals with the needed skills while enjoying cost savings of up to 60%.
We hope this detailed analysis has convinced that you Ukraine is the best place for outsourcing software development for European clients. Ukraine has always been called the gateway of Europe. Being situated in the eastern end of Europe, it remains one of the most popular outsourcing destinations in the world. The low cost of development, perfect price/quality ratio, a vast stack of qualified professionals who are fluent in English, geographical proximity, the absence of significant legal or financial risks and many other advantages make Ukraine the best choice for outsourcing software development for European companies.
The largest IT companies in the world and Europe successfully outsource to Ukraine and have their offices and R&D centers in Ukraine. If they have been successfully outsourcing to Ukrainian developers for years maybe it is time for your company to consider outsourcing to Ukraine as well?