Outsourcing to Ukraine

Why the World Outsources Software to Ukraine

Daniel Elliot by Daniel Elliot
Offshore software development is a reality of the modern global economy. By leveraging remote workers and teleconferencing technology, firms save countless dollars and man-hours on software development, R&D, and other tasks that fetch a prohibitively high price in the West. A new contender has taken the lead in the race to become the world’s new IT outsourcing capital. Ukraine, with its low cost of living and surplus of highly skilled software developers, is rapidly becoming the number one choice for firms in every industry to outsource their software development, R&D, and other IT work.

Who Outsources to Ukraine

Each year, more and more corporations looking at outsourcing software development choose Ukraine. The financial and operational advantages are such that it’s quickly becoming the best option for firms in nearly any industry. The companies that leverage the rich Ukrainian IT ecosystem include some of the biggest names in the world. The United States is the largest importer of Ukraine’s IT services, with Europe and Israel following behind.
  • Deutsche Bank (Germany)
  • Intel (United States)
  • Microsoft (United States)
  • Nokia (Finland)
  • Plarium (Israel)
  • Playtech (Israel)
  • Playtika (Israel)
  • Reuters (United Kingdom)
  • SolarWinds (United States)
  • Wix (Israel)
The country’s large IT workforce is well-suited to project-based software development outsourcing, and for the establishment of more permanent R&D centers. Many of the companies listed above maintain long-term contracts with Ukrainian development houses. The Ukraine software industry was valued at $2.3 billion in 2014. It comprises over 90,000 skilled professionals (more than any other European nation!) working for a variety of foreign corporations in every industry. The number of workers is expected to double to 200,000 by 2020.

The Largest Concentration of IT Workers in Europe

Ukraine boasts one of the most educated populations in the world. The country is served by over 300 colleges and universities, and reports a 100% literacy rate. This has led to a large number of highly intelligent workers seeking skilled employment, and many of the best jobs come from offshore. Software development, R&D, and other computer science fields are a natural fit. A UADN  study performed in 2015 concluded that there were over 1,000 IT service companies in Ukraine, and over 100 multinational R&D centers.

Economic Benefits of Outsourcing to Ukraine

Despite the size of the Ukrainian IT industry, wages and the cost of living remain quite low. According to a salary calculator conducted by DOU (an advocacy group for Ukrainian software developers), the average monthly salary for a middle engineer is just $2,200 – $2,500 USD per month. Even a director of engineering, the highest ranked position covered by the study, typically earns $6,000 – 6,300 USD per month. The financial advantages of this are obvious, but to drive them home: In Israel, a software average salary for a middle software engineer generally commands a salary of about $5,800 USD per month. In the United States, the same skill set might earn over $10,000 USD per month. That director of engineering, meanwhile, could easily cost upwards of $20,800 USD per month, or $250,000 USD per year.

Government Support

IT expertise is the latest in a long line of fast-growing Ukrainian exports, and today it is the 3rd largest export sector in the country. The swift development is a deliberate choice by the Ukrainian government. The Eastern European nation has suffered its share of political turmoil over the years, but has managed to maintain its economic standing through strong exports. To support the burgeoning industry, the Ukrainian government is actively passing laws to protect and facilitate the business of both IT professionals and the foreign corporations that employ them.
  • Taxes: Ukrainian law states that the tax law of the client prevails. Therefore, foreign entities purchasing IT services generally do not need to pay Ukrainian VAT. This applies to both individuals (freelancers) and agencies.
  • Intellectual Property Protection: Although Ukraine has had some issues with copyright and IP protection in the past, the government is acting quickly to address the needs of foreign tech investors. As of 2016, a special Intellectual Property Court was established specifically to address issues in the burgeoning software development industry.
  • Local Subsidiary: Ukraine is quite friendly to foreign business entities. If it makes strategic sense to found a local subsidiary in Ukraine, the law permits a foreign person or non-residential legal entity to do so.

Safety and Logistics: Is It Safe to Outsource to Ukraine?

The largest fear among companies investigating IT in Ukraine is safety. Despite the news stories about the Ukrainian Crisis, most of the nation is stable and safe. According to the UADN study linked above, military conflict is essentially limited to the eastern edge of the country. That comprises just 3% of Ukraine, and Kiev, Odessa, and other major cities that serve as outsourcing hubs are far from danger. Logistically speaking, running developers in Ukraine is little different than any other remote work arrangement. A little over half the country speaks English, with a much higher proportion among software developers and other IT workers. With the rapid rise of teleconferencing, telepresence, and other remote work technologies, integrating a Ukrainian team into the workflow is quite easy. Most firms find that the initial investment to accommodate foreign workers more than pays for itself within the first year. When project needs require local developers to work in tandem with an outsource agency in the Ukraine, both parties generally find it goes smoothly. Modern project management techniques such as Agile and Scrum are as popular among Ukrainian professionals as they are in the rest of the world, and IT professionals on both sides of the border often find it easy to speak the same “language”, both literally and in terms of development concepts.

A Source of Ideal Outsourcing Partners

The Eastern European nation has experienced massive growth in its IT outsourcing product. However, as with any business proposition, there are pros and cons of outsourcing to Ukraine. Most clients, though, find that the benefits far outweigh the risks. Those clients include many of the largest tech corporations in the world.

Benefits of Software Outsourcing to Ukraine

  • High quality work. Ukrainian developers are highly educated, typically speak perfect English, and are familiar with modern project management techniques.
  • Massive labor pool. Ukraine has more educated and skilled IT workers than any other European nation.
  • Extremely low costs. A Ukrainian freelancer or development house will work for a fraction the cost of an equivalent Western employee.
  • Friendly government. The Ukrainian government actively encourages the     development of the outsourced IT industry. It is Ukraine’s 3rd largest export.

Risks of Software Outsourcing to Ukraine

  • Political turmoil. Armed conflict is limited to the easternmost edge of the nation and located far from most concentrations of IT workers, but it is advisable to keep up with the latest news.
  • Data safety. Any business transaction carries a certain amount of risk, and this is especially true when contracting with a foreign service provider. Ensure that your contractor has good client references, and contact the references yourself if possible.

The Bottom Line

Ukraine is a wonderful source of skilled IT services for companies in nearly any industry, anywhere in the world. The nation is quickly establishing itself as the “sweet spot” between cost and quality, rivaling other traditional outsourcing destinations such as India and the Philippines. Given the proper research to locate a good service provider, most firms will find that a Ukrainian investment quickly pays for itself in saved time and costs, and might be surprised at the level of innovation shown by their new development partner.