Outsourcing to Eastern Europe has become a popular topic among companies looking for skilled professionals and a cost-effective software solution.
The region includes countries like Poland, the Czech Republic, Hungary, Romania, Slovakia, Belarus, Croatia, Ukraine, and Moldova. And many of them are gaining momentum as beneficial outsourcing destinations.
What’s the benefit of outsourcing to Eastern Europe?
In this article, we’ll explore outsourcing to Eastern Europe – the perks, challenges, and opportunities. We’ll also cover the most popular outsourcing destinations in Eastern Europe.
Let’s get started.
This Article Contains:
(Click on the links below to go to a specific section)
- 7 amazing benefits of outsourcing to Eastern Europe
- 5 challenges to outsourcing in Eastern Europe
- 8 popular outsourcing destinations in Eastern Europe
- 4 outsourcing industries in Eastern Europe
7 amazing benefits of outsourcing to Eastern Europe
Here are a few reasons why global companies are seeking Eastern European talent:
1. Reasonable costs
Eastern Europe’s wages aren’t lower than countries in South Asia or Southeast Asia, like India and the Philippines. But the value these countries offer is at par with and caters to the needs of a North American or Western European company – a fraction of their cost.
Why?
Eastern and Central Europe have lower wages than Western Europe due to past policies and the weak bargaining power of labor. For example, the average salary in Belarus is USD 903.8 per month, whereas employees in Switzerland earn an average wage of USD 11,131.3 per month.
Fact: The wage rate of the US is almost twice that of Eastern European countries.
2. Massive talent pool
While most western countries have a shortage of skilled professionals, Eastern Europe has a large, highly-skilled talent pool available to provide their services.
To put that into perspective, Eastern Europe had over one million tech professionals in major hubs, while the US had over 900,000 software development vacancies in 2021.
Moreover, this talent pool is constantly growing to accommodate fields like software development, web development, accounting, and HR services.
3. Top quality technical education
Eastern Europe is renowned for its exceptional education system – the backbone of its thriving outsourcing industry. It has a literacy rate of 98.99% and moderate-to-high English proficiency levels.
The region’s students receive a formal education in science, math, and languages, helping them pick up technical degrees that are beneficial for IT and software outsourcing.
Moreover, many top-end companies like IBM and Morgan Stanley outsource key services to the region, highlighting the qualifications of Eastern European software developers.
4. Convenient location and time zones
Eastern Europe is easily accessible via travel or communication due to its convenient location and time zones for countries in Central Europe or North America, like Germany and USA.
Clients can visit vendors within a few hours. And the time difference, ranging from five to eight hours, is compatible with real-time communication.
This convenience helps streamline project and task management.
5. Cultural similarities
Due to the western influence in the region, the business etiquette of Eastern Europe is similar to that of North America and Western Europe. This could be missing in Asian countries.
The cultural similarity makes it easier for clients to interact and cooperate, making business operations and deals more efficient.
Moreover, Eastern Europe software developer experts are also familiar with western laws and regulations. So, there are fewer compliance issues.
6. Growing IT community
East Europe is a hub for software development outsourcing.
The region had over 3500 software development companies and 1.3 million Eastern European developers in 2021. And these numbers are growing.
Moreover, the demand for Eastern Europe software outsourcing has driven the growth of diverse tech skills – allowing the region to produce qualified IT specialists.
But it’s not just the skill. The environment is also conducive for tech startups and companies to grow – with some governments providing tax incentives to aid business ventures.
It creates the foundation for a tech outsourcing market that can serve international requirements.
7. Beneficial laws and regulations
Eastern European countries have various laws and regulations for copyright protection.
For example, Ukraine has an Intellectual Property law that protects the copyright of databases and computer programs. It helps ensure that businesses outsourcing software development or other services can operate without worrying about intellectual property loss.
Moreover, Ukraine also has the lowest tax rates in Europe, making it highly lucrative for businesses to outsource to the country.
But do these benefits come with any challenges?
5 challenges to outsourcing in Eastern Europe
Here are five challenges that businesses face while outsourcing to Eastern Europe:
1. Confusing tax laws
The taxation system in Eastern Europe can vary between countries and confuse companies looking to operate their business in the region.
For example, Poland has no payroll tax for foreign (non-resident) companies. But companies must still follow other Polish tax laws, like individual income tax and sales tax.
Moreover, to add a resident developer to the payroll, the company should have a Polish bank account and a local signatory who can represent the company.
That’s why most business entities also outsource tax filing to the tech partner to avoid non-compliance.
2. Competitive hiring market
Retaining a developer in a highly competitive IT market is a struggle.
Local software agencies may lose their development talent to competing agencies due to unfavorable work conditions or insufficient benefits. When that happens, projects can be delayed or stalled.
To avoid this, businesses should try to offer performance incentives to their outsourced developer team. It helps retain Eastern European developers as well as promote enhanced work productivity.
3. Reduced team communication
When it comes to outsourcing, clients mostly communicate with project managers. They rarely communicate directly with team members like programmers or accountants.
This may reduce operational efficiency as busy project managers can fail to convey instructions to team members at critical moments.
To overcome this challenge, businesses should create a streamlined communication plan in advance. It’ll help both parties clarify how and when (for time-zone convenience) communication may happen.
4. Sensitive information leaks
Outsourcing functions, especially tasks like software development, are vulnerable to sensitive data leaks. A line of code unintentionally disclosed by software engineers or other outsourcing professionals can lead to copyright issues.
To prevent this from happening, businesses should have vendors and their employees sign non-disclosure agreements (NDAs). Moreover, companies should become familiar with local data security laws and intellectual property rights.
5. Inflexible operations
The issue with cooperating with teams in different countries and time zones is that it’s challenging to address changing objectives promptly.
Businesses may also struggle with operational flexibility and control, which can comprise urgent hirings and strategic team meetings.
To combat this, companies may deploy an in-house development team member (as a representative) to handle project requirements in offshore locations.
Now that we’ve reviewed the benefits and challenges, let’s look at the best countries for outsourcing in Eastern Europe.
8 popular outsourcing destinations in Eastern Europe
Here are the countries with the best benefits for outsourcing in Eastern Europe:
1. Poland
Poland is one of the fastest-growing economies in Central and Eastern Europe (the CEE region).
It has approximately 80,000 tech graduates entering the market every year, making it a viable option for outsourcing software development.
Here are its key benefits:
- It ranks 26 globally for the best educational system, higher than any other outsourcing destination in Eastern Europe.
- Polish companies follow the European Union standard for intellectual property protection and data security and comply with the General Data Protection Regulation (GDPR).
- Poland scored 70.74 on the U.S. Chamber 2022 International IP Index, ranking second-highest among Eastern European countries. This score and rank prove that it’s a safe country for outsourcing.
Poland is a leading country for IT, HR, and finance and accounting outsourcing services – catering to companies like Microsoft, Apple, and Google.
The average salary in Poland is PLN 7,560 (Polish Zloty) per month – about USD 1,803 per month or USD 11.3 per hour, according to the exchange rates in March 2022. Pay for the IT industry starts at about USD 33,000 per year (junior developer).
Learn more about the average salary in Poland in this article.
2. Romania
Romania is among the top EU countries with the fastest economic growth.
Here are three reasons to consider outsourcing software development to Romania:
- Romania has a highly educated and skilled talent pool with some of the world’s best computer science and technical universities. The region produces around 7,000 tech graduates every year.
- It’s one of the best destinations for software outsourcing. One of its main IT hubs, Cluj Napoca, is called the “Silicon Valley of Eastern Europe.”
- The Romanian government created incentives for IT companies by removing the 16% income tax levied on software development professionals. Additionally, there’s no income tax for R&D companies during the first 10 years. This enables companies to avail IT services at reduced costs.
Romania provides outsourcing services to major tech companies, like Gameloft, Hewlett Packard, and Oracle.
The average salary in Romania is RON 8,980 (Romanian Leu) per month, which is USD 2,017 per month or USD 13 per hour. But software development services may cost between USD 28 – USD 55 per hour.
Discover more about the average salary in Romania in this article.
3. Bulgaria
Outsourcing represents 6.6% of Bulgaria’s GDP, adding $3.8 billion to the country’s economy in 2020. It’s one of the main CEE countries that offer business process outsourcing and IT outsourcing services.
Here’s why businesses may seek out an outsourcing company in Bulgaria:
- The country has a talented employee pool, and some universities also offer courses on ‘Outsourcing Projects and Companies’. So Bulgarian professionals are well-versed in the skills required by the outsourcing industry.
- Bulgaria’s geographical location is perfect for collaboration with businesses in Western Europe. Moreover, Bulgarian employees may speak English, German, and French professionally.
- The Bulgarian government offers tax incentives for foreign businesses, including the lowest corporate income tax rate (10%) in the EU.
Lastly, Bulgaria has one of the lowest labor costs in the European Union. It averages at an hourly rate of USD 7.78 per hour or USD 1,245 per month.
Read this article to explore more benefits of outsourcing to Bulgaria.
4. Belarus
Outsourcing is the primary activity for businesses in Belarus, accounting for around 60.5% of the total operations in the nation.
Here are three reasons to consider software outsourcing in Belarus:
- The Belarus government offers tax benefits to resident companies, like relief from income and value-added taxes.
- The country’s IT talent is constantly growing, with about 2500 software engineers graduating each year.
- According to UNESCO, Belarus has one of the highest literacy levels at around 99.8%.
The average salary in Belarus is around BYN 2,930 (Belarusian Ruble) per month, which is USD 903.77 or USD 5.65 per hour. But a junior software engineer may earn as much as USD 1,584 per month (USD 19,000 per year).
5. Czech Republic
The Czech Republic is a top investor in tech development among the CEE countries.
Here are the benefits of finding an outsourcing company in the Czech Republic:
- The country produces 7,000 highly-skilled IT graduates each year and experiences a 10% increase in IT outsourcing yearly.
- Being a part of the EU, the Czech Republic provides a stable environment for business growth. Additionally, its corporate taxes stand at a mild 19% of capital gains.
- The country has a reputation for high-quality education and a literacy rate of 99.83%.
The average salary in the Czech Republic is CZK 60,900 (Czech Koruna) or approximately USD 2,765 per month.
6. Hungary
Hungary is one of the first Eastern European countries to begin exporting IT and development services. Today, it’s a top outsourcing destination in the CEE region.
Here are some of the benefits it offers:
- The Hungarian government provides support in the form of lower employment taxes and a dual education system (which combines vocational apprenticeship and education) to further its software development market. In fact, 20,000 tech students graduate every year.
- The country is a member of the European Union, so companies can expect to be secured by the legislation, especially the GDPR.
- Like Poland, Hungary also scored high on the U.S. Chamber 2022 International IP Index, ranking as the top Eastern European country with a score of 76.9.
Moreover, the average salary in Hungary is HUF 493,000 (Hungarian Forint) per month – about USD 1,491 per month. And various multinational companies, like Nokia, Deloitte, and Ericsson, have established offshore software development operations and R&D centers in the country.
7. Croatia
Croatia is a rapidly growing provider of software development outsourcing in Eastern Europe.
The highlights of looking for an outsourcing company in Croatia include:
- The Croatian government has introduced an e-School project to aid the development of IT talent from students’ early education.
- Croatia adds around 4,000 graduates annually to its tech talent pool.
- Most Croatian outsourcing professionals are multi-lingual and speak various languages, like English, Garman, and Italian, in addition to Croatian.
Another benefit of outsourcing to Croatia is the low average salary, which amounts to HRK 14,800 (Croatian Kuna) or USD 2,170 per month.
8. Ukraine
The Ukrainian software development sector exported $6.8 billion in IT services between 2020 and 2021, contributing about 4% to its GDP.
Some of the key reasons for outsourcing to Ukraine include:
- Ukraine’s IT industry is one of the most competitive and emphasizes high-quality tech talent. In fact, Ukrainian developers are among the most capable IT professionals globally.
- Citizens of US and EU countries don’t need a visa to travel to Ukraine for a short-term period (90 days – 180 days). This is extremely helpful for business managers to check in on their offshore software development or other operations.
- More than 56% of all software engineers and tech professionals work for IT outsourcing or staffing companies. This helps boost the country’s development services.
The average salary in Ukraine is UAH 23,000 (Ukrainian Hryvnia) per month or USD 786 per month.
Note: We stand in solidarity with Ukraine during this difficult time. Here’s a list of charities to donate to if you wish to help Ukraine.
Uncover more details on the average salary in Ukraine in this article.
So, which are the main outsourcing opportunities in Eastern Europe?
4 outsourcing industries in Eastern Europe
Here are the business operations you could outsource to Eastern Europe:
- IT Outsourcing: Some of the top Eastern European outsourcing companies in the IT sector include Daxx by Grid Dynamics, Itransition, and ScienceSoft.
Moreover, offshore software development is one of the key services offered in any Eastern European country. - HR Outsourcing: Eastern European nations lead in HR outsourcing due to their strategic location and cultural similarities to Western Europe and the US.
- Payroll Outsourcing: Companies that outsource software development to Eastern Europe also outsource payroll processes. Moreover, it’s beneficial to have local experts handle regional regulations.
Wrapping up
Eastern Europe has become an attractive and fast-growing outsourcing market. Its tech and other outsourcing sectors help entrepreneurs and businesses source high-quality services at a fraction of what they cost in western countries.
So, go through this article to find a detailed perspective on the benefits of outsourcing and the best Eastern Europe country to do so.
This should help you kickstart your outsourcing plans and find the perfect outsourcing destination for your company.
Andy is a technology & marketing leader who has delivered award-winning and world-first experiences.