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Pros and Cons of IT Outsourcing Software Development to Eastern Europe

Pros and Cons of IT Outsourcing Software Development to Eastern Europe

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In the modern globalized economy, companies are continuously searching for effective methods to tap into talent and markets that can give them a competitive edge. IT outsourcing stands out as a prominent tactic in recent years, with Eastern Europe emerging as a hotspot for this strategy. However, like all business endeavors, this strategy comes with its set of pros and cons. Thus, it will not be superfluous to provide you with a thorough overview by Alcor that highlights the many perks of working with team extension in Eastern Europe. Let’s begin!

The Upsides of Outsourcing to Eastern Europe

Eastern Europe has steadily risen as a preferred destination for many businesses due to the following reasons:

1. Cost-Effective Development

The foremost advantage is the cost. IT outsourcing to Eastern Europe can be significantly cheaper compared to Western countries. It’s not just about lower software developer rates, but also about the reduced operational expenses on legal, accounting, payroll, and other field support, given the global IT services outsourcing market’s rapid growth.

The salary discrepancies between the US and Eastern European countries for middle-tier developers are considerable. For example, a middle-tier developer in the USA earns around $109,000 annually.

Comparatively, middle positions in Eastern Europe come with lower salaries. In Poland, a developer in a middle position makes approximately $47,000. In Romania, the same position yields about $39,000. Meanwhile, middle developers in the Czech Republic, Slovakia, and Hungary earn $54,000, $42,000, and $37,000 respectively.

2. Rich Talent Pool

Eastern Europe hosts around 1.3 million developers, reflecting its rich technical talent. Poland dominates with 607,000 developers, while Ukraine follows with 309,000 experts. Romania and the Czech Republic have 140,000 and 130,000 developers respectively. Bulgaria and Hungary further add to the talent, with 110,000 and 80,000 professionals. These numbers highlight Eastern Europe’s robust tech landscape.

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3. Exceptional Tech Skills in Eastern Europe

Eastern Europe is a hub of tech prowess, making it a prime choice for software development outsourcing. The region’s developers are renowned for their familiarity with contemporary IT trends and mastery over multiple programming languages. For instance, Poland excels with professionals skilled in JavaScript, Java, Python, and TypeScript. Meanwhile, Romania is notable for its experts in PHP, C#, Java, and C++.

Czech Republic presents a rich pool of talent adept in JavaScript, Java, PHP, and C#. Following closely, Hungary boasts developers well-versed in JavaScript, HTML/CSS, Python, and Java. Slovakia, too, highlights its strength in Python, Java, JavaScript, and PHP, emphasizing the diverse tech expertise available throughout Eastern Europe.

4. High English Proficiency

Communication plays a crucial role in fostering successful partnerships, and any language barriers can impede growth. Thankfully, the EF Language Proficiency Index shows that Eastern European nations excel in English proficiency, ranking among the top global contenders, thus promising seamless interactions.

Poland holds an impressive position at 13th with a score of 600. Slovakia follows closely at 15th place, scoring 597. Romania is not far behind, occupying the 17th spot with 595 points, while Hungary takes the 18th position, scoring 590.

Bulgaria and the Czech Republic come in at 21st and 23rd places, with scores of 581 and 575, respectively. Latvia stands at 25th with 571 points. Although still performing well, Ukraine holds the 35th position, garnering 539 points.

4. High Quality of Education

Eastern Europe boasts a plethora of universities that consistently rank high in global education standards. This includes the esteemed Comenius University in Bratislava, Slovakia; University of Warsaw and Jagiellonian University in Poland; and the Babes-Bolyai University in Cluj-Napoca, Romania. 

These reputable universities are all featured in the QS World University Rankings 2024, a global ranking that places heavy emphasis on employability and sustainability. Over 1,500 institutions in 104 locations are rigorously evaluated in this process, bestowing the included Eastern European universities with a significant honor.

Each of these points highlights the competitive edge that Eastern Europe provides in the IT outsourcing landscape. Businesses looking to maximize their ROI and tap into top-tier talent should seriously consider this region as part of their growth strategy.

The Downsides to Consider

Despite the impressive advantages, there are certain drawbacks to take into account before deciding to outsource IT services.

1. Reduced Oversight

A common hurdle to IT outsourcing is the perceived surrender of control. When an organization gives over crucial operations to an external group, there can be apprehensions. Many businesses may be uneasy with the thought of outsourcing crucial services such as security, particularly over concerns that the Managed Service Provider (MSP) may not administer the services to the same level as the original company.

2. Potentially Inferior Quality

The ultimate quality of service is contingent on the outsourced party. There are IT service providers that employ highly experienced professionals and sophisticated infrastructure; however, some could use less skilled personnel yet sell them to clients as higher level professionals, impacting the service standard. It depends on the specific provider and what operations they are tasked with.

3. Communication Challenges 

Effective communication is a critical factor when outsourcing. Communication may be patchy, depending on the provider. Prolonged intervals between inquiries and replies can adversely affect services. When facing a situation like a security crisis, prompt communication is vital. If cybersecurity is outsourced and there are delays in communication, it can impair the business productivity and extend other issues such as system downtime.

4.  Employee Morale Impact

Outsourcing can have a significant impact on your employees, particularly if essential services such as IT infrastructure and cybersecurity are being outsourced. The fear of job insecurity can negatively affect morale and potentially lead to reduced efficiency or even employee turnover. Depending on the scale at which a company implements third-party resources, the impact on team morale must be considered.

Being cognizant of these potential challenges will equip businesses to strategize and plan effectively, ensuring a seamless outsourcing experience. Engaging with experienced partners, like Alcor, who have a deep understanding of the region can also be instrumental in navigating these challenges successfully.

Business Environment in Eastern Europe

Eastern European nations constantly update their laws to foster a better business climate. Their aim is to attract renowned companies to their markets. For instance, in Poland, IT companies benefiting from IP rights enjoy a mere 5% tax. Also, B2B Polish programmers face a tax rate of 8.5% to 12%.

Romania offers tax incentives for companies with R&D centers. These companies receive a full decade of income tax exemption, reducing their operational expenses. Similarly, Slovakia incentivizes R&D companies with up to 200% tax deductions on their expenses, offering them significant financial advantages.

Hungary streamlines its business registration, completing it within 4-5 days. They also support the concept of a virtual office, saving crucial funds for new businesses. As a result of these benefits, tech giants like Google, Apple, and Microsoft have set up developer teams in Eastern Europe, underscoring the region’s promising business landscape.

Wanna become a data scientist within 3 months, and get a job? Then you need to check this out !