IT Outsourcing to Eastern Europe
IT outsourcing is now far more than just a trend or innovation. Each day more and more companies entrust their IT-related tasks to outsourcing partners benefiting in many ways. Eastern Europe is one of the most effective IT outsourcing destinations. In this article, we will talk about peculiarities, principles and main facts of IT outsourcing to Eastern European countries.
Advantages of IT Outsourcing to Eastern Europe
Allowing IT outsourcing companies, located in CEE (Eastern Europe in particular) to solve IT-oriented tasks and issues a customer obtains the following advantages:
- Considerable budget savings;
- Ability to focus on core competencies;
- Extensive experience of an outsourcing subcontractor;
- Speed increase in projects tasks solutions;
- Reduced capital investments;
- Full-time access both to IT innovations and high-qualified IT experts;
- Internal processes optimization;
- Improved manageability.
A Warning to Remember
However, despite the attractiveness of IT outsourcing you should be aware of possible negative consequences of transferring part of your business ideas to another company. First, by such a decision, a company trusts another organization a share of their commercial secrets, exposing themselves to the risk of confidential data leakage. Sometimes it turns out that an extra effort should be done to hide some of the data on the application architecture and key business processes from an outsourcing partner.
Certain types of risks can be reduced through appropriate administrative, legal and organizational measures (to agree with an outsourcing partner an undertaking of a confidentiality agreement and the presence of regulation on commercial secrets requirement, classifying the content of outsourcing work as its part). Always remember about security and ask your outsourcing partner about measures it takes to protect the privacy of your data.
On the bright side, since 2003 Eastern European IT market has become one of the most promising markets in IT outsourcing, demonstrating dozens of positive examples that justify its right course.
According to Tholons Company report "2012 Top 100 Outsourcing Destinations", Eastern (and Central) European countries have covered around a quarter of the list of the most attractive countries for Business Process Outsourcing destinations all over the world. A successful development of Information Technology Outsourcing Industry in Eastern (and Central) Europe results from the following major factors:
- Relatively low costs since the number of countries are not EU members, the manpower and well-established infrastructure allow customers to save their budget due to low prices without losing the best quality of the products under development;
- Substantial reduction of travel costs and time as well as proximity to their permanent clients from Western Europe due to convenient geographical location, visa-free or simplified conditions (depending on a specific country) for EU citizens;
- Convenience in communications and control. Almost all CEE representatives are located in the same or very similar time zone with no communicational barrier as English has remained to be an international language in CEE for quite a long period of time;
- Similar set of rules in business making process: ISO standards are adopted as state acts in the majority of CEE countries and are obligatory for some industries; different MBA programs become more and more popular;
- An educational background of potential CEE employees. Having skillful higher education degree outsourcing IT specialists are always able to propose their external customers different models of work and various solutions based on their solid knowledge of topics they work in;
- Close mentality features in comparison with representatives of Indian and Chinese IT markets.
According to the data of IDC worldwide international IT market research and consulting firm, in 2010 local CEE vendors reported that nearly two-thirds (65.8%) of their offshore and nearshore related deliveries were IT services related. National Association of Software and Services Companies (NASSCOM) stated that Eastern (and Central) European region has captured a share of 20% in the total number of new delivery centers established all over the world in 2010-2012, managing to leave behind all regions except South Asian.
A recent survey of U.S. companies specializing in software development, conducted by IDC, showed that 37% of North American companies have permanently bought offshore software development in CEE. Herewith, the majority of the surveyed companies have their own business analysts who are contacting customers, manage requirements and model business processes.
A Few Words about Ukraine
According to "Exploring Ukraine IT Outsourcing Industry" Report of the Ukrainian Hi-Tech Initiative, the association of Ukrainian software development and IT outsourcing companies, published in summer 2012, over the last ten years the volume of software development and IT outsourcing services, which Ukrainian companies provided, has grown by factor ten with more than one billion dollars in its volume and the number of employees working in the IT field counted more than 25,000 people.
No matter all the great characteristics described above, the major problem of Eastern European IT outsourcing is in conservative views that are sometimes very hard to break. Often business owners do not even consider Eastern Europe as an option to outsource an IT part of their business to. However, this has been changing recently, and statistics shows the tendency toward Eastern Europe more and more each year.
Reasons to Choose Eastern Europe as IT Outsourcing Destination
There are many reasons to choose Eastern European countries for outsourcing IT area of the business.
- Highly skilled labor. The legacy from the former Soviet Union which had a significant emphasis on engineering and sciences back in the day; many of the resources from the countries of this region obtained deep knowledge in computer science and the labor cost is much lower than it is in the EU and the US.
- Cultural similarities. Eastern Europeans have more in common with Westerners in terms of business culture and simple human qualities such as the sense of humor and cuisines, and creative minds of Eastern European developers are almost legendary.
- Time zones. Little or no time difference at all creates perfect conditions for real-time meetings, allowing customers to fully monitor their development teams; personal meetings are just as real because Eastern Europe is an actual nearshoring for the Western part of Europe.
- Ever growing labor market. With constant resource shortages in the EU and the US, growth in IT field of Eastern Europe keeps on increasing leaving the latter far behind.
We have compared local rates and outsource rates, and made a conclusion that Ukrainian programmers require 40-50% less than local U.S. developers ( incl. salary, taxes, expenses on vacations, etc.). But it's not only about the price, the Ukrainian market offers highly-skilled developers and IT specialists.
IT outsourcing is blooming nowadays and Eastern Europe is consistently developing to the most promising outsourcing destinations.