Opening a Software Development Office in Ukraine versus Outstaffing

What's widser: opening a software development office in Ukraine or outsourcing to a dev shop in this country?

Planning to open a software development center in Ukraine? If yes, you’re in a good company. Some of the world’s leading tech brands including Samsung, Ubisoft, Oracle, and Wix operate R&D and software development offices in this country.

On the other hand, there are quite of few reasons to play it safe and go for outstaffing instead. The dedicated teams model, in particular, has been gaining traction in the last couple of years. Brands working with remote teams of developers from Ukraine range from Bloomberg to Ernst & Young, to Harley Davidson, to Bosh.

Which of the two options will work better for your company? In theory, your developers’ time costs more in the case of outstaffing, so what exactly do you get for paying more?


What added value comes with outstaffing software development?

Outsourcing vendors provide you with a whole package of services and benefits that boost your ramp-up time.

  • Research of the local job market. Is there an established pool of talent relevant to your tech stack? What salary do top developers expect to earn? What perks will motivate them to work for you? You can spend months collecting the data needed to answer these questions, or you can use your vendor’s expertise from day #1.
  • Employer brand. Ukrainian tech talent is in high demand, with brands like Magento, Gameloft, and even Google and NASA willing to hire software developers from Ukraine. To compete with major brands for the best specialists, you need to give Ukrainian developers a good reason to choose you. With outstaffing, you can leverage the employer brands of existing vendors to jumpstart your team.
  • Recruiting. Before you can even begin recruiting software developers, you need to first recruit recruiters. Hiring your own recruiters can be long and expensive, and they’ll still need time to promote an unknown brand to the best developers.
  • HR, attrition management and employer motivation. Once you have developers onboard, you need to ensure they will want to stay with you. Not having a good HR and “people’s champion” can end up being very costly.
  • Readymade infrastructure. Finding an office can be tough, especially if you’re in a hurry and/or on a budget. Buying, maintaining, and updating equipment yourself can be burdening, too. With a software development provider, you don’t have to worry about any of these things.
  • Legal services and taxes. Setting up and operating a legal entity in a foreign country is tricky. Having a provider handle legal and tax-related issues proves to be a wiser choice in most cases. Besides, most outsourcing vendors in Ukraine offer legal/tax services as part of your service package.

It’s easy to see how not having to deal with infrastructure-related matters can speed things up. This matters a lot because the earlier you get down to actually building your product, the bigger your competitive advantage is.

In contrast, establishing your legal entity and hiring the core staff will set you back by 3–6 months depending on the size of your team. You’ll also spend no less than a couple of years streamlining the processes and making sure everything really works. Still, running your own software development office can be the right option — and the more cost efficient one, too.


So what is more cost-efficient — opening your software development office or hiring a dev shop?

It’s all about ROI, so, knowing what things dev shops handle, when does it make more sense to handle these things on your own? Two important variables in this equation are: time and team size.

Time: how long are you planning to be there?

IBM, Microsoft, Samsung — there’s a reason why the list of companies with software development offices in Ukraine mainly consists of brands with decade-long histories. Opening a development or R&D office in Eastern Europe only makes economical sense if you’re thinking long-term. If you have the luxury of planning ahead for 10+ years, opening your own development office will prove a wiser option.

Team size: how many people will you need?

With a team of 10–20 developers, the overhead of building and operating a fully-functional entity outweighs the costs of comparable services from an outsourcing vendor. Spreading the same costs over hundreds of developers, though, will definitely help you keep things cost-efficient.

When you get to a certain size, the do-it-yourself approach starts getting comparable, and when the team is big enough, it can end up being cheaper. As our practice shows, the break-even point is around 50 people, assuming you amortize capital investments over 5–7 years.


Go for the best of both worlds

As long as we’re comparing ROI and cost efficiency, why not take the best of both worlds? A transitional approach that worked for many companies comes down to starting off with an outsourced team for faster ramp up. Once you’re ready to establish a long-term presence, that same team can become a part of your own software development office.

When dealing with software development vendors, you can negotiate ability to buy out your team for transition to independent operations. Besides, there is an option to agree on the “cost+” model where your vendor’s profit is locked in, but the incentives for efficiency are aligned.


Whichever option you choose, there are things to consider

Should you commit to opening a development office, stick to outstaffing, or go for a transition strategy, there are some not-so-obvious things to consider. Following the tips outlined below can help you kick-start remote software development operations faster, no matter which strategy your choose.

Tips for opening a development office in Ukraine

  • Decide if Kiev is right for you. Kiev boasts 40,000+ hirable software engineers — a talent pool that will certainly boost your ramp-up time. This said, it’s also the most expensive city in Ukraine, and the competition on the demand side is also the most active in Kiev.   Given the high cost and the competition, it may be wiser to consider other Ukrainian cities. Namely, there are over 22,000 software development specialist in Kharkiv, and about 15,000 professionals in Lviv and its neighbouring cities. With 9,000 and 8,000 specialists respectively, Ukraine’s central and southern regions can be great destination for tech brands.
  • When searching for legal and tax consultants, target firms that cater to IT. Ukraine’s boasts hundreds of accounting and legal firms that specialise in servicing software development companies. Though specialised firms of this king charge more, the quality of their service will be typically higher.
  • Set yourself ready for a tough competition. The opportunity of working for a western brand is no longer a motivation factor for developers from Ukraine. For this reason, you will need to think of what advantages you can offer to attract top talent. But don’t be discouraged— Ukraine still offers talent comparable to if not better than most for the best Western countries at 50% less overall cost.


Tips for software development outstaffing in Ukraine

  • Go for a dedicated team. The dedicated teams model implies that the developers you’ve hired via a dev shop will work as a remote yet integral part of your own team. In the meantime, the provider will handle the boring things like taxes, HR, and legal aspects of your cooperation.
  • Get to know your provider. There’s a huge difference in what you can expect from the wide variety of vendors in Ukraine today. Large size is mostly good quality at a high price. Smaller vendors vary from top-notch shops that outperform big vendors in terms of value and price to low-quality-for-low price firms. You’d definitely want to stay away from the latter, so always do your research and interview your candidates.
  • Ask for a trial period. Free trials help you keep things risk-free, and this option is becoming an industry standard, especially in the case of smaller dev shops. The best vendors are typically ready to prove themselves, and it’s this feature that typically distinguishes them from the not-so-great firms.


Searching for top-3% developers from Ukraine? Try AgileEngine

If you’re looking for software development professionals with years of experience, it’s not just tips and tricks that we can offer. AgileEngine is a DC-based dev shop with software engineering offices in Ukraine’s Kiev, Kharkiv, and Odessa. We’re also running software development outsourcing operations in Argentina for those clients who require a stronger nearshore focus.

Our portfolio includes projects written in every mainstream language, and we have expertise with a wide array of industries. Our software engineers built applications for global content publishers, aviation startups, retail chains, analytics platforms, shared economy solutions, and many more.