Software outsourcing to Eastern Europe: Which countries work best?

Eastern Europe is building up a head of steam as a software outsourcing powerhouse, as companies focus more on cost-effectiveness and proximity, rather than just low cost.
Written by Andrada Fiscutean, Contributor
krakow poland

Krakow Poland has been named a top outsourcing destination.

Image: iStock

Eastern Europe is becoming an increasingly attractive option for companies looking to outsource software. The region now provides five of the top 20 countries listed on AT Kearney's 2016 Global Services Location Index.

Although Eastern Europe doesn't offer costs that are as low as those found in India or China, the top two outsourcing destinations, it can argue that it provides better product quality, a proximity to Western Europe, cultural affinity, a better business environment, and high-level skills.

Based on labor costs alone, companies outsourcing software to the region manage to save up to 50 percent, compared with 75 percent in India, AT Kearney principal Johan Gott told ZDNet.

Poland is first among the Eastern European nations, ranking 10th for employment costs. Bulgaria and Romania follow in 12th and 13th places, with Latvia also making the list in 18th spot.

This year, Russia ranks 17th, up four places from last year, as a result of the depreciation of the rouble against the US dollar and the euro, a change that makes software development in the country more affordable than a couple of years ago. Against that advantage, Russia still has to deal with "political and economic risk in face of international conflicts and sanctions", according to the report.

AT Kearney monitors 55 countries across three major categories: financial attractiveness, people skills and availability, and business environment.

In another study, Tholons 2016 Top 100 Outsourcing Destinations, many cities from the region put in a good showing. Poland comes out top with Krakow in 9th place, Warsaw in 25th, and Wroclaw 58th, followed by Russia with Saint Petersburg at 37th, Nizhniy Novgorod at 60th, and Moscow 64th. The Romania capital Bucharest also figures, in 41st spot, together with Bulgarian capital Sofia in 52nd.

Also well placed are Prague at 14th, Budapest 24th, and Brno 31st, with Bratislava featuring at 49th, Tallinn 51st, Ljubljana 54th, and Belgrade 95th.

Compared with more traditional outsourcing destinations, Eastern Europe has several benefits. "The business environment is much more benign than, say, India," Gott said.

The length of experience of staff in Eastern Europe and the quality of their work are also central to the region's importance, because companies who outsource software development are focused not just on paying less but are understandably keen on how well the work is executed.

Motivated professionals who share European values, speak English, French, and German, and possess not only technical skills, but also soft skills are an asset to the region, according to recruiting agencies.

"Higher education systems [in Eastern Europe] are of high quality, with particular strength in STEM [science, technology, engineering mathematics] areas," Gott said.

"On that latter point, being part of the EU regulatory structure can be critical when it comes to handling certain sensitive data," he added.

Software company Luxoft has several thousand developers in Eastern Europe, working for businesses across the world. They are growing "dynamically" in Poland, Romania, and Bulgaria, according to the firm's global communications VP Alina Plaia.

"All three countries have a high caliber of IT talent and [the] advantage of being part of the EU, which is important to many clients," she told ZDNet.

"Our experience shows it's extremely difficult to find such quality in other parts of the world."

"The experienced IT talent capable of addressing complex technical problems and supporting high-quality services", the low attrition rates, and geographical proximity to Western Europe as the main reasons why Eastern Europe is so attractive, Plaia explained.

"It's an unbeatable combination, especially for European clients," she said.

Software companies in the region often witness double-digit growth year on year, thanks to outsourcing. However, this rapid expansion can backfire, because developers are starting to get salaries that are closer to those found in Western Europe. Adding living costs to the equation, it's even more profitable to work as a techie in Bucharest than in London.

Nevertheless, Eastern European countries know that soon, being just an outsourcing destination might not be enough.

Poland, Romania, and Bulgaria are making efforts to attract foreign investors for their startup environments, having understood that building their local tech products translates into a far superior added value compared with that provided by outsourcing.

Read more about European tech

Editorial standards