Setting Up an Offshore Development Center in Europe
22 February 2024
Content Table:
- What is an Offshore Development Center?
- When is it Effective to Set Up an Offshore Development Center in Europe?
- Offshore Development Center vs Other Models
- Steps to Build an Offshore Software Development Center
- Advantages of Setting up Offshore Development Center in Europe
- Top Eastern European Countries to Offshore Software Development
- Key Considerations
Europe has become an increasingly popular destination for companies looking to set up offshore technology and software development centers. With its strong European talent pool, business-friendly policies, infrastructure, and geographic proximity to key markets, Europe offers significant advantages as an offshore hub.
One of the most popular locations for setting up an offshore development center is Eastern Europe.
One of the most popular locations for setting up an offshore development center is Eastern Europe.
What is an Offshore Development Center?
An offshore development center (ODC) is a software company's own office located in another country. It employs a team of programmers, project managers, quality testers and other IT specialists. Unlike outsourcing, an ODC operates as part of the client company's team.
Having an ODC allows companies to access skilled offshore developers in Eastern Europe and utilize global talent pools. It also allows for full control over the development process and the protection of their intellectual property. The ODC model reduces costs while leveraging the benefits of an offshore development center.
If you want to find a vetted partner to cooperate with an offshore development team, contact us. We have been matching IT professionals and teams to projects for our clients around the world for over 10 years.
Having an ODC allows companies to access skilled offshore developers in Eastern Europe and utilize global talent pools. It also allows for full control over the development process and the protection of their intellectual property. The ODC model reduces costs while leveraging the benefits of an offshore development center.
If you want to find a vetted partner to cooperate with an offshore development team, contact us. We have been matching IT professionals and teams to projects for our clients around the world for over 10 years.
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When is it Effective to Set Up an Offshore Development Center in Europe?
Companies consider setting up an ODC in Europe when they need to rapidly scale their development capabilities in a cost-effective manner. An offshore center allows access to a large pool of skilled developers at significantly lower costs compared to hiring locally in mature markets. This can provide substantial cost savings of 40-60% in operational expenses.
Other cases in which setting up an ODC in Europe makes good business sense:
Other cases in which setting up an ODC in Europe makes good business sense:
- Launching new products or large projects that require rapidly building out a sizable development team. An ODC enables quickly ramping up a team without being constrained by local hiring limitations.
- Entering new markets that require localized development efforts to create tailored solutions, provide language support, or address region-specific requirements more effectively. An offshore presence allows for the leveraging of local expertise.
- Supplementing existing teams with specialized skills and domain expertise that may be scarce or too expensive locally. The global talent pool makes it easier to find these niche skill sets.
- Managing fluctuating workloads and accommodating growth more flexibly by scaling the offshore team up or down based on demand without impacting core operations.
Offshore Development Center vs Other Models
Steps to Build an Offshore Software Development Center in Europe
1. Location analysis
Conduct thorough research on potential countries and regions in Europe. Evaluate costs of living, salary expectations, availability of technical talent, regulatory environment, infrastructure reliability, political stability, cultural compatibility, and time zone overlap. Eastern European countries like Poland, Romania, and Ukraine are popular ODC destinations for their large skilled workforce and proximity to Western Europe.
2. Modeling and planning
Define the scope, timelines, and goals for setting up the offshore development center. Determine the required team size, roles and responsibilities. Assess infrastructure needs like office space, hardware, software licenses, and communication tools. Develop a financial model considering all investments and operating costs.
3. Site selection
Once a country/region is selected, identify the specific city in Europe that best meets your criteria. If setting up your own facility, secure office space that accommodates current and future needs. Alternatively, explore renting seats in an existing IT park or partnering with a local operating company.
4. Recruitment
Work closely with local recruitment partners to attract and hire top offshore developers in Eastern Europe. Clearly define job roles, required skills, and experience levels. Implement a robust interview and screening process to evaluate technical and cultural fit. Have a strong employer value proposition highlighting benefits, growth opportunities and work culture.
5. Setup and integration
Establish all required legal entities and obtain the necessary permits and registrations. Set up the physical office in Europe with appropriate infrastructure, IT systems, and security protocols. Implement communication, project management, and development tools that integrate with existing processes. Provide comprehensive training to the offshore team on company policies, products, and development practices.
6. Ongoing management
Build a cohesive culture bridging the offshore and onshore teams. Promote transparent communication and knowledge sharing. Safeguard intellectual property through confidentiality agreements, data security measures, and controlled access protocols. Continuously optimize operations through process improvements, ongoing training, and feedback loops between teams.
Advantages of Setting up Offshore Development Center in Europe
Eastern European countries like Poland, Ukraine, Romania, and Bulgaria have fast-growing pools of skilled software engineers and developers available at very competitive salary levels compared to Western Europe and North America. Average IT salaries in these European countries can be 3-4 times lower, enabling substantial cost savings for potential European offshore delivery.
At the same time, software developers often have similar or higher skill levels compared to their Western counterparts, with many having degrees from top universities. Strong technical universities and IT vocational schools also feed talent pipelines. This enables access to sophisticated software development capabilities at favorable price points.
At the same time, software developers often have similar or higher skill levels compared to their Western counterparts, with many having degrees from top universities. Strong technical universities and IT vocational schools also feed talent pipelines. This enables access to sophisticated software development capabilities at favorable price points.
Business Environment and Infrastructure
Eastern European countries have made great strides in improving the ease of doing Europe's offshore business. Streamlined administrative procedures, favorable tax policies, and initiatives to attract foreign Europe's offshore investment make setting up development centers straightforward.
The infrastructure across Eastern Europe is advanced too - cities like Krakow, Warsaw, Bucharest and Sofia offer grade-A offices spaces for technology companies, excellent connectivity, and an abundance of offshore business services providers to meet operation requirements. This facilitates running large-scale offshore development centers hosting hundreds or thousands of engineers.
The infrastructure across Eastern Europe is advanced too - cities like Krakow, Warsaw, Bucharest and Sofia offer grade-A offices spaces for technology companies, excellent connectivity, and an abundance of offshore business services providers to meet operation requirements. This facilitates running large-scale offshore development centers hosting hundreds or thousands of engineers.
Geographic and Cultural Proximity to Key Markets
Eastern Europe lies near major European technology hotspots like London, Berlin, and Paris. Being in overlapping or close by time zones is advantageous over more remote offshore regions from a collaboration perspective.
Culturally, there is greater alignment with Western ways of working as compared to Asian offshore locations. From a communication standpoint, most European tech professionals also tend to be fluent in English. These factors lead to more effective collaboration with offshore talent.
Culturally, there is greater alignment with Western ways of working as compared to Asian offshore locations. From a communication standpoint, most European tech professionals also tend to be fluent in English. These factors lead to more effective collaboration with offshore talent.
Access to Emerging Technologies
Countries in Central and Eastern Europe have invested heavily in emerging technologies like artificial intelligence, big data analytics, cloud computing and more. As an example, Poland has over 150 R&D centers focused on areas like cybersecurity, autonomous vehicles, and game development.
Setting up an offshore development center in Europe allows technology companies to leverage these specialized resources to augment innovation initiatives and build products for the future. Governments also offer offshore grants and incentives for hiring and R&D in these technology areas.
Setting up an offshore development center in Europe allows technology companies to leverage these specialized resources to augment innovation initiatives and build products for the future. Governments also offer offshore grants and incentives for hiring and R&D in these technology areas.
Top Eastern European Countries to Offshore Software Development
Some of the major CEE countries have their relative strengths as offshore hubs.
Poland
Poland has one of the largest talent pools of software developers in the CEE region, with over 265,000 professionals as of 2022. Over 36,000 students graduate in IT-related disciplines each year. The country has seen 22% CAGR growth in the number of IT specialists since 2015.
Leading companies for offshore development in Poland:
Leading companies for offshore development in Poland:
- Comarch. Provides a wide range of IT outsourcing services including software development, testing, business analytics, and IoT solutions. Over 6,500 engineers globally.
- Transition technologies. Specialized IT services and outsourcing provider for sectors like finance, utilities, industry, media and IoT. Over 2,200 experts.
- Future processing. End-to-end software development services with dedicated engineering centers. Expertise in cloud migration, data engineering, QA automation. Employs 1,500+ developers.
Romania
Romania has seen rapid growth in its tech sector, with IT services exports expanding at a CAGR of over 19% from 2015-2021 to reach $6.3 billion. Over 256,000 specialists work in the software industry as of 2022. Romania is strong in areas like cybersecurity.
Romania's offshoring leaders:
Romania's offshoring leaders:
- Softvision. Award-winning digital engineering and consulting firm offering full-cycle development of custom software solutions, QA and big data consulting from their Romanian centers.
- Fortech. Top Romanian software outsourcing provider with core expertise in mobile, web, UI/UX and custom enterprise app development. 1,000+ engineers.
- Catalyst solutions. Romanian software development outsourcing provider focused on delivering services to the Italian market. Core capabilities in ERP, eCommerce, cloud and web development.
Ukraine
Ukraine has the largest and one of the most highly skilled pools of IT talent in Europe, with over 285,000 tech professionals by estimates. The country has seen rapid growth at 26% CAGR since 2015. Ukraine is renowned for engineering excellence.
TOP companies for offshore development in Ukraine:
TOP companies for offshore development in Ukraine:
- N-iX. Leading software engineering outsourcing provider in EMEA offering expert capabilities in cloud engineering, data analytics, embedded software, VR/AR and other offerings. Over 1,800 engineers.
- ELEKS. Award-winning global outsourcing consultancy recognized for advanced skills in UI/UX design, data science, DevOps and high-load system development. Employs over 1,500 tech experts.
- Daxx. Prominent Ukrainian tech talent agency providing dedicated development team services and engineers on demand across technology skill areas. Employs over 700 engineers.
Bulgaria
Bulgaria has an emerging IT outsourcing industry comprised of over 113,000 software specialists as of 2022, having achieved impressive CAGR growth of 15% from 2015-2021. The government has enacted various policy initiatives and incentives to continue boosting the technology sector.
Top-Tier companies for offshore development in Bulgaria:
Top-Tier companies for offshore development in Bulgaria:
- Scale focus. Leading Bulgarian software outsourcing provider offering core competencies in software product development, QA automation, DevOps, data analytics and cloud migration across a 300+ engineer talent pool.
- Dreamix. Highly rated Bulgarian software development outsourcing company with offshore delivery excellence in custom web and mobile application engineering, UI and UX design.
- Integri. Bulgarian outsourcing consultancy providing seasoned teams covering a range of technology outsourcing needs from software product design to cloud deployment and DevOps implementation.
Use Cases for Offshore Developers in Eastern Europe
Many well-known companies successfully use offshore developers and offshore centers in Eastern Europe. Here are a few examples:
- Major ride-sharing company Lyft, partnered with the Ukrainian offshore development firm Intellias to rapidly scale its engineering capabilities. Intellias provided a dedicated team of over 60 developers to work on Lyft's platform, allowing the company to accelerate development and improve time-to-market for new features.
- Streaming platform Hotstar in India, worked with Polish software development company STX Next to enhance its data analytics capabilities. STX Next's team of experienced data scientists and big data experts helped Hotstar implement advanced analytics and machine learning models to personalize content recommendations and improve user engagement.
- Spanish on-demand delivery startup Glovo, collaborated with Romanian software development firm Fortech to support its international growth. Fortech provided a dedicated team of mobile developers and UX designers to help Glovo localize its app for multiple markets across Europe, the Middle East, and Africa, enabling rapid expansion.
- UK-based telecom company Lebara, partnered with Bulgarian software development company Accedia to optimize its software development costs. Accedia set up a dedicated offshore development center for Lebara in Sofia, providing a cost-effective alternative to in-house development while maintaining high quality standards through close collaboration and rigorous quality assurance processes.
- Multinational engineering and electronics company Bosch, established an offshore development center in Ukraine with the help of local partner Daxx. The center focuses on developing innovative solutions in areas like the Internet of Things (IoT), automotive software, and smart home technologies, leveraging Ukraine's strong expertise in these domains to drive Bosch's innovation agenda forward.
Key Considerations
There are also some common factors companies should consider with setting up Eastern European development centers:
- Managing distributed teams across multiple time zones requires effort, especially interacting in real-time. Overlapping hours help.
- Seasonal variances like summer vacations can impact staff availability periodically. Robust staffing models help maintain continuity.
- Data protection regulations are still maturing in some countries. Assessing information security protocols is prudent.
- There can be higher attrition rates driven by salary growth opportunities as markets expand. Retention initiatives and workforce planning help account for ongoing hiring needs.
Conclusion
Eastern Europe provides a very compelling option for any technology company looking to set up offshore operations, offering a rare mix of high-quality software talent, operational cost advantages and business-friendly conditions. While no location is perfect and each has some tradeoffs, the overall value proposition for the region as an offshore destination keeps strengthening each year. More and more global innovators are taking note and ramping up investment - a trend likely to accelerate in the years ahead.
Offshore Development Center has a wide base of developerss, including those in Eastern Europe. If you want to expand your team with European programmers, please contact us. We will help you to form a team for your project.
Offshore Development Center has a wide base of developerss, including those in Eastern Europe. If you want to expand your team with European programmers, please contact us. We will help you to form a team for your project.
FAQ
- Question:How do I set up an offshore development center in Europe?Answer:To establish an offshore development center (ODC) in Europe, select a country with a strong IT talent pool and favorable business conditions. Set up the necessary infrastructure, implement clear communication channels, and foster a strong company culture within the ODC to ensure a cohesive and motivated team.
- Question:What technology capabilities can we expect from European talent?Answer:European IT talent is highly educated, with advanced skills in complex software development, emerging technologies like artificial intelligence, big data analytics, cybersecurity, game development, autonomous vehicle technologies and more. Many multinationals have R&D centers in the region focused on such innovations.
- Question:How easy is it to set up a new entity and operations?Answer:Many Eastern European countries have made significant improvements in ease of doing business rankings recently by removing administrative hurdles. They offer streamlined setup processes, favorable tax policies, and initiatives to attract foreign investment. Grade-A infrastructure also available.
- Question:Can European subsidiaries access EU and other Western markets?Answer:Yes, subsidiaries set up in EU member countries like Bulgaria and Romania enjoy access to the full EU common market. Non-EU countries also have trade agreements and access. Proximity to major EU hubs reduces barriers and logistical issues accessing Western markets.
- Question:What retention rates can we expect? Will there be high attrition?Answer:Markets like Poland and Romania are still emerging with high growth, so attrition rates can be elevated compared to mature markets. However, the quality of life remains good in most countries and turnover is reasonably stable. Implement workforce planning models and retention initiatives focusing on key talent.
- Question:Which European regions offer good language skills for offshoring?Answer:Central European regions provide Polish and Ukrainian language capabilities. Bulgaria and Romania offer multilingual teams spanning Western European and Baltic languages, Japanese, Arabic and more. 95% of Central and Eastern European tech professionals have functional – fluent English skills, better than many Asian regions.
Sergio Art is the entrepreneurial mind behind the Offshore Development Center (ODC), which he launched in 2010 to support U.S. businesses in their digital transformation efforts through access to skilled software engineers.
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