Outsourcing Software Development to Eastern Europe in 2023
Business | Ivona Cipar

Outsourcing Software Development to Eastern Europe in 2023

Thursday, Jan 19, 2023 • 7 min read
Why outsourcing might still be the best option to deal with a shortage of tech professionals, even while a wave of layoffs is impacting the industry woldwide.

With a shortage of tech professionals on the rise, companies are feeling the pressure to fill open positions. But, there’s a solution, and a good one - outsourcing.

Many IT companies can boost their teams and deal with a lack of local talent by adding valuable professionals from outside their borders. While outsourcing to Asia may seem like the obvious choice, Eastern Europe has been gaining traction as an outsourcing market in recent years.

What makes Eastern Europe a great outsourcing choice? Which countries in the region are the optimal choice for your company? Read on as we discuss all of this below.

Current situation

The scarcity of IT professionals has made it hard for companies to fill out their open positions. As we can see from different research, the current shortages will only increase in the following ten years.

For example, Sweden, a tech powerhouse, is expected to be short 70,000 tech experts by 2024. Meanwhile, the US has about five open positions for every software developer. And it’s not just these countries, the IMF predicts that by 2030 there will be a shortage of 85 million tech workers worldwide.

This shortage of talent is a real challenge for companies as they need to find solutions to keep their operations and revenue going. One solution that’s been working for companies is outsourcing and recruiting talent from outside the country. Not only does this give companies access to a wider pool of qualified candidates, but it also comes with other benefits, and it has been steadily on the rise.

Tech layoffs

It can sound counterintuitive to discuss raising demand for tech workers while a potential recession looms and layoffs are anticipated accross the industry. Over 37,000 tech workers have lost their jobs globally just 18 days into 2023. The total number or workers that were laid off in 2022 was a bit over 150,000, so after less than three weeks we are already at almost 25% of that number. It is the worst possible start of the year for many companies, as well as individuals that were forced to leave their jobs and it is quite disturbing to see these numbers raise on an hourly basis.

However, the demand for software developers and engineers remains high and the way forward will be through innovation and development. Some would even argue that the outsourcing industry will benefit from it, because it is often used as a strategy for cost-cutting. Let us then explore these outsourcing options for IT companies and examine current market rates.

IT services outsourcing market size, 2021 to 2030 (USD billion) Source: precedencersearch.com

Nearshoring vs. Offshoring

When it comes to outsourcing, you have two main options to choose from - nearshoring and offshoring. Both have their own set of pros and cons, so it’s important to understand the difference and which one is best for your company.

If a company from the US outsources their work to, let’s say, Mexico or Canada, we are talking about nearshoring. They managed to resolve the lack of local talent by finding experts in nearby countries, while also avoiding time zone differences and major cultural barriers.

On the other hand, if they choose to outsource to an Asian country, they will get an even wider talent pool, along with lower rates. This is offshoring.

In simple terms:

  • Nearshoring is having a team of developers from another country, but located on the same continent and within a couple of time zones
  • Offshoring is having a team of developers from another country located on a different continent

Outsourcing market rates comparison

We did a little meta-research based on more than 30 articles published over the course of last three years discussing rates for software development services, as well as considering rates quoted by Clutch. All the figures displayed in this article are an average of what was discovered using these resources.

No matter if you choose the nearshoring or offshoring option, average rates largely differ based on the location of the service provided. However, an affordable price doesn’t always mean you get good service and quality products.

Location Pros Cons
Asia Lower cost Cultural and language barriers, possible problems with quality with low-lost providers, regulatory issues
Africa Lower cost Cultural and language barriers, possible problems with quality with low-lost providers, regulatory issues
South and Central America Lower cost, adequate quality, no time zone difference with US Time zone difference (for Western European companies)
Eastern Europe Lower cost, good education institutions, no language or cultural barriers, good communication skills, adequate quality, no time zone difference with Western Europe Time zone difference (for US companies - 6 to 9 hours)

Such is the case when choosing Asian or African countries. While lower rates are an advantage, cons that come along with such prices are lower quality of code, cultural and language barriers, time zone differences, less regulatory protection (intellectual property rights, worker rights, privacy) and, in some cases, poor working conditions. The world is becoming a smaller place, and it is not realistic to expect to get top-quality results while paying less than market rates anywhere.

On the other hand, choosing developed Western countries for outsourcing services may come at a price. The cost of IT outsourcing to Western Europe varies widely, with hourly rates ranging from $40 to $300. Countries such as Germany, Netherlands, Switzerland, and the UK typically fall within the range of $50 to $100 per hour, although in Switzerland, rates can be as high as $200 to $300 per hour, making it the most expensive in the region.

Average outsourcing rates

Additionally, with Western European countries having troubles with talent shortages themselves, instead of being an outsourcing option, they may rather need to find where to outsource their work too. In other words, their role is more probably that of a client.

It is precisely due to this talent shortage that the biggest outsourcing clients are found in North America and Western Europe. The greatest percentage of outsourced work, with as much as 68% of companies finding talent in different countries, is found in the US. The percentage is pretty high in the UK too, for example, reaching 48%.

Eastern Europe as an outsourcing solution

In recent years, outsourcing custom software development services to Eastern Europe has become increasingly popular. This trend is driven by a number of factors, including the region’s skilled and well-educated workforce along with its competitive cost of labor.

Eastern Europe makes for a good nearshoring choice for Western European countries, as well as a good offshoring option for the US or Canadian companies.

The most popular outsourcing destinations in Eastern Europe include Ukraine, Romania, Poland, Bulgaria, Hungary, Czechia, and Belarus. Ukraine has the largest talent pool, with over 85% of its IT workforce employed in outsourcing companies. However, the ongoing war in Ukraine has had a significant impact on the country’s outsourcing industry. It has also exacerbated the global talent shortage, prompting Western companies to choose a different outsourcing destination.

Average hourly rate for software developers in Eastern European countries

Location Average Rate
Ukraine $25-$50
Slovenia $30-$70
Poland $50-$100
Serbia $25-$60
Romania $30-$60
Hungary $30-$60
Czechia $50-$100
Croatia $30-$60

One of the countries from this region that has recently emerged as a top destination for outsourcing IT projects is Croatia. This small country on the Adriatic coast boasts a highly-educated and tech-savvy population, with a growing number of individuals specializing in fields such as software engineering and computer science.

Benefits of outsourcing to Croatia

Higher education

Croatian higher education is free and easily accessible to young people, with the government providing additional support for students pursuing STEM majors in the form of scholarships.

By 2021, there were 40 higher-education institutions offering 73 undergraduate tech-related programs, which means that the Croatian IT talent has a strong background and a deep understanding of fields such as AI, data analysis, business intelligence, and software development.

Undergraduate IT studies in 19 Croatian cities

Quality of work and communication

Croatia’s high-quality education also translates to the quality of work produced by their IT professionals. Companies can expect well-trained and knowledgeable employees who are able to deliver high-quality work that meets or exceeds industry standards.

Additionally, the understanding and use of the English language also means that Croatian IT professionals are able to effectively communicate and collaborate with international partners and clients, which is a vital skill in today’s globalized economy.

In fact, according to Statista Research Department 2022 data, Croatia has the highest English proficiency score of all CEE and CIS countries.

Average outsourcing rates Source: statista.com

Lower rates

One of the main advantages of outsourcing software development to Croatia is the cost of labor.

Salaries for software developers in Croatia are significantly lower than those in the United States, as well as those in Western European countries.

This can translate to significant cost savings for businesses looking to outsource IT projects. However, It’s worth noting that the hourly rates are not the only metric to measure the cost of outsourcing, other factors like the cost of living, taxes and benefits are also important.

Administrative benefits

Croatia is also known for being a relatively easy place to do business, with a streamlined process for setting up and running a company.

Additionally, the country has a business-friendly environment and a stable political climate. This makes it an attractive destination for companies looking to outsource their IT projects. It also offers a range of other administrative benefits that make it an attractive destination for outsourcing IT work. For example, the country has a well-developed infrastructure, which includes a reliable and fast internet, making it easy for businesses to connect with their outsourced teams.

The country also has a low corporate tax rate, which can help businesses to keep their costs low and increase their profits.

Location advantage

The country’s cultural proximity with Western Europe makes the communication and cooperation smoother, along with having similar cultural and business practices.

Additionally, the time difference between Croatia and the east coast of United States is 6 hours, which is well-adjusted for collaboration with US companies. This allows for overlapping working hours, meaning work can be done during the day on both sides of the pond, increasing productivity and efficiency, and ensuring that urgent issues can be addressed in a timely manner.

This makes Croatia both a good nearshoring option for nearby Western European countries, as well as a good offshoring option for the US.

Final remarks

In conclusion, outsourcing custom software development services to Eastern Europe can be a cost-effective and efficient way for businesses to access skilled and experienced software developers. Croatia, with its skilled workforce, competitive cost of labor and proximity to Western Europe, is emerging as a top country to outsource IT projects. The cost savings of salaries and fees of software developers compared to the ones in the USA, as well as other Western countries, is significant, while the quality of work and business-friendly environment make it an attractive destination for companies looking to outsource their IT projects.

When you choose Mono, one of Croatia’s top IT companies, with 20 years of experience and more than 150 professional developers, business analysts, project managers, designers and testers, you can expect to receive exceptional service, quality solutions, and a team of highly skilled professionals, all at an affordable price.