IT outsourcing in Ukraine:
why is Ukraine such a popular choice?

A short intro

Hello, friend! Glad to know you’ve found this file:) It’s really cool that you’re interested in ukrainian IT outsourcing services, ‘cause we’ve prepared a lot of interesting information on this topic, especially for you! We tried our best to make this research complex, but at the same time concise and easy-to-read. So we hope that we’ll help you answer your questions and tip the scale in favour of Ukrainian outsourcing! It’ll take you approximately 8 minutes to find out: key facts about Ukrainian outsourcing; the level of professional competence and rates of Ukrainian developers, legislative peculiarities of holding business with outsourcing companies in Ukraine, risks & perspectives, pros & cons of Ukrainian outsourcing.
Make a cup of tea/coffee and start reading...
To start off, let’s have a look at key facts and figures:
1000+ it companies
1,000+
IT companies
100+ R&D centers
100+
R&D centers
More 2000 startups
2,000+
startups

Key facts about Ukraine

Location - Eastern Europe
Location
Eastern Europe
Kyiv is capital of Ukraine
Capital
Kyiv (3 million people)
Timezone in Ukraine
Timezone
UTC +2
Population-45 million
Population
45 million
Workforce - 22 million
Workforce
22 million
GDP per captal
GDP per capital
$3,900
National export IT services
IT as a share of national export
4%
Currency
Hryvnia (UAH)
Top tech hubs in Ukraine
Top 5 tech hubs
Kyiv, Kharkiv, Dnipropetrovsk, Lviv, Odessa

Key indicators

1,000+
Software outsourcing firms with 80+ employees
100+
International R&D Centers
130,000+
IT professionals
390+
Universities & colleges with texhnical education
74,000+
Technical graduates (2015)
Ukraine on map
01/09

IT services and software R&D in
Europe’s rising tech nation” 2016

Ukraine is a country located in Eastern Europe with a population of approximately 45 million people. This country is considered to be one of the most promising in this region as its economy is constantly growing (despite even the various obstacles which we’ll discuss hereafter). Let’s look at the graph of economic development in Ukraine:)
IT services and software R&D
GDP Growth Projection
Find out more: www.worldbank.org/ukraine
Also Ukraine has improved its status in Doing Business Rating
by 76 positions from 2012 to 2018
Doing Business Rating
Speaking about Ukraine’s economy and outsourcing, a very important fact is that IT exports grew by 20% in 2017 to reach a new record of 3.6 billion USD. This figure is predicted to increase to 4.5 billion in 2018, with the forecast for 2025 currently standing at 8.4 billion, or around 4.65% of anticipated GDP.
Based on this information, we also have to note that Ukraine was listed as one of the top 20 biggest exporters of IT services in the world. And it’s not the only achievement of Ukrainian outsourcing. Ukraine is rapidly developing in the IT sphere, and that fact has helped it get into the top outsourcing ratings.
Ukraine’s economy and outsourcing
02/09
Let’s check it out!

Ukraine holds the 24th position in the list of the top outsourcing countries in the world, according to the Global Services Location Index by A.T. Kearney.
Also, 18 Ukrainian outsourcing companies were listed in the world’s top 100 in 2018 and 10 ukrainian outsourcing firms in the global TOP 28 outsourcing companies, according to clutch.co (may, 2018).

Moreover, Ukraine was recognized as UK’s offshoring destination of the year according to the Global Sourcing Association (GSA) UK. This index is quite significant, as the UK is the world’s second-largest outsourcing market.


According to the A.T. Kearney report, Ukraine holds the 7th position among the most attractive European countries for outsourcing.
Ukrainian outsourcing companies
Top 10 most attractive European countries for outsourcing
Image
Pretty good results, yeah?



Owners of big companies probably had the same thought, and that’s why they decided to place their R&D centres exactly in Ukraine.


It’s very important to emphasize that the United States consider Ukraine as the largest partner for collective R&D activities (around 45% of the companies involved), followed by EU countries and Israel.
R&D owner in Ukraine
To be more accurate, Ukraine is home to over 100 R&D centres with a staff of more than 12400 people. Among the companies, that localized their activities in Ukraine are:
Microsoft
ABBYY
Samsung
Boeing
Image
ebay
Skype
gramarly
IBM
Huawei
Apple
Opera
Oracle
Sony Ericsson
Siemens
Upwork
03/09

And what else attracts clients to Ukrainian outsourcing companies?


Talent pool
The number of people working in the IT sector is really significant: there are approximately 100,000 to 150,000 engineers, and around 300,000 other people currently working in Ukraine's IT services sector.
In terms of available talent, Ukraine has already outpaced its competitors in the region, including Poland and Hungary, and PwC believes the number of IT professionals will double again by 2020.
According to the recent research of “IT Ukraine” Association the professional level of Ukrainian IT-engineers is quite high :
54% specialists start to work during studying at university
of specialists start to work during studying at university
28% professional certificates
have additional professional certificates
Level of English
of specialists have an Upper Intermediate level of English
specialists permanently develop their skills by reading professional literature
of specialists permanently develop their skills by reading professional literature
 64% IT-specialists in Ukraine have a credential on technical disciplines
of IT-specialists in Ukraine have a credential on technical disciplines
The percentage of IT developers in Ukraine who can speak English fluently has reached 44.6% (upper-intermediate+advanced), with 37.6% more at the intermediate level (and this percentage grows annually).

The professional level of Ukrainian developers is also possible thanks to the qualitative technical education in this country.
Ukraine's top technical universities
Top technical universities
Total graduates with technical degrees (2015)
Source: Dou.ua Salaries report 2015
bachelor students
bachelor students
master students
master students
Image
PhD students
An important fact is that Ukrainians have European mentality, that simplifies communication for the Western companies that want to outsource to Ukraine. Positive thinking in the traditional Western style lets Ukrainians easily get over communication barriers. Moreover, multilingual managers are available in almost all companies.
04/09
Start-ups

The Ukrainian IT market is full of creative ideas and boasts more than 2,000 startups, including Grammarly, Readdle, PetCube, Preply, DepositPhotos, People.ai TemplateMonster and Attendify.
$265m
in investment volume (231% increase vs.2016)
44
New investment deals (Seed, Follow-on, Series A, Series B, Growth & Secondary)
5
Exist to strategic buyers and investment funds
$4.8m
Average Seed deals size (16% up from 2016)
$4.8m
Record high average Round A size (x3 growth vs. 2016)
* The report acconts for but does not include all deals as some of them remained confidential
Ukraine constantly transforms from a provider of particular outsourcing services into the full-cycle software developer and home for many startups. The growth in the sector is beneficial not only for Ukraine, but also for consumers worldwide.

In the table below you can find information about the biggest investments in Ukrainian startups in 2017.
software developer
05/09
Prices

Prices in Ukraine are lower than in the most of other countries providing outsourcing services, while the quality of Ukrainian development is higher.
The average salary of a senior Java developer in Ukraine is just $40,047 per year -- slightly higher than in Asia, but lower than in neighboring Central European countries. Considering the fact that a developer of similar expertise would cost on average $99,284 per year in the U.S., the benefit is obvious. An important factor in favor of choosing Ukraine as an IT service provider is the fall in the national currency rate. Despite the depreciation of the rate, starting from 2016 the growth of the country's GDP resumed. The low exchange rate of the national currency, combined with GDP growth, is a great potential for increasing exports, including the export of IT services.
Ukraine GDP
06/09

The support of the IT sphere in
Ukraine


To ensure a predictable growth in the export of IT services, the following regulatory and legislative conditions can be observed:
Necessary conditions
Stable taxation policy
Over the past year Ukraine has considerably simplified the taxation system of the IT industry. Moreover, Ukraine has International Agreements for the Avoidance of Double Taxation with 67 countries of the world.

Also, in Ukraine there is no VAT payment for the exporters of IT services for non-residents. It means that foreign companies that place orders for IT outsourcing services in Ukraine eventually receive them at a lower price, as their Ukrainian counterparties do not have to pay VAT on the export of these services. Because of such a tax regime, Ukrainian companies have the ability to offer competitive prices to foreign customers.

During a meeting with the heads of the leading Ukrainian outsourcing companies in 2018 the prime-minister Volodymyr Groysman gave promise to improve legislation in the technological sphere.

Moreover, the Cabinet of Ministers of Ukraine have recently accepted the concept of the development of Ukrainian digital economy (to 2020), which became a strong basis for positive changes in the Ukrainian legislation system.

And finally, enacting law #4496 (which is commonly called “the law about freelancers”) in 2016, the government of Ukraine facilitated the work of foreign clients with Ukrainian freelancers. Now you don’t need to waste your time on boring paperwork:

  • the contract between the client and outsourcer can be presented in an e-form in the language of one of the contractors;
  • the act of provided services can be replaced by invoice;
  • e-signature is officially recognized.
07/09

So, to outsource or not to outsource, is this a question?


Let’s find out the pros and cons of Ukrainian IT outsourcing:
Image
Pros
  • Ukraine has the cheapest abd largest engineering labor force in Europe. Average developer salary is $1,600 Manufacturing wages are at $1.2/hour, twice lower than China
  • Lowest operating costs in Europe
  • Ease of recruiting and laying-off employees in the absence of strong legal restrictions or trade unions.
  • Highly educated population (100% literacy rate), strong presence of higher educational establishments (317 colleges and universities)
  • European mentalit
  • No-visa regime and easy work permit regime for foreigners from most countries
  • Favorable geographic position for globally operating business. Ukraine is one-hour flight away from Poland, 2 hours from Germany, 5 hours from Dubai, 9 hours from New York or Beijing
  • The individual income tax is at 18% with most independent contractors paying only 4%
  • Well-developed and developing IT infrastructure, with a fast-growing innovation ecosystem.
Image
Cons
  • As of late 2015, the country was experiencing significant political and economic challenges after the recent revolution and geopolitical crisis in the region. Howewer, the military conflict was contained to only 3% of Ukrainian territory in the eastern part of the country
  • High level of corruption across most goverment bodies, Howewer, some progress has been noticed since the 2014 revolutio
  • Cumbersome legal entity
  • registration and closure laws
  • Legal loophones in commercial, financial an technological fields
  • Little efficient IP protection legislation for companies and individuals. Howewer, legislation is to be harmonized with EU rules
  • Except VAT exemption for software development service companies, IT companies and sturtups do not enjoy tax breaks
  • Cases of arbitrarily-led tax police inspections in IT companies
08/09
The risks for
potential clients
1. The conflict in the East of Ukraine

One of main stop-factors for potential clients is the conflict between Ukraine and Russia, because it can be the reason of difficulties in the business process.

Ukraine has been in the headlines as a center of geopolitical tension, but everything is not so bad. According to the A. T. Kearney, this country has moved up 17 positions in the Global Services Location Index for the last 2 years, as currency depreciation led to a major gain in its compensation cost score, accompanied by improvement in the competitiveness of its tax and regulatory costs. The increase in political risk is partly offset by the government's implementation of reforms that boosted the country's competitiveness.

Despite the poor political situation in Ukraine, authoritative media resources such as Forbes and Financial Times say that we should remain optimistic. It's got a high quality, low cost workforce. The conflict zones of Donetsk and Luhansk remain a safe distance from the technology centers of Kyiv, Kharkiv and Zaporizhia. Moreover, the worst is over: the current situation is more stabilized in comparison to the critical circumstances in 2014. But still, serious challenges remain.
2. Ukraine is not an EU member, and there are many gaps in legislation, especially in the sphere of intellectual property
Security issues pose a great risk while offshoring software development since the intellectual property has to be well protected. Every year companies spend more and more money on IT security because the importance of this issue only sharpens. The most significant step towards reducing such risks is finding the software product development company with clear security policy.

Therefore, you have to make sure that your offshore partner complies with security regulations and has the certifications to prove it. Here are some tips for protecting your Intellectual property (IP) rights:

  • Make sure that copyright ownership is specified in a contract with the developer;
  • Do not authorize the executor to create any intellectual property asset;
  • Register copyright on your IP;
total it budgets
3. Timezone difficulties
When you outsource to a company in a different time zone, it means that you will work at different times. You sleep when they work and they sleep when you work, literally. You might face delays and expirations of time limits because of the difference in working time, and it could slow down the progress of your project.

Ukraine is 7 hours ahead of the U.S. east coast, and 1-2 hours ahead of most European countries, including the U.K. So this fact can significantly facilitate your cooperation and working communication with Ukrainian developers. Since their day probably begins before yours does, they will already have progress to report on your daily Skype call or email.

Some tips on working in different time zones:
Set communication channels;
Single point of contact;
Fixed meeting times;
Use project management tools;
Common source code repositories;
Intelligent task assignments;
Project progress reports;
Local holidays list;
Have emergency numbers.
4. The rapid growth of developers’ rates
As you can see on the graphic, from 2011 to 2017 only the salaries of the Senior developers has grown. The salaries of Junior and Middle developers remain almost unchanged.

While there are cheaper outsourcing destinations – like India, the Philippines or China – Ukraine provides the best price to quality ratio. Not only are Ukrainian engineers generally skilled at business process outsourcing and quality assurance services, they are also able to solve complex technical problems in which deep expertise and innovative approaches may be required.
Java Developers
Image
5. The fear to entrust the development of key products
Ukrainian companies are working effectively not just on outsourcing projects, as the part of extended or dedicated team. They also create new custom software products.

For example, the management consulting boutique Teleologica was looking for a reliable technology partner for ongoing delivery of transformative digital solutions for the public sector. The company’s partnership with ukrainian company ELEKS started back in 2001 from a pilot project and evolved into a strategic alliance during the ensuing years.

The big success was the delivery of the flagship Customs and Excise System for the Administration of Revenue (CAESAR II) for the government of the island of Jersey. The island underwent tax reforms that made the majority of consignments arriving into the island subject to tax collection. The project team had to re-engineer the customs processes, allowing the agency to stand up to the challenge of extreme capacity growth and control over operating expenses at the same time.

CAESAR II automated the full cycle of transactions between the government and customs applicants. The new system allows the Jersey customs department to efficiently process more than 10,000 consignments per week, compared to about 200 per week previously. Since the initial release, teleologica together with ELEKS made a number of updates, including a renewed version in 2015 that brought a new responsive UI for the public. Results:
50x productivity growth without any staff increase;
Automatic processing of 98% of freight consignments;
Capacities to accommodate future volume growth;
Minimal administrative burden for both government and business.
09/09
TO SUM IT UP...
As you can see, the state of IT outsourcing in Ukraine is on the rise. There are some potential difficulties, but the benefits will outweigh them.

Should you outsource your projects to Ukraine or not? Hopefully our article has given you many great reasons to.