Software Development Outsourcing to Eastern Europe: Which Country to Choose in 2024?

IT outsourcing has been a go-to solution for companies around the world, from startups to Fortune 100 leaders. This approach allows them to save substantial recruiting efforts and reduce costs on software development without compromising quality. According to Statista, the global IT outsourcing market will grow up to $578.30 billion by 2027.

 Based on: Deloitte

The growth is fueled by growing demand for digital transformation and innovation in all business segments. However, the latest trend for cost optimization pushes companies to look for more cost efficient yet reliable resource pools. Thus, many organizations today are reviewing their outsourcing strategies and seeking to source specialists from new locations.

Then comes the key question: what destination to choose? Historically, Eastern Europe has been one of the major IT outsourcing markets for leading companies from North America, Canada, Australia, the United Kingdom, and other Western European countries. Hence, its revenue keeps consistently growing and according to Statista will surpass $9,19 billion in 2024 expecting to reach $20,54 billion by 2028.

Benefits of IT Outsourcing IT to Eastern Europe

The ongoing Russian war against Ukraine poses challenges to Eastern Europe as an outsourcing destination. Despite the risks, local businesses prove their preparedness and adaptability to wartime, keeping operations running steadily and indicating sustainable growth. Ukraine, in particular, has increased the talent pool by over 7% in 2023, reaching a total of 307,600 specialists, while its IT industry remains one of the top contributors to the country’s economy.

The advantages listed below are among the key reasons why the Eastern European landscape has been and remains the preferred outsourcing destination for many companies around the globe.

A rich pool of experienced tech professionals

Eastern Europe has always been a powerhouse of talented software engineers. The cumulative talent pool in the region reached 1.3 million developers in 2022, and you can easily find talents with deep tech and domain expertise.

Eastern European specialists are at the forefront of software development and their proficiency is recognized in various world ratings. For example, SkillValue places them at the top of the World’s Best Developers list. Recent research by Coursera states that the regional workforce is highly qualified and has cutting-edge competencies. Eastern European engineers have been invariably featured in the HackerRanking list of the World’s best developers for a couple of years in a row.

In addition, there are many technical universities in Eastern Europe that foster new talents. Most of them are featured in the Top 100 Best Universities List and are recognized globally due to their educational proficiency.

Similarities in Culture and Mentality

IT outsourcing always involves interaction among a company, a provider, and a team, which can be hindered by a cultural mismatch. Cultural differences have a big impact on conflict management, communication styles, teamwork, etc. So, a clash of completely different mentalities can lead to additional overhead and risks.

Outsourcing to Eastern European companies reduces the likelihood of having cultural differences and provides simpler communication, and smoother business collaboration. Eastern European developers are seasoned in collaboration with international teams, so the communication gaps are rarely an issue. Most software outsourcing companies have substantial experience working with US and Western businesses and are familiar with the business culture, communication style and ways of work with people from these countries. Therefore, in most cases outsourcing providers from Eastern Europe are reliable and long-term partners who speak your business language.

Proactive thinking

American and Western European businesses have long appreciated the proactive thinking that the teams in the region demonstrate towards building and delivering projects. Outsourced teams often come up with new initiatives and are willing to take more ownership of the clients’ projects. They focus on the overall success of the business rather than just completing tasks. Specialists from Eastern Europe take full responsibility for their deliverables and regularly contribute with recommendations on the optimization of delivery processes.

Robust data privacy and security

One of the advantages the Eastern European landscape offers is a similarity in legal regulations. The region complies with copyright laws and policies like the General Data Protection Regulation (GDPR). Thus, Eastern European solution providers take all measures required to safeguard data privacy and security.

European and US legal regulations are quite alike in terms of the privacy policy and security requirements. Thus, businesses from the US can count on the appropriate security levels in relation to their laws and requirements.

Local outsourcing providers learned lessons from running business during the pandemic and geopolitical tension, so used that experience to safeguard uninterrupted and efficient remote work, despite any external influence. They ensure your information is safe and eliminate risks of possible threats by introducing secure authentication, VPN, data encryption, privacy equipment, etc.

Reasonable development costs

Eastern Europe is a world-renowned offshore destination with the best correlation of value for money. The hourly development rates in Eastern Europe are not the lowest among outsourcing regions, however, if you consider the Total Cost of Ownership (TCO) for your development, Eastern Europe provides the most optimal ratio. The TCO includes not only the developers’ efforts but also the management, retention & motivation overhead that you would normally have on your end. Eastern European outsourcing companies are usually willing to take more responsibility over the development process thus reducing your in-house overhead.

The overall hourly rates in Eastern European countries may vary between $35 and $100, based on the skills and seniority level of technical experts as well as the outsourcing model used. (Check our article about the pros and cons of outsourcing development for more information about the differences between outsourcing models).

The outsourcing rates by country differ as well, but they are still lower compared to the prices offered by local suppliers in the US, Western, or Scandinavian countries.

Countries in Eastern Europe for Software Outsourcing

The IT Industry in Eastern Europe remained stable during 2022 and proceeded into 2023 demonstrating the ability to navigate through the challenging geopolitical situation and global economic tendencies. While Russia and Belarus lost their outsourcing perspectives due to developers’ outflow and applied corporate sanctions, other Eastern European countries fortified their positions and grew revenue. Thus, the demand for software engineers in the region is still high among Western countries, as well as the USA, Canada, and Israel.

Related article: Nearshore software development

According to Clutch, there are 3,535 companies in Eastern Europe that offer software outsourcing services. As for the March 2024, the biggest IT hubs in the regions are:

• Poland (1348 companies)
• Ukraine (990 companies)
• Romania (458 companies)

However, we usually suggest having a broader perspective and considering Bulgaria, the Czech Republic, and Hungary as well. Below is a detailed overview of IT sectors in these countries.

Ukraine

Based on: DOU, TechUkraine

Over the past two decades Ukrainian IT industry developed by leaps and bounds, having grown over 60 times, from $110 million in 2003 to about $6,7 billion in 2023. Now Ukraine has about 308,000 professionals, nearly 43% with 6 years of experience in the industry, while around 8% has been working within IT sector for over 15 years.

The country is a home for more than 110 R&D centers of international companies, including Microsoft, Dell, Cisco, SAO, etc.
The Ukrainian IT industry accounts for about 5% of the country’s total Gross Domestic Product.

Here are some more facts in favor of outsourcing to Ukraine:

• Ukraine is in the top 30 Gartner countries for offshore services.
• In 2018, the Global Sourcing Association recognized Ukraine as the best delivery destination in the UK.
• 11 Ukrainian universities are listed in the QS World University Rankings.
• Despite the war, 36% of Ukrainian companies plan to open new offices in the country and abroad.
• World-famous startups such as Petcube, Preply, GitLab, Depositphotos, and Grammarly were established in Ukraine.

Much has changed since February 2022. The war has caused many transformations, as well as brought new risks for local IT businesses. However, despite the circumstances, Ukrainian software development companies have managed to effectively overcome challenges, safeguarding stable service and business continuity. For example, Sigma Software returned to full operational capacity 2,5 weeks after the full-scale invasion.

Most organizations relocated their employees to safer places, established new offices in the Western regions of the country, and provided employees with complete support in terms of relocation, accommodation, physical & mental health recovery, etc. Their offices, equipped with power generators and Starlinks, were turned into safe hubs for the IT community. As a result, by the end of 2022 Ukrainian IT sector has generated over $7 billion in exports, representing growth of 7,7% compared to 2021.

Ukraine should still be considered an outsourcing region with increased risks, but it is rather a question of what actions your local supplier takes to mitigate those risks. It is important to make sure your local provider has an effective BCP (Business Continuity Plan) and proactively works with risks. If so, the chances of getting your project successfully delivered from Ukraine are as high as they were before the war.

Poland

 Based on: ABSL, Statista

With its political stability, many years of EU membership, fast-growing economy, and experienced programmers, Poland remains one of the top destinations for IT outsourcing. The country has a clear legal system and is constantly implementing reforms to boost the business environment. Poland is the most economically advanced region in Eastern Europe and has a low inflation rate along with tempting tax incentives for IT outsourcing agencies. This attracts global leading companies like Amazon, Google, Samsung, SAP, Delphi Automotive, Intel, and McKinsey.

Based on the Emerging Europe 2023 report, Poland has 525,100 ICT professionals — the largest talent pool in the area. Its growth was also caused by Ukrainian developers who relocated from the war zone in 2022, enriching Polish technical expertise and skills diversity.

The latest tendency of moving towards cloud-based services boosts the growth of Software as a Service (SaaS) and Infrastructure as a Service (IaaS) segments in the local market. Additionally, it increased the demand for cybersecurity services, as companies want to ensure a high level of security in the cloud environment.

Some more statistics:

• The software development industry in Poland is valued at €8.1 billion in 2023.
• Polish developers are rated 4th in the world in terms of skill level, according to Top Coder ranking.
• The country has the largest number of unicorn startups in Eastern Europe, according to Google and Dealroom research.
• Poland ranks 16th in the EF English Proficiency Index, with the majority of the population having a good command of English.
• The country is one of the best educational centers in Europe with 22 universities recognized in QS World University Ranking 2024.

Bulgaria

Based on: Bulgarian Outsourcing Association, Clutch

Bulgaria is a key outsourcing player with a long history in the market. Most companies choose the country for economic stability, high English proficiency, and a well-developed tech education system. STEM direction is very popular among Bulgarian students. Among the 280,000 students enrolled  in universities, over 115,000 specialize in the fields of IT, Mathematics, Economics, and Administration.

Local software companies are partnering with educational institutions, as well as launching their own projects to employ young talents. The Bulgarian IT market employs about 101,400 ICT professionals, and almost 30,000 are working in IT outsourcing. The country hosts numerous R&D offices of global corporations such as HP, SAP, Oracle, VMware, CISCO, etc.

Here are some other facts:

• In 2023, the software development industry in Bulgaria is estimated at € 836,8 million.
• In 2018, the country ranked 50th in the World Bank’s Ease of Doing Business
• Annually, Bulgarian universities graduate about 2200 IT specialists.
• In 2020, the IT outsourcing sector of Bulgaria added $1,67 billion to the state budget.
• 71% of Bulgarian Companies use English as their working language.
• Bulgaria reached 6th place in the rate of the top countries in Eastern Europe for setting up a startup in 2023.

Hungary

Based on: Emerging Europe report, Statista

Even though Hungary is not a mainstream destination for outsourcing in Eastern Europe, the country has one of the most dynamic IT sectors in the region. Software development services represent 6% of the country’s GDP, and this index is expected to grow over the next couple of years due to the adoption of digital transformation in the public sector and increasing investment in future technologies.

The country’s government puts a lot of effort in setting a favorable climate for the development of IT outsourcing in Hungary. They have introduced IT-friendly policies, including tax reliefs and financial support, to encourage local software companies’ growth and attract big players to enter the Hungarian market. As a result, a good deal of multinational companies like Siemens, Microsoft, Deloitte, Ericsson, and Nokia have already chosen Hungary as their outsourcing destination.

According to Crunchbase, Hungary now has over 600 IT companies participating in the booming tech industry. The country already has a talent pool of 180,900 software engineers, which is enriched by approximately 4,000 IT graduates every year. And here are some more benefits of this destination:

• In 2023, the software development industry in Hungary is estimated at €1,7 billion and is ranked 14th in Europe.
• Hungary scored 18th place in the EF English Proficiency Index rate.
• The Hungarian IT market is expected to show an annual growth rate (CAGR 2024-2028) of 7.88%, resulting in a market volume of $2,37 billion by 2028.
• The world-class startups are nurtured in the favorable Hungarian tech ecosystem, and their combined enterprise value skyrocketed to €2,4 billion in 2022.

Romania

Based on: Emerging Europe report

Romania is a popular outsourcing destination that has strengthened its position in the Eastern European market even more in recent years. The country made significant progress in building a supportive environment that nurtures businesses and professional growth. Thus, now the country has over 202,000 ITC employees and almost 10,000 students with technical specialization graduating from universities annually. This helped Romania emerge as a leading destination for BPO (Business Process Outsourcing). The local specialists provide global companies with a wide range of BPO services, from human resource and supply chain management to regulatory compliance, quality assurance, customer support, etc.

Another key vector of IT outsourcing in Romania is cybersecurity. In 2021, Bucharest became the homeplace of the European Cybersecurity Industrial, Technology & Research Competence Center, and the EU hub that allocates funds to coordinate cybersecurity research across Europe.

Romania’s government introduced favorable tax conditions to encourage investment in technology and to keep pace with other countries in attracting software companies in Europe. The incentive is working, and IT outsourcing to Romania is getting more popular, attracting prominent technology companies such as Microsoft, Oracle, IBM, and HP.

Here are some other highlights:

• The software development industry in Romania generated $288,90 million in 2023.
• According to HackerRank, Romania ranks 20th in the world in terms of the number of skilled developers.
• Romanian Universities produce 30,000 specialists annually.
• According to the EF English Proficiency Index, Romania is 15^th out of 112 countries.
• Romania is ranked 10th in Europe and 30th globally in a list of the most favorable outsourcing destinations according to Kearney Global Service Location Index 2023.

Czech Republic

Based on: Emerging Europe report, Statista 

The Czech Republic is a favorite outsourcing destination for many IT companies around the world due to its convenient location, English proficiency, and Western-oriented culture. The Czech talent market has over 220,000 ICT specialists, well-known for their proficiency in robotic process automation (RPA).

Czechia joined the EU in 2004 and has a stable legal environment with favorable economic conditions. Hence, today the country’s business environment is named the most favorable for the IT sector in Europe according to Emerging Europe Report 2023. This attracts leading global tech organizations such as Microsoft, Google, Oracle, Skype, and IBM to choose the country for both direct investment and outsourcing.

In 2023, the Czech Republic’s fintech company FTMO experienced 25 255% revenue growth and became a three-time winner of Technology Fast 50 Central Europe ranking by Deloitte. However, outsourcing software development to the Czech Republic is more expensive than for example, Ukraine or Romania.

Some more statistics:

• In 2023 the software development industry in the Czech Republic is valued at €3,6 billion and is ranked 11th in Europe.
• According to the Social Progress Index the country holds 2nd place in the Eastern European region.
• In the Global Innovation Index 2023, the Czech Republic ranks 31st in the list of global economies and places 20th among European countries.
• In the latest ranking of startup ecosystems by Startup Blink, the Czech Republic ranks 32nd worldwide and 4th among Eastern European countries.

Which Eastern European Country Is Best For Software Development?

Based on both our study and feedback from our clients on software development outsourcing in Eastern Europe, here are some core highlights of these destinations:

The driving force and the main competitive advantages of Eastern European countries are the vast talent pool, technical proficiency, and reasonable development costs. Therefore, outsourcing software development to Eastern Europe ensures that you get not only a talent provider, but a reliable technical partner that shares your business culture and cares about the success of your product.

Even though each destination has its pros and cons, the region in general is very strong and inviting. Lately, many of our clients have been looking for outsourcing providers across the entire Eastern European region, regardless of the country.

Moreover, remote work has tangibly changed cooperation with distributed teams, and the Smart-shoring approach, which has been introduced recently, is becoming more popular. We at Sigma Software, actively use this approach as it allows us to build efficient international delivery centers powered by talented people from all over the world to deliver thousands of successful projects.

Today, there is no need to focus on choosing a specific country. Many outsourcing providers expand their presence in the region and globally. This unlocks the opportunity for clients to hire talented people in multiple countries while staying with one reliable partner.

Why choose Sigma Software as an IT outsourcing development company in Eastern Europe?

Sigma Software has been delivering outsourcing services for over 20 years and has been included in IAOP Top 100 Outsourcers list for 7 years in a row. We apply a Smart-shoring approach to effectively build and coordinate international distributed teams for our clients all over the world. This allows us to match our clients’ needs and expectations, resulting in a 98% client satisfaction rate according to our latest survey.

Sigma Software in numbers:

• We are a reliable partner for more than 300 leading global companies, including AstraZeneca, AOL, Scania, IATA, SAS, IGT, Formpipe, DanAds, etc.
• Sigma Software employs 2,000 software specialists with extensive technical experience in leading technologies, including Java, .NET, Node.JS, React Native, Angular, Golang, Python, iOS, Android, and more.
• We have a local presence in 19 countries on 4 continents with 42 offices including Ukraine, Romania, Bulgaria, the Czech Republic, Hungary, and Poland.
• Sigma Software expert team can deliver over 40 services, including Software Product Development, Application Implementation and Managed Services, Legacy Migration and Modernization, and Technology Consulting.

If you are planning to hire a dedicated team or outsource a project to Eastern Europe, or are hesitating about what country to choose – contact our team, and we will provide a solution tailored to your business needs.

• #Dev Centers & Teams
• #Software Product Development
• #Turnkey Project Outsourcing