In terms of R&D, Ukraine can boast of more than 100 software development offices of global tech companies. Since this trend is only gaining ground, many other product companies are considering quitting outsourcing to open their own development office. This guide is going to tell you everything about software R&D centers to help you realize the new opportunity for skyrocketing growth overseas.
What is a Software R&D Center?
R&D centers are often associated with international corporations and large enterprises only. However, in the IT sphere there are many R&D offices of startups, SMEs, and other middle-sized IT companies that function very similar to traditional research and development antecedents in science.
In the tech industry, an R&D center is a software development office often located in an offshoring or nearshoring country.
Software R&D centers focus on developing innovative solutions for the IT product of their company. This goal often requires introducing new features to the existing software product and enhancing its capabilities. Therefore, a team of talented IT specialists is prerequisite. As a rule, offshore R&D teams consist of 10-50 IT specialists but can grow to hundreds of developers like Boeing, Samsung, WIX or Snap with their R&D centers in Ukraine. Depending on the specialization of your IT business (game development, AI, ecommerce, fin-tech, health software, security & data etc.), you choose the required technology stack and decide on team composition.
Basically, technical positions in R&D teams include a team lead / regional manager, software engineers, QA specialists, back-end & front-end developers, a UI/UX designer, and sometimes technical writers. To support the maintenance of the office, you’ll also need an office manager or IT infrastructure specialist. In offshore development centers, the customer and the supplier de facto are the same company. That’s why software R&D centers report directly to their head office. Development teams work alone with no intermediaries, thus product development is fully controlled by one and the same company.
However, companies that do offshore research and development need help with operational management and usually delegate minor life-supporting tasks to local service providers. For example, the most essential service is accounting for outsourcing of research and development, but many R&D teams have full support that also includes recruitment, compliance, and office management.
R&D Center vs Outsourcing
Outsourcing research and development is still drastically different from IT outsourcing. It’s a brand new model for tech business advancement, so more and more companies start considering this option due to a variety of benefits. Let’s compare R&D with IT outsourcing to get a clearer understanding.
Having an R&D office, it is possible to recruit IT specialists faster. Talented developers are eager to work for product software companies because it makes them feel valuable and fully engaged in product development. While outsourced development teams get used to working for different projects on a short-term basis, outsourcing companies often shuffle them to balance the projects. Hence, as a customer you’ll have to work with different engineers every time. With your own R&D division in Ukraine, however, you are able to choose the right people for your team by yourself.
Ukrainian R&D teams, for example, are believed to be exceptionally committed because of the feeling of ownership over the product (that creates more value to their work). Unlike this, outsourced development teams code for specific purposes without having the big picture in their mind. Consequently, R&D teams are far more effective than outsourced.
Although outsourcing companies sign an IP rights agreement with their customers, it’s still risky. Outsourced software engineers use the templates of code for other similar projects. What is more, outsourcing vendors often have just one huge open space. As a result, software engineers from different projects communicate altogether on a daily basis for personal and professional purposes. They like going out for meals, meeting in the office kitchen or smoking room to share ongoing work issues and attend corporate IT events altogether. There’s little you can do about it, so that’s why a separate R&D center is the way out.
Implementing your corporate culture is impossible on the premises of an outsourcing vendor. Therefore, such an engagement model can be reasonable for minor tasks which don’t require long offshore relations. In context of product companies, a software R&D office gives way to your vision, policies, and regulation. You are free to build corporate culture and manage the team independently. Moreover, it’s possible to install your own hard- and software or equip your employees with necessary stuff to make the offshore office look like your original workplace.
Tech companies fancy the idea of small up-front investments in offshoring. On the one hand, IT outsourcing enables product software companies to save money and have the work done promptly. On the other hand, outsourcing vendors are interested in increasing the costs of their services. In contrast, establishing your own R&D office doesn’t imply hidden fees. Pay as you go, regulate the number of services and build your development center within one month!
Reasons to Open an R&D Center
As can be seen, the R&D model is quite beneficial for tech businesses. However, the most outstanding advantage is the opportunity to accelerate the company’s growth. With the following factors, it is easier to make a cosmic progress.
Access to the Pool of Talents
For the IT industry, the most valuable thing R&D centers can give is access to a vast pool of tech talents. Europe witnesses the rise of new emerging markets with a powerful tech potential, e.g. Ukraine, Poland, Romania, Belarus. IT companies are already getting an advantage from it. For instance, in Ukraine there are over 100 software R&D centers. Amazon, Samsung, Oracle, Wargaming, People.ai, Sitecore, Grammarly successfully run their software offices in Ukraine. Other companies like Capgemini, IBM, Ubisoft are well established in Poland and Romania.
Offshoring helps save money and time that are essential for rapid company growth. The first reason for that is low labour and operational costs. For example, comparing to the USA, salaries of software engineers in Ukraine are 73% lower. Furthermore, the process of building your own R&D office is based on a pay-as-you-go principle. It enables you to plan the budget and regulate the number of services needed.
Opportunities for Branding
Research & development centers open great opportunities for entering new markets. If you strive to preserve your brand identity, R&D offshoring may bring effective brand expansion. Starting from corporate branding, IT companies get a nice chance to raise their brand awareness in foreign tech ecosystems. Additionally, it boosts your chances to raise more money from investors as no third parties are engaged in the core business. With your own branded office, it’s also possible to do employer branding and attract even more tech-savvy developers.
Ukraine for IT Offshoring
Ukraine is one of the Eastern European countries where volume of the IT market is growing 22% annually. Although the major capacity of the Ukrainian tech industry is IT services, its startup ecosystem is becoming more substantial. This situation attracts many software product companies and investors to the region. As of 2020, there are over 190,000 IT specialists in Ukraine, who make up a considerable talent pool. They have good comprehension of the English language (over 47% of Ukrainian software engineers have at least an Upper-Intermediate level of English). The vast majority of tech specialists in Ukraine are young – 21-30 years old. More than half of them have a higher degree in computer sciences, while only 4% have no higher education at all. Importantly enough, nearly 55% of Ukrainian developers take middle or senior positions.
Ukraine is a host of many popular tech events in Europe, including meetups, conferences, workshops, etc. Every year about 1,000 events take place for software & QA engineers, top-level managers, venture investors, and non-technical professionals in the IT industry. The largest of them are:
- SaaS nation
- Lviv IT Arena
- Year-End Summary Finance & Legal Conference for IT business
- IT Weekend Ukraine
- City Investment Forum
- .NET Fest
IT companies are members of different communities and local clusters. The largest union of software product and service companies is the IT Ukraine Association that aims at building a dialogue between the local IT companies and the government (to create a comfortable business environment for doing IT business in Ukraine). The IT industry in Ukraine enjoys tax incentives. When properly employed as independent contractors, Ukrainian developers pay just 5% of taxes from their monthly salary (instead of traditional 30-45% in the EU or USA). Hence, employers save on payroll tax and software engineers earn more, which is mutually beneficial.
How to Open an R&D Center
When it comes to outsourcing research and development, companies may feel confused and frustrated. This process involves studying the labor law and finances of the country, as well as the analysis of its market capacities. Software product companies need to hire people and then properly employ them, rent an office, provide software & hardware maintenance, security measures, onboarding etc. First, you need to develop an offshoring strategy and set the goals. Think about the structure of your future team: number of people, roles of engineers, technology stack, etc. Then, investigate the local labour market and find out its capacities. Travel to the offshoring location to visit several business centers and choose a comfortable office space.
After this, you’ll need to do some redecorations, procurements, workplaces setup, installation of the security system, etc. In parallel, start the recruitment process, interviewing the eligible candidates. Once hired, software engineers have to sign an employment contract and a non-disclosure agreement. Develop the vision of your R&D operational management to launch all processes. This includes HR payroll, office maintenance, and legal assistance. The last yet most important part is to create an inclusive onboarding experience for your new team.
One can hardly imagine a company performing all of these tasks without outer assistance. With a reliable partner, R&D management is much easier and faster because you are relieved from many red tape and mundane processes. The picture below shows how short your R&D setup checklist can be with a trusted service provider.
How to minimize risks with an R&D in Ukraine
To make everything work like clockwork for your offshore R&D team, include several important details into your offshoring strategy. Working proactively, you’ll ensure the smooth offshore software development. The following information answers the question “What risks do companies that outsource research and development have?” and explains how to avoid them.
Indeed, there are many skillful developers in Ukraine, but they may not be ready to work for a foreign company. Since Ukraine is a new market for many American tech brands, even the most popular US-based tech companies are sometimes ‘no name’ firms there in Ukraine. For this reason, never hesitate to spend money on employer branding, as it will facilitate your life abroad. For example, a good employer brand accelerates the recruitment process. As a result, vacancies are filled within the shortest deadlines. The possibility of headhunting also explains the essence of employer branding and why you’ll need it sooner or later.
Office Lease Agreement
What business owners often leave unnoticed is office rent. If you aren’t able to come in person to sign a lease agreement, appoint a regional manager to be responsible for that. Together with a lawyer, this person will represent you at the negotiations with tenant. Another important role in this process belongs to an IT infrastructure manager, who can go and check the chosen office for you, estimate the security level of your future software R&D center, as well as its comfort, parking lot, noise level, air-conditioning etc.
Tech companies want to adjust their work with R&D centers and usually invite Ukrainian engineers to the USA on business purposes. There the offshore team meets the whole company staff. The employer organizes introductory training and many team-building events for them. Business trips also sustain permanent cooperation and communication between several offices from different locations.
However, sometimes there’s a problem in getting an American visa. For instance, Ukrainian developers can be rejected in a business visa because their direct income from the USA is viewed as employment relations. Therefore, to avoid visa issues, pay special attention to the cashflow and type of employment with your offshore development team. Take care of all legal issues beforehand and make sure you abide by the law. This will increase trust in your employees and make them feel secure.
To get a deeper insight into the payroll system in Ukraine, contact local specialists. They will help you not only find the most appropriate kind of employment but also prepare templates of contracts and other documents. Generally, these recommendations will prevent tech companies from making many common mistakes when opening R&D in Ukraine. However, to stay on the safe side you should contract a local service provider to start offshoring successfully.
R&D Service Provider in Ukraine
R&D service providers aim at facilitating the management of your offshore development office. While many IT vendors suggest single services, Alcor offers full operational support of R&D teams in Ukraine. This includes recruitment, payroll & accounting, full legal support, help in office maintenance and other additional services.
In contrast to outsourcing or outstaffing models, Alcor doesn’t control your team. We don’t have the right to fire or replace software engineers in your team because you remain their employer (thus manage employees independently). As well, the Alcor team doesn’t include any developers, so we don’t retain any rights on your software product. As a consulting partner, we don’t have access to your intellectual property either.
What we really have is the team of professional recruiters, lawyers, accountants, and account managers who work with tech companies on a daily basis. They support the working environment of R&D team and provide operational management. Alcor strives to help offshore developers concentrate on software development, while everything else is secured by our expertise.
As can be seen, building a Ukrainian R&D center requires a good deal of time and effort, but brings essential advantages such as access to a big talent pool, full control over your team, processes, and place. Among all other factors, the most challenging is to set up all processes and make them work in synergy with the head office.
If you would like to discuss the opportunity of a software R&D division in Ukraine, write us an email firstname.lastname@example.org.