In any sphere, be it home construction, tailoring, or software engineering, the road from an initial idea to the first dollar from final sales is rocky. Production of any goods can be divided into many activities that will processed by different specialists. In the case of IT engineering, very often product tech companies can’t deal with all stages of programming by themselves. This leads to engaging outer assistance or additional resources of different variations.
For example, you can utilize in-house coding in order to manage the engineering process but make substantial investments. Or, you may choose outsourcing IT product research and development that offers cost-efficiency yet leads to lower code quality results. Another way is to opt for IT outstaffing that can provide you with coders who will quit your project unless you pay a considerable buy-out fee. Beyond that, when comparing product vs. project mindset, both outsourced and outstaffed software engineers follow the latter which is very short-sighted. The third opportunity is to set up your own offshore center via an R&D provider that helps you avoid the risks of previous models, receive a high-quality product, and get full operational support.
So, what is the perfect option for your business?
The Essence of Outsourced Product Development (OPD)
If you have a good software idea, you likely want to turn it into a product. But even if you understand what to do with ready-to-use software and how exactly it has to work, it doesn’t mean that you know how to build and design it.
Your company may be unrelated to information technologies and need a tool (app or program) to grow your business. In this case, the CEO, CMO, or CIO will probably hire a custom software agency with coders who have the right IT skills.
The IT product outsourcing firm may build the required solution from scratch or use “off-the-shelf” drafts. In customized product development, an outsourced team needs to ensure that the product won’t violate any IP rights. Furthermore, these programmers must keep in mind that any kind of custom software programming includes document management and quality assurance – not to mention that this product must be supported and maintained.
Outsourcing product development presupposes that a customer must create the task for developers while the executor performs it, assuming all responsibilities. If you outsource IT product development, you only need to make clear-cut requirements. If they are ambiguous, this can translate into low-quality results.
Therefore, outsourcing software product development might be suitable for small and short-term projects (up to 1 year). It is commonly used by companies that don’t have a software development department in their company or just begin building their IT product or MVP. However, the outside firm that creates your software will partly become your product owner and could put your trade secrets at risk.
IT Outstaffing: Developers “For Rent”?
IT outstaffing, or personnel leasing, must not be confused with outsourced software product development. With tech outstaffing, the customer plays the first fiddle, which is not the case of outsourced development. Hiring an external staff provider can help you reduce some costs and delegate tax payments or other financial operations regarding your temporary programmers.
However, outstaffed IT specialists will not completely belong to you. You will appoint programming tasks to them, monitor their performance, and pay their salaries via a supplier. At the same time, these developers will always be employees of another firm – your outstaffing partner – and treat this company as their main employer, not you.
The company that “rents” a team of developers usually has its own IT department with an in-house development team. However, for now, they need additional workforce and brains, but expansion isn’t included in their plans for the near future.
Outstaffing is more useful for middle-term (1+ year) projects. You get specialists who work for you the same way as staff members, with no worries about their legal employment, taxes, payroll, or other operational functions. However, the loyalty of outstaffed programmers will always depend on monetary compensation and they will leave your team sooner or later if you refuse to pay buy-out fees for such developers.
Outsource Everything But Programming (R&D + BPO)
BPO or Business Process Outsourcing that presupposes setting up your own R&D is an excellent solution if you’re a tech company looking for coders abroad. In this case, you cooperate with a professional BPO provider that will establish your branded offshore software center backed up by all administrative functions.
What can you obtain?
1. Access to professional developers
If you feel that there are not enough talented programmers in your country, then business process outsourcing + R&D overseas can help you deal with this problem. Companies that offshore to Eastern European countries like Ukraine can choose from over 200,000 programmers who have the necessary qualifications to develop or upgrade your app or platform.
2. Streamlined payroll and accounting
Once new developers have joined your team, the finance team is going to take care of their salaries, plan your taxes, handle bookkeeping and accounting, produce detailed monthly invoices, and perform other functions of this kind in your offshore software development center.
3. Complete legal compliance
It’s not enough to just hire skilled programmers and handle financial matters, as you will also need to abide by local laws and regulations. But you don’t have to do this alone because the BPO provider will always be there to ensure that your activities are legal both locally and in your home country. Apart from that, they will also protect your IP from risks, help you prepare and sign all important documents with developers, and keep you posted on recent changes in legislation.
4. Other services
Another benefit of the BPO + R&D model is the ability to receive real estate, employer branding, business trips organization, and other services that your company might need in one place.
By assigning all operational work to a professional service provider (programming excluded), you can make your life easier. Accounting, tax, and personnel audit can all be delegated to a third-party contractor so that it becomes possible for the company to work purely with software products.
The benefit is also undeniable in terms of attitude to work, as developers understand the product intimately and adopt your values – hence you receive a dedicated team of professionals fully focused on your product. Most importantly, this engagement model fits all companies no matter their size: startups, small companies, middle-sized firms, and even enterprises.
Product Tech Company with Its Own R&D
In this scenario, product companies become self-sufficient since both programming and business processes are provided on their own. All employees are staff members, including programmers, testers, accountants, lawyers, and HR managers. Samsung and Snapchat are examples of such companies.
A product company has its own office, in-house HR and security. Its lawyers monitor compliance with legal norms, interact with controlling authorities and solve problems, and the company’s accountants know all specifics of the field.
Product outsourcing has prevailed over programming via R&D outsourcing companies in Eastern European countries for many years. I can say that in 2019, the percentage of tech product companies in Ukraine was approximately 26%, while 74% were IT outsourcing companies. Currently, these numbers are changing in favor of R&D centers – since Ukraine is now one of the most favorable locations for offshoring. Hundreds of IT companies are opening their R&D offices here instead of using IT outsourcing. For instance, tech giants like Apple, Google, Viber, and Reddit registered their R&D domains in Ukraine in 2020.
A major difference between an outsourced software engineer and an R&D developer lies in product maintenance. Having written the code, the former will not support it in the future, while the latter will stay with it indefinitely. R&D programmers know the product and understand which of its parts is responsible for a particular task. They realize that after a while they will make changes to the code (e.g., scaling). This way the developer not only does his/her best (as many freelancers and outsourced employees do), but also works with an eye to the future.
What does it look like in practice?
Several years ago, an American-based company, People.ai, that develops the AI platform for streamlining sales in B2B companies, chose Ukraine as their offshoring location. But they first cooperated with different vendors simultaneously: recruiting, payroll, and legal functions were delegated to different BPO providers. This resulted in delayed deadlines and poor quality.
Luckily, People.ai solved this problem after they cooperated with our BPO company, where the team received all operational services in one place. We set up their office in Kyiv in just 1 month, hired over 25 developers in the next few months, and handled all administrative operations so that People.ai could focus on their core business and do the software engineering with some brilliant in-house engineers.
Alcor as Your Trusted R&D BPO Provider in Ukraine:
What Do We Do?
Our Eastern European BPO company Alcor can establish a software R&D center in Ukraine for any foreign IT company that has its own product. International companies, such as Grammarly, Tonic Health, BigCommerce, Sitecore, and many others have already benefitted from cooperation with us.
We believe that the right people are the core to any company’s success, so recruitment is one of our major areas of expertise. Our IT research and recruitment team has a database of over 170,000 seasoned developers who have even the rarest skills on the IT market. After we select those who ultimately meet your requirements, we conduct as many job interviews as you request and hire those Ukrainian software developers who have successfully passed all interviewing stages.
Our lawyers can prepare all important employment contracts and non-disclosure agreements, take care of other documentation, plan your taxes, protect your IP rights and other confidential information, legalize your foreign developers in Ukraine, and supply other legal services for your R&D unit.
The finance & accounting team of Alcor focuses on salary processing, accounting, tax planning, preparing tax returns, providing salary reports (check our recent iOS developer salary research) and invoices – everything 100% transparent. It’s important for us that you always know where your funds are allocated. This is exactly what our USA-based client – Sitecore that develops a CMS platform – received after starting cooperation with our team.
Do you need more than hiring IT specialists, getting legal support, and managing payroll and accounting? Just say the word. Our team loves to go the extra mile for our clients and delivers additional services – from real estate to employer branding. Our account managers can even help you conduct a vaccination campaign for your Ukrainian developers, or help you transport equipment for the IT infrastructure to the homes of your team!
In product companies, a programmer is fully involved in the process of product creation and develops a sense of ownership, but in-house coding can be cost-consuming and take up too much of your time. In comparison, outsourced software product engineering and outstaffing vendors are characterized by speed and diverse experience of developers, at the same time being “questionable” when it comes to IP rights and loyalty.
The R&D + BPO model not only provides you with dedicated and driven coders, but also takes over all non-core tasks, such as setting up the office and management, hiring IT talent, finance and legal support, and others. This solution lets you concentrate on core activities like lead generation and profit-making activities. But these and other advantages, such as cost reduction are possible only if you work with a reliable offshoring provider with practical experience in your niche!