How to Open R&D Center in Ukraine: Best Practices and Pitfalls
Probably, you have already thought about opening your R&D center in another country. This is a great opportunity for businesses to scale and reach new markets, as well as get some financial benefits. Such giants as Google, Oracle, Facebook, Amazon open their research and development centers worldwide. By the way, Google and Oracle have their R&Ds in Ukraine too. So, why opening R&D center in Ukraine is a hot topic and how to do everything right? You will know the answers to these questions after reading this article.
When does it make sense to open an offshore development center
R&D center or offshore development center (ODC) is a representative office of the company located in another country with a favorable business climate, and open expanding the development of software products or services.
You don’t need to be a Google-sized company to open your own offshore development center. Of course, scaling up and representation in other countries is one of the main goals of opening R&D, but it has many more advantages that can help the company achieve outstanding results. So, the sure signs that you should consider opening R&D are the following:
- You are looking for ways to reduce development costs. Moving the development process to another country, you can significantly reduce costs due to lower developer rates and the cost of office support. All cost savings options depend on the right location for your R&D. Ukraine, for example, has a favorable tax system with government support, which also allows saving. But we’ll come back to this later.
- You want to get access to a new talent pool. With the opening of an offshore development center, you get access to a new market of engineers and other IT specialists. Unlike the outsourcing model, where you pay for the work of developers with a margin of the provider company, here you get your own development team that applies to your brand and works for you. You can select the most experienced and talented employees, nurture expertise within the company, increasing its value.
- You want to reach new markets. There is no better way to conquer a new market than to create a regional company that can work with it. You can use the differences in time zones and culture to provide tailored services for different customers. Also, getting a representative in another country, you can save time on the study of foreign markets and use it to develop the company.
- You strive for business scaling. You can increase your market share and expand your business with the nearshore office. Therefore, if you are looking for ways to scale your business, ODC will be a great solution that will bring additional benefits.
- You often use the services of outsourcing companies. Opening an R&D center has greater efficiency compared to the outsourcing model. Hiring your own development team, you don’t overpay for the services of the provider and you have full control over the software product development process. You can find the main differences between the outsourcing and offshoring models in the table below.
You should understand that R&D is not a panacea, and the process of opening an ODC is associated with significant costs. But choosing a favorable location and correctly setting up the process, these costs will pay off in a short time and will become a new force for the development of your brand.
Possible pitfalls of opening R&D center
Despite the listed advantages, you should know that the process of opening R&D is associated with certain risks. You better know all the possible pitfalls to avoid them and make the right decisions.
City. Why is it important? Not only a country but also a separate city has more or less potential for a particular industry. It’s unlikely that you want to open a development center in the city with the highest prices or with a few specialized developers. In Ukraine, the main IT cities are Kyiv, Kharkiv, Lviv, Dnipro, and Odesa. Each city has its own characteristics regarding prices, location of offices, and even cultural features. Therefore, choose a city based on your goals and capabilities. If you want to be in the very center of Ukrainian IT development and are willing to pay for it, you can consider Kyiv, where the bulk of IT companies have concentrated. If you are looking for a small city with lower prices, choose the Dnipro or Odesa. Kharkiv will be the golden mean among the pool of talents and prices.
Cultural Barriers. Cultural differences can affect a wide range of areas such as interaction understanding, communication, interpretation, productivity, comfort, and commitment. Ukrainians are hardworking and open to everything new. They value personal freedom and you are unlikely to have problems with understanding, but anyway it’s important to work on the general culture of the company. You should treat your offshore and in-house teams equally. Also, you need to have general values of the company and principles, which will be clear to both employees and customers. It’s clear that the opening of ODC will be followed by ongoing work on development, education, and internal public relations. Are you ready for it?
Tracking the performance of work. A serious problem in working with an offshore team can be quality control of tasks. Each company has its own standards, and each manager wants to be sure that his employees are effectively spending their work time for which you pay. Therefore, take advantage of employee productivity software to find out what the ODC team does during the day. Develop a common reporting process and performance assessment metrics.
You should also be ready for the fact that, like any investment, the opening of the R&D center is associated with expenses that will initially exceed revenues. But if you properly work through the process and create an effective development team, very soon this situation will change for the better.
Why open R&D center in Ukraine
Ukraine is an extremely attractive country for IT investments for several reasons. According to the Skill Value report, Ukraine is among the top 5 countries with the best engineers. By the way, in 2018 their number exceeded 184,500 specialists according to the IT Industry in Ukraine. 2019 Market Report and hundreds of new specialists graduate from Ukrainian universities every year. Therefore, Ukraine is in the top outsourcing ratings, combining loyal rates and talented developers. But the companies opening their R&D centers in this country get even more benefits.
- A great pool of IT talents. You don’t even realize how many cool tech startups were created by Ukrainian developers. Grammarly, Depositphotos, Jooble, Nimses, Terrasoft and this is not a complete list. In Ukraine, more than 20 higher education institutions that teach programming, not counting various courses. In total, here you can find developers with the most diverse technical stack and seniority level.
- Favorable tax system. The development of the IT industry in Ukraine is supported at the state level, therefore IT companies have certain tax benefits. The tax legislation of Ukraine gives IT companies the opportunity to work with self-employed specialists who pay only 2 taxes — 5 percent of their income and a single monthly social tax, which is 22 percent of the minimum wage (at the moment, it’s a little over 38 dollars). Additionally, even Ukrainian banks offer attractive rates for IT representatives, which greatly simplifies the process of transferring funds.
- Lower developers’ rates. The prices for software development services in Eastern Europe are lower than in Western, but this doesn’t affect the quality. The IT market in Ukraine is still developing, so the prices for engineers are not as high as in other countries. By hiring your own development team, you can significantly reduce the cost of the software development process.
- Perfect time zone. The time difference between Ukraine and the USA is 7 hours and between Ukraine and the UK is 2 hours, which opens up new prospects for working with foreign markets. Of course, it will be difficult for you to synchronize the work of departments in Kyiv and New York, for example, but this leaves more flexibility and the possibility of building a more efficient development process (when a Ukrainian developer finishes work, his American colleague, who is just starting his working day, can go on with the task).
- Convenient geographical location. Ukraine is a large and beautiful country, which is located in the very heart of Europe, with convenient transportation. You will not have any problems visiting your development center whenever you want. The country has more than 20 airports in the largest cities.
As you can see, Ukraine is a wonderful country for opening an R&D center here. You get both economic benefits and the opportunity to build a cross-cultural development network.
Where to start establishing your offshore development center
There are several ways of establishing your offshore development center. But first of all, you need to make a plan and think about all aspects of building a remote development team. How will you manage the team? Will you send your people to the R&D center or do you need a local team leads? How will you hire staff? Where will your office be located? The city, the building … You need to think a lot before taking other steps.
Once you have a clear picture of your future ODC, you can either start the implementation yourself or seek help from local IT companies. If you have never worked with Ukraine before and don’t know the features of its market, you may need much more time than you think to study everything and begin to interact with government officials. Of course, you will need to register your company, prepare all the necessary documents to start working. Most likely you will still use the services of local accountants, lawyers, and other specialists. But there is a more effective solution. In Ukraine, you can find IT companies that will help you open your development center. Thus, you will not only outsource this process but also get the first local partners.
The best right solution of how to open an R&D center in Ukraine
Have you weighed the pros and cons and still want to open your development center in Ukraine? We are ready to help you with this task. IdeaSoft offers a service of opening an R&D center in Ukraine. Our specialists will take care of all aspects of establishing and maintaining your development center: from registration, office design, and hiring specialists to account and legal support, as well as training of your development team. Knowing all the features of the Ukrainian market, we need a minimum time to make it happen. Contact us to discuss this.
