How to Set up an Offshore Development Center in Ukraine
Creating an Offshore Software Development Center (ODC) in another country basically proposes entrepreneurs to start a business from scratch: renting an office, hiring staff (accountants, developers, HR management, office managers), building supply chain, establishing internal corporate culture, buying equipment, as well as paying taxes. However, despite this practice will most likely burn a hole in the CEO’s pocket, it is the most efficient way to improve business operations on the local level and promote it overseas. Let’s see how to set up offshore development center and what you need to know about the peculiarities of this process.
What Is ODC and Why Ukraine?
Offshore Software Development Center (also called R&D Center) is a subsidiary of an existing company that relocates a part of its business operations to another country. Setting up offshore development center can be done either independently, or via the services of a local vendor. The first option is exposed to many challenges and risks since you need to properly analyze the market, identify rental costs, salary rates, the legal ground for business setup, and other peculiarities. Vendor, on the other hand, is the establishment that knows the steps of creating R&D centers in the country, thus can do it for you in a timely manner. Although you may face additional costs for their services, eventually, you will get your subsidiary set up fastly and painlessly.
Ukraine currently has around 110,000 software developers available on the IT market. They mainly have a degree in computer science, are well-aware of technological advancements, and possess an immense level of responsibility and dedication. Take a look at the examples of companies that foresaw colossal benefits of offshore development center along with Ukrainian professionals.
In 2009, a world-known South Korean corporation Samsung that manufactures electronic devices, opened its R&D center in Ukraine. Started from a small-scope team of developers, these days, the company operates in a skyscraper in the capital city of Ukraine, Kyiv. Along with another 14 development centers in the world, Samsung’s collaboration with Ukrainian specialists enriched the company with profound research services in computer vision, intelligence security, and other corresponding activities.
Another tech giant in the mobile manufacturing industry Huawei created numerous job opportunities for Ukrainian developers in Kyiv. In 2017, a team of 450 people jump-started their operations in consumer electronics, IT solutions, and hardware development.
Quite an interesting collaboration occurred between Google and Ukraine: the first offshore development center was opened in Ukraine in 2019 when Google acquired the Ukrainian subsidiary of CloudSimple company along with all its developers and staff. At the beginning of this year, Google officially announced that CloudSimple is a part of Google Cloud, which means that the corporation will be improving the integrated VMware migration solution with the Ukrainian workforce.
Foreign companies see Ukraine as a desirable destination for setting up offshore development center. In 2008, the overall foreign funding had a 15.6% share in the country’s GDP, which grew up to 25.8% in 2011. These numbers demonstrated a high demand of extending the business to the Ukrainian market, but let’s take a closer look at offshore development center challenges and benefits.
Offshore Development Center Benefits
An impressive statistics of global corporations to invest in creating Development Centers has a chain of advantages. Here are some of them.
- Costs-Cutting Strategy
A world-known business strategy to hire remote teams is widely applied in both large and small organizations. However, eventually, opening local R&D centers will cost much less than hiring developers separately. Also, depending on the country, the salary rates might be considerably lower than the domestic ones.
- Competitive Edge
Companies that have not established their recognition on the local market, will benefit from R&D in terms of building a target audience across the world. The development of a product or services in another country enriches the technical potential of the corporation, thus, grants it a competitive advantage among local manufacturers.
- Talent Pool
In search of suitable candidates, many companies face a dramatic scarcity of necessary specialists on the domestic market, while employment opportunities on overseas markets bring them a vast number of professionals with required skills, experience, and dedication.
Another attractive aspect among offshore development center advantages is that you can discover so much more in a new market. Your products can be developed by professional specialists and scientists who might possess immense experience and knowledge in the innovations that remain undiscovered on your market.
- Local Taxation Regulations
If your government has established severe measures of regulating your business operations through skyline taxation, you might find a country where taxes will be more appealing and save you a good sum of money.
Offshore Development Center Risks
If your decision falls on starting offshore development center without a vendor, be prepared to face certain risks, which might appear regardless of what country you chose to set in. So here are key things to consider for build an offshore development center on your own.
- Fierce Competitiveness
You will overcome dramatic losses if the local consumers do not accept your product. Since the world of technologies is growing rapidly, numerous companies are coming up with new proactive ideas every day to satisfy their users’ needs and create an excellent user experience. Therefore, the product you are entering the market with should already have a differential advantage to stand out from ones offered on the market.
- Team Management
The subsidiary should be treated with more careful and smart management as you will not be able to control it on a daily basis. That is why you can often face exceeded deadlines or the quality which didn’t meet your expectations. Even though R&Ds usually have their internal staff management, the driving interest of team maintenance is on your shoulders.
- Additional Costs on Implementation
You might save your financial resources on office rent, salaries, and legal-related matters, however, when it comes to implementation, you never know how much time it takes to develop a product, what pitfalls may arise, will it be demanding on the market, the overall sales. Moreover, sometimes, even after product release, it should be returned to the process of development to make changes and improvements according to the feedback from customers.
- Breaking Points in Workflows
Since you are starting the operations in another country, it is important to understand its culture, employee mentality, and what drives their productivity. Overall, prior to building the R&D development center not only should you investigate the economic and political situation in the country, but also define the weaknesses in the workforce to make sure how to handle the issues.
How to Set up Offshore Development Center
Establishing a whole new company in another country requires a thorough understanding of the market, profound research, and understanding of challenges that might appear. Here are the steps towards creating a winning offshore software development center.
Step 1 – Assess the Market
This step includes the analysis of competitiveness (existing products and their selling power), define the opportunities (do the customers need your product), identify their buying behavior (how much money they are ready to spend to buy your offer). You may understand that local consumers reveal a complete satisfaction of the existing products on the market, so the challenge for you would be to research what beneficial advantage you can offer. This step requires lots of time resources – from 1 month to 1 year.
Step 2 – Virtually Build the Team
Before you actually start hiring, go to the local job platforms to see if you will be able to collect the employees with necessary specialization. Consider the number of people and their positions at least in the first period of time of R&D operations. Also, analyze the salary rates to properly construct your budget scope.
Step 3 – Analyze Local Technology Potential
Obviously, the step of analyzing the market of technologies is one of the vital in opening R&D centers. The purpose of the development center is to generate new innovative solutions to the existing or upcoming product, so you need to make sure that the local specialists are well-aware of such.
Step 4 – Understand the Stakeholders
Even tech giants such as Apple and Google have stakeholders for opening R&D centers across the world. These would include government, legal entities, tax regulatory organizations, suppliers, and other parties. All of them are contributing to the overall development processes and facilitate them considerably.
Step 5 – Create a Roadmap and Business Strategy
All the previous steps that you have done so far, should be united into a business strategy which includes setting up short and long term goals, risk management, defining objectives, vision and mission, and financing.
Step 6 – Know the Law
Before your dedicated offshore development center starts operating, you must analyze local legislation to make sure that you follow the regulations. When you finalize your product development, you might have a need to patent it and guarantee the intellectual property is maintained. This is probably one of the toughest steps as you need to properly analyze the details of local jurisdictions to not fall into a trap.
Offshore Development Center Costs
Before building an R&D center, the company thoroughly analyzes the market opportunities and devotes a lion’s share of time on capital development. Namely, investigates the rental costs (considering office location and size), prices on necessary equipment (including office supplies such as desks, chairs, lighting, furniture, and coffee machines), working equipment (computers, projectors), local salary rates (from office managers to software developers).
The table below shows average costs needed to open a development center in Ukraine.
Up to 5 employees
|Office Rent (monthly)||$1600-$2,000 (70-100 m²)||$3000-3,500 (150-200 m²)||$5,000-5,500/month (150-300 m²)||$5,000-10,000/month (500-1000 m²)|
|Furniture and other office supplies||Up to $4,000||$4,000-6,000||$6,000-10,000||$10,000-20,000|
|Utility Costs (as per office size, monthly)||$300-400||$500-700||$700-1,000||$1,000-2,000|
The costs for office leasing were estimated based on its proximity to the metro station and comfortable commuting distance. The starting office usually doesn’t have to be very spacious and stylish, but the location is very important to make sure your employees enjoy their travel to the office from home. The prices on furniture and other office supplies also depend on your preferences and capital capacities to build a development center. Ukraine offers quite affordable utility costs that may vary depending on the governmental regulations and office size.
The following table demonstrates salary rates for the staff members in Ukraine.
Web and Mobile Developer
Recruiter – $800-1,500
Administrative/Office Manager – $900-1,200
HR Manager – $1,000-2,000
|$3,000-4,000||$4,000-5,500||$4,000-5,000||Up to $600|
Offshore- and nearshore-development-center can be opened in Ukraine via the services of local vendors. Mobilunity, IT nearshoring provider, has been operating on the market for 10 years. We have gained excellent recognition for clients from Western Europe to Asia. We provide world class dedicated development teams who help both tech giants and startup businesses fulfill their goals.
One of the services of Mobilunity includes setting up R&D center in Ukraine for our foreign counterparts. We thoroughly analyze your requirements, preferences, financial capacities, business strategy and goals; our HR Management team assists in selecting the candidates with the required expertise and experience; our business planning staff members help the clients with all legal-related matters. All in all, not only we will assist you in setting up offshore development center in Ukraine but also guide you through the process of running and maintaining it.