Why are tech companies outsourcing software development to Eastern Europe

10 min read
October 14, 2022

IT outsourcing is now a giant market valued at $572.88 billion—and is expected to hit $1.06 trillion by 2030.

A big chunk of that goes to Asia, arguably the top outsourcing region. After all, it’s home to India and the Philippines, two countries that owe a significant portion of their GDP to outsourcing.

But for most Western clients, Eastern Europe could be a better choice. It offers the advantage of outsourcing without most of the complications of offshoring.

Let’s discuss the benefits you’ll get with an Eastern European agency.

Eastern Europe: nearshore or offshore

Eastern Europe is becoming a hotbed for both offshore and nearshore outsourcing. But what’s the difference between the two?

When most people think of outsourcing, they traditionally think of offshoring.

This type of outsourcing involves partnering with a developer in another country, often halfway across the world, usually in order to cut costs.

A classic offshoring example is an American company partnering with a freelance developer in India.

offshoring example 1

Source: DECODE

Offshoring confers many benefits, such as a wide talent pool and low development costs.

As previously mentioned, the latter is probably the most common reason to offshore, since it gives you access to developers with the lowest hourly rates.

For example, an American developer’s average salary ranges from $75 to $150. In contrast, an Asian developer can charge up to 80% less.

The biggest obstacle with offshoring, though, is the difficulty in communication.

software development outsourcing

It is not uncommon for time zone differences to make finding overlaps in your schedules nearly impossible.

Also, there are many offshore locations in which a lack of English fluency can hamper clear communication.

A good compromise is to consider nearshoring.

Nearshoring is similar to offshoring except for one key distinction—developers are hired from nearby countries.

A good example is a German firm outsourcing development work to DECODE, located in Croatia.

nearshore outsourcing 1

Source: DECODE

Nearshoring is a great option because it gives the advantages of outsourcing without many of the obstacles.

Because you outsource to a country in your vicinity, the time difference between you and the developer is often negligible—up to three hours.

This makes real-time collaboration much easier to manage.

In addition, nations in the same region tend to share a similar language and culture to yours, which makes communication and cooperation more seamless.

However, the big drawback with nearshoring is that you don’t have as many options regarding talent and cost.

That means you may not get the cheapest rates available. However, it can still be significantly lower than not outsourcing at all.

Whether you’re onshoring or offshoring, Eastern Europe offers plenty of benefits for outsourcing. Let’s discuss them in the next section.

Why companies are outsourcing to Eastern Europe

Eastern Europe is fast becoming a prime destination for outsourcing app development. In fact, four of the top ten outsourcing countries in the world are all in that region.

Here are some reasons why so many companies are opting for outsourcing in that part of the world.

Affordable rates

Eastern Europe commands relatively affordable developer rates, thus attracting clients who want to lower their budget.

Rates might not be as cheap as in South Asian nations like India or Pakistan, but they’re still low compared to development costs in North America or Western Europe.

Take a look:

offshore software development rates by region

Source: Grid Dynamics

Even within the region, there are variations in price, so you’ll always have choices.

Croatia, for example, has relatively lower average rates (around $37-$74) compared to some other Eastern European countries.

But the great thing about Eastern European developers is that the quality of work you get from them is often exceptional value for money.

In fact, their output is comparable to that of their American or Western European peers. And that’s on top of the many other benefits we’ll discuss later.

This observation is backed by a Eurostat study that measured all European nations’ wage-adjusted labor productivity ratio.

European nations wage adjusted labor productivity ratio chart 1

Source: Eurostat

This metric tells you the value you get from a country’s labor force in proportion to the investment. The higher it is, the more value-for-money developers in that country are.

You’ll see in the above table that nations in the region, like Croatia, Serbia, and Latvia, dominate the list of high productivity ratios in the IT sector.

And their scores are more than the EU average.

In other words, you’ll get a bigger ROI with Eastern European nations than with any other place on the continent.

Technical skills

Eastern Europe has the winning combination of app development outsourcing—cheap rates and a massive pool of skilled IT talent.

Currently, there are more than 1.8 million IT professionals in Eastern Europe. While that may not be as many as in India (which has double that number), the region does boast better quality.

Debi Hamill, CEO of the International Association of Outsourcing Professionals (IAOP), has this to say about Eastern European developers:

Unlike other leading delivery destinations such as India and the Philippines, the emerging Europe countries have typically been awarded contracts on a smaller scale but consisting of higher value transactional work.

This means that developers in the region are used to high-level development work.

The region’s IT pool isn’t only substantial, but it’s also growing steadily.

For instance, Croatia’s pool of 35,000 developers has been increasing by around 19% annually, way higher than the rest of Europe.

Croatias pool of 35000 developers has been increasing by around 19 annually way higher than the rest of Europe chart

Source: Ekobit

Eastern European nations are also consistently present in skill rankings of various IT disciplines.

For instance, looking at this HackerRank study, you’ll see Eastern European countries dominating the list.

Countries with the best developers by domain 1

Source: Hacker Rank

This tells you that Eastern European developers also offer diversity and versatility, enabling them to tackle any project.

You can attribute this high level of technical skill to the established tech education in many Eastern European nations.

For instance, Croatia has many excellent tech universities and colleges that produce stellar graduates.

The government also encourages STEM education for young kids, which is a prerequisite to excellent programming and coding skills.

Want proof? Look at the rankings of the International Olympiad in Informatics (IOI) below. This annual competition tests the computer science skills of students aged 20 or below.

Notice that Eastern European countries like Poland, Romania, Bulgaria, and Croatia took home the most medals overall.

rankings of the International Olympiad in Informatics 1

Source: IOI

In other words, it’s no surprise that you can expect a high degree of proficiency from Eastern European developers.

English language proficiency

Despite being non-native speakers of English, Eastern Europeans are surprisingly proficient with the language. That makes them especially easy to communicate and collaborate with.

Indeed, according to the Future of IT 2022 report, language is one of the crucial factors for companies outsourcing outside their native country.

Many clients underestimate the importance of English proficiency when outsourcing to countries like Russia.

But they find out too late that English skills aren’t as widespread as most think. Unfortunately, this can slow down or hamper communication with your team.

Indeed, most countries only have medium to low English skills, according to Statista:

Infographic English The Global Language Statista 1

Source: Statista

Fortunately, that’s less of a problem with Eastern Europe.

Most countries in the region have high proficiency scores, as measured by the English First English Language Proficiency Index (EF EPI).

Many are higher than popular outsourcing destinations like India. Some, like Croatia, are even in the top ten globally.

Global ranking of countries and regions 1

Source: EF EPI

But being skilled in English goes beyond communicating properly with clients.

The other benefit is that most development topics and technical manuals are written in English.

Thus, if your team isn’t versed in the language, it will be very hard for them to get up to date with the right information they need.

Again, this mastery of the English language is deeply rooted in the European education system.

Many countries in the region require their schools to teach foreign languages. Children in Croatia, for instance, start learning English when they’re around seven years old.

And they continue learning it even as they go through college or university.

Indeed, that’s one of the reasons why Eastern European countries have booming tourism and software development industries.

Cultural similarities

Eastern European nations share similar cultures with countries in North America and Western Europe, which facilitates collaboration.

On the other hand, Asian developers might adhere to cultural codes that will require more effort when doing business.

For instance, take a look at some cultural differences that may arise as early as the negotiation phase.

cultural differences in assessing trust in negotiating partners 1

Source: Harvard Business Review

You aren’t likely to have these cultural clashes when working with Eastern European developers. Hence, you may find it more comfortable to deal with and negotiate with them.

Regarding work ethics, they also embody traits like competitiveness, and openness, while adhering to international business standards, codes of conduct and best practices—making them a joy to work with.

Keep in mind that a good cultural fit isn’t just a nice-to-have with your development team. It could be critical to your project’s success.

According to Accenture, cultural incompatibility is a major factor in software project failures, so it wouldn’t be very wise to overlook it.

bad cultural compatibility chart

Source: DECODE

That’s why Eastern European agencies like ours are a good choice.

Here at DECODE, we already have several successful projects with clients around the globe under our belt, so we think we’ll be a good fit for you.

Convenient geographical location

Compared to other countries elsewhere, Eastern Europe offers geographical advantages.

It’s midway between Western Europe and Asia, making it easily accessible especially to Western businesses.

Another benefit is that it has zero or minimal time zone differences with the rest of Europe.

Most nations in the region differ by no more than 2-3 hours from business hubs like London, Paris, or Frankfurt.

That makes it easier to have regular face-to-face virtual meetings with your team instead of relying purely on email and instant messaging.

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This, in turn, can lead to better collaboration and teamwork overall.

That is the case even with North America, which has an average of 6 hours time difference from Eastern Europe.

In most cases, that’s enough to create an overlap in work schedules for real-time communication.

It’s easier than dealing with a time gap of more than 12 hours between Asian providers like India or the Philippines.

Europe time zones map 1

Source: World Atlas

Many countries in Eastern Europe are also situated in such a way that it’s cost-effective for clients to visit their remote development teams for occasional meetings and collaborations.

Many major cities like Zagreb and Bucharest are just one flight away from anywhere in Europe.

And if you prefer something less expensive, Eastern Europe is also connected to the continent’s extensive train network, which makes traveling around the region relatively cheap.

For instance, a train ride between Berlin and Warsaw (a huge outsourcing destination) is just around 6 hours.

Reddit screenshot 1

Source: Reddit

In short, Eastern Europe’s geographical proximity to Western Europe and other regions can give clients a rare advantage—easy communication with their teams, physically and virtually.

Which country in Eastern Europe is the best?

We hope we’ve enticed you to consider Eastern Europe to be your next outsourcing destination.

But the question remains—which specific country there should you pick?

True, there are many great candidates like Romania and Poland.

But what many people overlook is Croatia.

This is a shame because it’s a beautiful country with some of the most talented software developers in the world.

Not convinced? Check out our five reasons why you should pick a Croatian team for your next app project.

And if you are convinced, don’t hesitate to get in touch with us at DECODE, and we’ll tap into our pool of more than 70 IT professionals ready to help you turn your ideas into reality!

Written by

Marko Strizic

Co-founder and CEO

Marko started DECODE with co-founders Peter and Mario, and a decade later, leads the company as CEO. His role is now almost entirely centred around business strategy, though his extensive background in software engineering makes sure he sees the future of the company from every angle. A graduate of the University of Zagreb’s Faculty of Electrical Engineering and Computing, he’s fascinated by the architecture of mobile apps and reactive programming, and a strong believer in life-long learning. Always ready for action. Or an impromptu skiing trip.

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