R&D Center In Eastern Europe - A Magic Pill Or Hopelessness?

Research and development
09 August 2019 2803

We have all dreamed to hear heard these 3 words - research & development center. But do we really know what stands behind them? Let’s refer to Wikipedia: “Research and development, known in Europe as research and technological development (RTD), refers to innovative activities undertaken by corporations or governments in developing new services or products, or improving existing services or products. Research and development constitutes the first stage of development of a potential new service or the production process. R&D differs from the vast majority of corporate activities in that it is not intended to yield immediate profit, and generally carries greater risk and an uncertain return on investment. However R&D is crucial for acquiring larger shares of the market through the marketisation of new products.”

Now when we know the general definition of the term, we can take a closer look and define research and development center from the information technology perspective. The global market is not a stable thing, it keeps changing every minute. And so must the companies do, if they want to at least keep the same market share they currently have, but we all know that everyone wants to grow. To grow in the given conditions, when the market is full of vast range of services & products plus fierce competition, means to quickly change, adapt & surprise.


R&D centers are difficult to manage entities, because the determining feature of research is that everyone involved in the process does not know in advance how to achieve the end result. However this is not the case in information technology. In the given industry, if we don’t consider development of new software, the outcome is clear and easy to oversee.


Thus R&D center in IT means in the broad way a group of extremely intelligent and skilled people, basically software developers, designers, business analysts, etc. (depends on the particular project) who are motivated and driven by the same clear (in most cases) goal, often in the pursuit of the new and complex, something nobody has done yet.


Why is everyone talking about research & development centers these days? Meaning the purpose of R&D in say aeronautics is vivid enough, but what about information technology? Well, let’s look at the market. The world’s data stock is doubling every 20 months, the number of Internet-connected devices has reached 20 billion, and mobile payments will soon top the $1 trillion mark ©. Research from 2000 has shown that companies with a persistent R&D strategy outperform those with an irregular or no R&D investment program.


Why would a non technological company selling candles, for example, need R&D center and would it need one at all? If the strategy, sales and marketing, new business development plans are in place, if the product is qualitative & appealing, if the branding is outstanding - at some point the company will gradually grow. What is growth? Usually we mean growth in sales & number of new employees or acquisition. The company is growing alongside the growth of overhead in the back office processes & growth of IT expenses to maintain a well functioning and now complex structure. Not speaking about the development of new features, functionality, etc.

Sooner or later comes a historic moment in the life of every growing company - there is too much on the plate to handle. This is exactly the moment when half of the companies will go for the external support on IT needs, which in our case could mean building own research and development department or in other words - an offshore team.


Why companies choose Eastern Europe as a source of external help? This region has numerous advantages, like extreme amount of well educated and experienced workforce, really competitive rates (especially compared to Western Europe, USA, Australia), strong reputation, good English knowledge, mentality which is close to the western mentality, etc. 


Now let us look at the Ukrainian market research & some numbers: according to Stratistics MRC, Global IT Outsourcing Market is expected to reach $481 billion by 2022 growing at a CAGR of 6.2%. According to PricewaterhouseCoopers, the Ukrainian software development sector grew by 15-20% in 2016 and is progressing steadily year by year.


More than 230,000 IT professionals have developed strong expertise in different verticals ranging from fintech, healthcare to telecom, which helps the country maintain a competitive edge on the global IT market ©.


Ukraine is home to more than 100 R&D subsidiaries of international companies from a variety of industries including software, gaming, telecoms, and e-commerce. Global companies like Microsoft, Samsung Electronics, Apple, Wargaming, Boeing, Skype, eBay, Siemens, IBM opened their R&D centers in Ukraine.


In addition, Ukraine is gaining weight in terms of IT industry recognition. The country was included in Gartner’s top 30 offshoring and outsourcing destinations and recognized as number one in Europe in the sector of IT-outsourcing in 2016 according to IT Outsourcing News. What’s more, 12 Ukrainian IT companies were featured in the list Global Outsourcing 100 2017 by the International Association of Outsourcing Professionals (IAOP) as the best outsourcing providers.

Credit: N-IX


Financial Times define Central and Eastern Europe as one of the most attractive regions. Asia is also in the list, but if we take a look at China, we can see that its popularity slowly goes down. It would even be more dramatic and vivid if China were a small country population wise. Luciana Lixandru, partner at Accel Partners, a venture capital firm in London, agrees. “The ecosystem is maturing, but it is still very early on. As time goes by, I am confident more interesting companies will come out of the region, and more international investors will invest in the region.” Thus the numbers speak for themselves.

Credit: Financial Times, EY.


To wrap up we want to say that yes, building an offshore team or R&D center in Eastern Europe can be a magic pill for some companies. The region has a lot of disadvantages, but still the amount of benefits is bigger. Now entrepreneurs don’t have to be adventurous when beginning to work in the region. Now people would be more likely to ask you why do you still spend a fortune on IT working with local service providers while there are regions, not less talented but more price competitive?

Thanks for reading. We hope you enjoyed itwink If you want more articles about Eastern European & Ukrainian IT market, please leave a comment and share the article - doing so you will let us know that this content is interesting and useful.


The article was prepared by Mila Kovalchuk, CEO of opsway.com

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