Follow the Leaders: Outsourcing R&D to Ukraine

Quick Summary - Should you set up your own R&D center, or outsource it? Yeah, those aren’t your only two options. You can offshore your own R&D center, too. The best option for you depends upon many factors - company vision/mission, strategy, type of R&D, and budget, to name a few.

Follow the Leaders: Outsourcing R&D to Ukraine

But, if you’ve determined that you want to outsource or set up your own offshore R&D center – we can point you in the right direction. And you don’t have to take our word for it – we’re going to show you what 7 major tech companies have done with some of their own R&D programs.

7 mins read

DIY R&D vs outsourcing R&D to Ukraine

If you intend to set up your own R&D center, you’ll need at least three times deeper pockets than you will set up shop in Ukraine. If you’re in a hurry to get going

The decision to set up an R&D center is one that shouldn’t be made without a solid due diligence effort. You’ll need to examine risks and advantages, scope of effort, objectives, impact on your core strategy. Next, cost assessments which should be compared against your options – by location and relative to outsourcing opportunities. If you go ahead with it locally, you’ll need to source a location, possible construction or infrastructure requirements, and start hiring.

Aside from cost of options, the set up time between DIY and Outsourcing R&D can vary by six months, on average. Depending upon your requirements, outsourcing options are likely to be up and running within 1-3 months. Setting up an R&D center from scratch and staffing it can take a year or more, or perhaps 6 months if a suitable facility is already available.

As we’ve discussed several times, the all inclusive costs of Ukrainian developers are 25-50% less than their Western European and North American counterparts. For an example, factoring on a basis of (an all-inclusive) $50k per Ukrainian developer vs. a US median wage of $107k + $20k in taxes and bare-benefits:

  • A team of 20 developers in Ukraine will cost $1 million + office space, annually.
  • A team of 20 developers in the US will cost $2.5 million + office space, annually.

If you get into the nitty-gritty, extending purchasing power parity across all line items, Ukraine will easily offer a 3-to-1 cost advantage for your R&D dollar.

How & why tech leaders are doing R&D in Ukraine

United States companies account for about 50% of all IT related investments in Ukraine, but it is truly open to international partnerships. Companies from South Korea, Japan, France, and Sweden, to name a few are all active here. How they enter the Ukraine R&D sector varies considerably – from mergers and acquisitions to strategic partnerships, to direct investments. Their reasons – or the technologies attracting them reflect the full range of high-tech spectrum.

The following list reflects R&D activities in Ukraine by the largest tech companies – how they entered, their tech focus, and staffing – where available.

#1. Amazon: Merger & Acquisition - IoT & Pattern Recognition

Amazon has its hands in everything and wants to get into consumer homes in a big way. In 2018, Amazon acquired Ring for over $1 billion, picking up its R&D office in Kyiv. Ring specializes in IoT doorbells, security cameras, and facial recognition technology. Since then, Ring has expanded from 300 to 900 IT specialists, with an additional office opened in Lvov, in 2019.

#2. Alphabet/Google: Merger & Acquisition - VMware & Cloud

Like Amazon, Google has a tendency to gobble up enterprising startups. In late 2019, Google acquired CloudSimple, with undisclosed terms. CloudSimple makes it easy for companies to, “migrate their VMware workloads from on-premises data centers directly into Google Cloud.” Google opened its first office in Kyiv in 2006 for customer support. CloudSimple’s Ukrainian office has 30 engineers,

#3. Oracle - Merger & Acquisition - Cloud

In August of 2015, Oracle acquired Maxymiser – a New York based company with offices in Kyiv and Dnipro, for $160 million. Oracle is the 2nd largest software company by revenue and market capitalization. Maxymiser provides cloud-based software to help marketers, “test, target and personalize what a customer sees on a Web page or app.”

#4. Samsung - Own Offices - AI, Security, and Next Gen Imaging

One of the largest R&D centers in all of Europe, the Samsung R&D Institute Ukraine was established in 2009 in Kyiv. In 2013, Samsung opened up an additional R&D facility in Kharkov bringing its estimated IT staff to over a thousand. Samsung’s R&D efforts focus on artificial intelligence, data intelligence, information security, next-generation communications and visual technologies to include AR/VR.

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#5. Ubisoft: Own Offices - Game Development

Ubisoft has over 700 staff in development offices in Kyiv and Odessa. Headquartered in France, Ubisoft is the fifth largest publicly traded game company in the US and EU. It’s known for blockbusters like Assassin’s Creed, Far Cry, Tom Clancy’s Ghost Recon and other hits, while also recently entering into movie production.

#6. Wargaming.net: Strategic Partnership - Game Development

In 2011, Wargaming.net established a strategic partnership with Persha Studia and its 550 employees. Founded in 2000, Persha Studia has collaborated with Electronic Arts, Activision, and Cryptic. Now it handles development for Wargaming’s World of Warplanes and World of Tanks: Generals.

#7. Ebay and Adobe: Merger and Acquisition - eCommerce

In 2011, the online auction-platform eBay acquired Magento, a Los Angeles-based company, for $180 million. Magento is an open-source eCommerce platform. It’s entire development process was defined by its Kyiv development office which has about 200 staff. Then, 7 years later, Adobe purchased Magento from eBay for $1.68 billion, with its Ukrainian team intact. That’s almost a 10x increase!

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And for Startups? Looksery

There are many, manor more Research and Development centers throughout Ukraine. They can be found working for other big names like Siemens (automation), Boeing (aeronautics), Netcracker (Telecom), Ericsson (IoT, eHealth and eGov), and Rakuten (eCommerce). But, there’s a lot of potential for startups and small R&D teams, too — the opportunities are not exclusive to the big boys.

Looksery, founded in 2013, had a small development team in Odessa – less than 10 developers in total. One of the first popular Augmented Reality apps, it was backed by a $45k Kickstarter campaign in March of 2015. Six months later? Snapchat acquired it for $150 million.

Summary

Though just a superficial snapshot and proverbial iceberg, the R&D opportunities in Ukraine continue to grow. The largest of tech companies have found, in their words, that Ukraine offers an incredible cost-advantage. Every $1 spent or invested in Ukrainian R&D efforts is roughly the equivalent of $3 in the United States. These examples also show that Ukrainian offices are not just jettisoned or closed after acquisitions – but retained. Afforded an opportunity, Ukrainian developers and IT specialists can propel truly dramatic growth and profitability – for megacorps or bootstrapping startups.

If you’d like to find out more about your R&D options in Ukraine – we’d love to hear from you!

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