Why Israeli Companies Choose Ukraine For Offshore Development

Israel’s nickname as the “Startup Nation” is well-earned, thanks to its vibrant tech scene that includes around 9,000 startups, the third-highest concentration globally. In recent years, these enterprises have driven the economy by injecting $95 billion through venture capital. However, despite these successes, the country is grappling with a significant challenge: a severe shortage of skilled tech workers.

Many Israeli tech companies are looking beyond their borders for solutions to address this workforce crisis. They are increasingly outsourcing development tasks and establishing research and development (R&D) centers in other countries. Among several potential locations, Ukraine has become a popular destination.

In this article, we’ll explore why Israeli firms find Ukraine appealing for offshore development and the benefits they reap from this strategic move.

Let’s begin.

Why Israeli Companies Go Offshore

Israeli IT companies have compelling reasons for embracing the offshore model, with key considerations including:

Global Expansion

Israeli tech firms target Ukraine for global expansion, drawn by its strategic Eastern European location and potential access to a diverse and expanding customer base. This move taps into the region’s growing IT market, projected to reach $23.69 billion by 2028, offering substantial opportunities for growth and diversification in the tech sector.

Closing Skill Gaps

According to Coursera, Ukraine has emerged as a hub for highly skilled IT professionals, ranking fourth globally in technical skills. Israeli companies facing skill gaps, especially in specialized areas like algorithm development or data science, can leverage Ukraine’s expertise to meet their project need, knowing that they will be working with some of the best experts in the world.

Access to a Wider Talent Pool

Ukraine’s robust IT education system and thriving tech community contribute to a diverse talent pool with expertise in various domains. Recognized as the #1 outsourcing destination by the Global Sourcing Association, Ukraine boasts over 200 thousand high-skilled IT experts and 4000 tech firms. Even the largest Israeli tech companies are benefiting from this diversity by tapping into specialists tailored to their project needs.

Lower Costs

Cost advantage is a key motivation for Israeli IT companies to offshore to Ukraine. Operating expenses, including salaries, office space, and infrastructure, are generally lower in Ukraine compared to Israel. To put things into perspective, the 2023 property price affordability index for Ukraine is 0.4, while for Israel, it is 0.9, highlighting the significant cost disparity. Israeli tech startups looking to achieve substantial cost savings without compromising quality often establish development centers in cities like Lviv or Kyiv.

Scalability Requirements

Ukrainian IT outsourcing offers Israeli companies flexible scalability to adapt to changing project demands. Many Israeli tech firms choose to offshore development to Ukraine during busy periods, easily expanding their teams to meet deadlines. These companies then downsize during quieter periods, ensuring efficient resource utilization and cost management.

Work Week Limitations

Israel follows a unique workweek, from Sunday to Thursday, with Friday and Saturday designated as the weekend due to Sabbath observance. This structure often results in a shorter workweek than the standard Monday-to-Friday schedule in other countries. To overcome this limitation and ensure continuous project development, Israeli companies outsource tasks to teams in Ukraine, where the compatible time zones will ensure continuous progress even during their weekends.

Focus on Core Business

Israeli tech companies outsource so that they can focus on their core business functions. By delegating non-core tasks like coding and programming to specialized teams abroad, they can allocate more time and resources to strategic planning, innovation, and other critical aspects for the growth and success of their core business activities. It’s a smart way for them to streamline operations and maximize efficiency.

Fiscal Responsibility

Israeli tech companies outsourcing software development projects as a strategic move to enhance efficiency while optimizing costs. Some of these companies secure funding from venture capitalists, and they have to showcase their ability to operate with fiscal responsibility and generate returns on investment. Outsourcing is a great way to achieve this by demonstrating an optimized cost structure, which, in turn, can attract additional investment. It is a proactive step to align with investor expectations and position the company for sustained growth and success.

Whether you’re seeking global expansion, looking to bridge skill gaps, or want to meet scalability needs, Ukraine is the ideal offshore destination for IT companies from Israel. Want to explore the potential of Ukrainian IT outsourcing to elevate your business?

Why Ukraine Is A Good Match For Israeli Tech Companies

Why should Israel outsource to Ukraine for software development among the 195 countries globally and 44 in Europe? Here are some compelling reasons:

Geographical and Time Zone Convenience

One of the key advantages of choosing Ukraine for offshore software development is the geographical and time zone convenience with Israel. Ukraine is located in Eastern Europe, however, only a three-hour flight separates both countries. Also, since there are no visa requirements between the nations, arranging and attending in-person meetings often each month is simple. There are flights from other major Ukrainian cities to Israel, which is a tremendous advantage when an onsite presence is needed for a project.

Ukraine also shares a similar time zone with Israel (GMT +2), making collaboration and communication more efficient. This time zone alignment reduces the time difference and allows seamless coordination with clients and team members.

Cultural Alignment

Beyond geographical and time zones, deep-rooted cultural and historical ties between Ukraine and Israel help create an environment conducive to collaboration. Both countries share a common religious heritage and have similar values, traditions, and work ethics. The immigration wave of Ukrainians of Jewish descent in the 1990s and the ongoing, albeit smaller, tranches also contribute to this cultural alignment.

Moreover, Ukrainian culture places a high value on education and academic excellence. This educational infrastructure, combined with a strong focus on technology and entrepreneurship, has created a pool of highly skilled and motivated IT talent in Ukraine.

Absence of Language Barriers

The lack of language barriers between both countries is also one of the reasons why Israeli IT companies seeking to leverage the offshore model choose Ukraine. While Ukrainian and Russian are official languages, English is widely spoken as a secondary language. It is easy for Israeli businesses to communicate with their counterparts in Ukraine because many IT specialists in that country speak English fluently.

Many people in Israel speak Russian as their first language — the 3rd most commonly spoken language in the country. This linguistic harmony is essential for clearly articulating project requirements, facilitating smooth collaboration, and minimizing the likelihood of misunderstandings. The absence of language barriers streamlines project management and contributes to the overall success of joint initiatives.

Hub for Technologies and Expertise

Ukraine has positioned itself as a prominent hub for cutting-edge technologies and expertise, particularly excelling in software development, where it ranks fourth globally. It holds the second position for JavaScript developers and the seventh for independent contractors. The country excels in various domains such as front-end and back-end development, artificial intelligence, machine learning, game development, e-commerce, the Internet of Things, and big data, solidifying its position as a powerhouse in the global tech industry.

Ukraine’s appeal is evident, with over 110 foreign businesses and startups choosing to establish their R&D centers there. Kyiv, in particular, hosts nearly half of these centers, attracting partnerships from Israel, the EU, and the USA. This trend underscores Ukraine’s recognition as a prime hub for cutting-edge technologies and expertise.

Cost-Effectiveness

Another compelling reason Israeli IT companies find Ukraine an attractive destination is its cost-effectiveness. Compared to other European countries, Ukraine boasts lower labor costs, making it an appealing offshore option, especially for Israel, where labor costs are comparatively higher. To illustrate, the average salary for a software developer in Israel is $89,986, according to Arc Dev data. In Ukraine, the same role commands a salary of $59,862.

Contrary to popular offshoring misconceptions, this cost-effectiveness is not at the expense of quality. Ukrainian professionals consistently deliver high-caliber work, ensuring that Israeli companies can maximize the value of their investments while achieving successful execution of their IT projects.

Real Examples – Our Case Study

HiBob is a global business with a local presence in eight countries, including the US, the UK, and Israel. Recognized in Forbes Cloud 100 for 2022 and 2023, they’re known for their innovative HR platform featured in TIME Magazine’s 100 Best Inventions of 2022. HiBob’s platform covers the entire HR process, from onboarding to retention.

Our collaboration story began when HiBob needed a senior back-end developer skilled in Kotlin/Scala.

Despite challenges, our dedicated team found the right match, hiring four back-end developers for HiBob’s teams in Israel. The client was so satisfied with the success of this initial collaboration that they expanded the brief, requiring a site manager for a team of 6 in Ukraine, including frontend and backend developers and product managers. Since our partnership in 2021, we’ve helped HiBob curate a top-class team of 17 dedicated experts.

In addition to recruiting employees, our services for HiBob also cover workspace administration, equipment management, HR services, and handling legal and financial matters in the countries of hire. We’re now gearing up to search for a team for HiBob in Portugal, highlighting our commitment at Newxel to seamless talent solutions and the continuous growth of our clients.

Click here to read more about our partnership with HiBob.

You, too, can unlock the potential of your Israeli business with Newxel! We’ve covered you, from IT staff augmentation and team building to R&D centers for global expansion. Tap into our expertise to access top-notch skills globally.

Conclusion

The attraction of Ukraine for Israeli companies looking to leverage offshore development is undeniable. The Ukrainian IT market is a treasure trove, boasting a talented pool of individuals with robust technical expertise and extensive experience. Collaborating with Ukrainian software developers, especially in research and development teams, guarantees the delivery of top-notch solutions.

The synergy between Israel and Ukraine goes beyond skills; it extends to cultural compatibility, a favorable time zone, and a shared commitment to innovation. Moreover, Ukraine provides a conducive legal and regulatory environment for foreign investments, establishing itself as a safe and stable location for Israeli high tech companies to set up offshore development centers. The country’s dedication to protecting intellectual property rights and ensuring data privacy further enhances its appeal as a development outsourcing destination.

These factors make Ukraine an attractive destination for Israeli companies seeking to expand their operations without compromising quality.

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