The talent shortage is a major roadblock preventing many businesses from achieving their software development roadmaps on time and budget. If your company operates within the EU/UK/North America, you’re probably facing the lack of qualified tech experts to join your software engineering team. A KMPG survey which questioned over 3,000 CIOs all over the world has revealed that as many as 65% of companies are struggling with poor access to quality tech talent. In 2020, Gartner predicts, there will be 1.4 million IT job openings in the United States alone: a market demand that universities will hardly be able to fill by even 30%. The UK has to fill over 750,000 tech jobs as soon as possible to meet an ever-growing demand for innovation and technology advancement in business.
Despite this, we see a growing demand for research and development (R&D) among organisations in both the public and private sectors. According to the House of Commons, the total expenditure on R&D in the UK is £34.8 billion, £527 per head, or the equivalent of 1.7% of GDP (as estimated in 2018). The UK government has a target for total R&D investment to reach 2.4% of GDP by 2027. During his election campaign, Boris Johnson vowed to double the nation’s R&D budget to “£18 billion within five years as part of a “new wave of economic growth,” promising to “level up” industry in the regions and lead a “clean energy revolution”.
While the UK needs at least five years to build a pool of software engineering workforce to enable the realisation of Johnson’s ambitious plans to convert the country into an innovative economy, businesses need to act now to gain a competitive advantage and thrive in the future. As such, they need to increase their pace to innovation and start embracing new technologies as soon as possible. And no such change is possible without robust R&D.
R&D is “a creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture and society – and to devise new applications of available knowledge.”
Frascati Manual
How can businesses in-source new knowledge and innovate if they’re struggling to find and hire qualified software engineering talent locally? Extended R&D can be an answer!
What is Extended R&D?
Extended R&D (aka R&D outsourcing) refers to a practice of extending your existing product development team with offshore or nearshore resources while piggybacking on R&D infrastructure and capabilities of third-party consultancies.
R&D Team extension helps businesses tap into the pool of high-quality international experts and choose the ones with the skills needed specifically for your project. Needless to say, it’s also rather cost-effective.
Apart from alleviating the complex and lengthy talent search process, extended R&D negates the need to develop elaborate employee retention strategies and invest heavily in building a robust infrastructure for your software development project in-house. Health insurance, gym passes and retirement plans of your extended team members won’t be taking a toll on your company budget. Neither would expensive infrastructure refresh, for that matter.
Extended R&D is a way to go in the following situations:
- You have limited in-house R&D capabilities and need to increase the overall capacity of your endeavour;
- You need to enhance your in-house/onshore R&D team with experts in non-mainstream technologies to meet project specifications;
- You need to cut your R&D expenses without decreasing the scope;
- You need to build an MVP fast to gain funding for full-fledged product development and marketing.
That being said, extended R&D can provide startups and SMEs with the benefits and privileges that only large and established brands used to have before.
Extended R&D Concerns
Many companies are hesitant about leveraging R&D extension and want to retain full control over the process of software development. The main reasons, however, are concerns over data integrity and intellectual property. Today’s level of competition makes companies genuinely concerned that intentional or accidental data leakage may be used to their competitor’s advantage.
Since data sharing is an integral part of collaborating with the third-party providers, companies work out ways to protect their data: such as, for example, controlling which data they choose to share with an R&D partner, and which data will be kept in-house.
How to Choose the Right Extended R&D Team Provider
Make sure to evaluate each prospective extended R&D provider against the following criteria:
- Work approach, ethics, and reputation;
- It has HQ in your country of registration;
- It operates within the UK/EU/US jurisdiction;
- It offers advanced recruitment and employee retention practices;
- It has security testing embedded in its SDLC;
- It has a solid risk mitigation plan that contains a step-by-step guide for R&D backsourcing in case of force majeure;
- It can provide CTO-as-a-service or PM resources on your request (if you don’t have these roles filled internally) to help immerse your remote R&D Centre or Extended Software Team into your corporate culture.
Yet, despite security concerns, the IT sector seems to be willing to embrace remote R&D. According to 2019 stats, over 44% of CIOs state they are more willing to extend R&D overseas than they were five years ago.
World-Famous Brands With Extended R&D
The concept of extended R&D is not entirely new: in fact, a lot of renowned brands are using this cooperation model to build their innovative products and solutions. Below is a list of companies with a successful track record in outsourcing their R&D development.
Samsung
The South Korean tech giant runs one of its development centres in Ukraine as part of its vast distributed R&D infrastructure. The centre provides prototyping and software development for Samsung products. The Ukraine-based R&D hub covers areas like AI and information security, NLP, computer vision, device-to-device and device-to-cloud convergence, computational intelligence, next-generation human-computer interfaces and more.
Google has three offices with R&D centres in Central and Eastern Europe: in addition to Poland and Hungary, it has recently opened an R&D centre in Ukraine. The centre has emerged as a result of Google acquisition of a Kyiv-based vendor CloudSimple. It currently employs about 30 developers specialising in technologies like Kubernetes, Golang, Kafka, Kassandra, Python, and Java.
Rakuten
Another famous brand that has recently announced the opening of a centre for outsourced R&D in Ukraine is a Japanese e-commerce giant and owner of Viber messenger, Rakuten. Apart from leveraging Ukrainian tech talent to power its projects, Rakuten aims to cooperate with a country’s vast blockchain community.
Oracle
US-based IT giant Oracle has been outsourcing its R&D to Ukraine for several years now with over 500 people working on its cloud solutions. In 2015, the company acquired Ukrainian IT firm Maxymiser and extended its Ukrainian R&D with two more research and development centres.
Amazon
Another world-renowned brand that has tapped into a vast pool of Ukrainian R&D talent is Amazon. Currently, it employs around 900 developers and engineers working in its R&D offices in Kyiv and Lviv, specialising mainly in image recognition technologies.
Netcracker
A daughter company of one of the world’s largest telecom tycoons, Nippon Electric Corporation, Netcracker has three R&D centres in Ukraine. The company specialises in software solutions for telecom companies in the United States, Canada, Australia, and Western Europe, and uses outsourced R&D to build multi-module systems for telecom service management.
Opera, Wix, and Alibaba are other examples of established brands that have fully unlocked the outsourced R&D potential. If you’re a Skype user, you may be surprised to find out that the world’s most popular video chat has been built in research and development centres in Estonia and Ukraine.
Extended R&D Benefits For Startups
According to CB Insights, 70% of tech startups fail, and as many as 97% of hardware startups ultimately die or become “zombies.”
Among the top reasons why startups fail are:
- No market need
- Poor UI/UX design that didn’t meet the customer needs, and
- The lack of focus
All of these reasons actually indicate a very low quality of research and development function. Had those failed startups scrutinised better their target users, market or niche and competition, at least the first two screw-up causes would have been eliminated. High-quality R&D requires a substantial investment. The cost of resources (people and tools) in the UK or North America is high, so many startups simply can’t afford to build own R&D infrastructures or get mature talent for innovation. Stymied behind due to lengthy and expensive hiring, they slowly hibernate and become taken over by competitors with stronger R&D capabilities who can reduce the time to innovate.
R&D extension gives startups access to high-quality and moderately priced tech talent and propels them towards innovation and market capture.
The success story of our client e-bate, a UK-based startup that has recently attracted £1M in funding by using an extended team in Ukraine, is a vivid example of how R&D extension can help budding startups. The world’s first SaaS-based rebate management platform, e-bate was struggling to hire local talent. Nor were they satisfied with the quality of talent they managed to find: legacy skillsets and mindsets, lack of flexibility and zero willingness to learn were hampering the platform development. The management team started to explore other options, and, eventually, partnered with Evolve.
Given the product complexity, e-bate needed a team that understood the rebate model and could develop a scalable SaaS platform supporting multi-tenancy and enabling users to customise it without any assistance or interference.
The first and the most important milestone of the newly assembled team was building an MVP product to seek investments to “go to market”. This milestone was achieved within just eight months – which was unprecedentedly fast for a solution of such scope and complexity. The platform started attracting enterprise customers, and eventually secured £1M in funding from asset management companies, early-stage funds and private investors.
Conclusion
Wrapping up, the reasons why brands big and small consider extending their R&D offshore/nearshore are as follows:
1. Access to the untapped pools of high-quality tech talent that’s hard to find or too expensive locally;
2. The total cost of Extended R&D is lower than in-house;
3. Reduced HR and infrastructure expenses. With R&D extension, there’s no need to invest in employee retention strategies and build a costly infrastructure to support software development. Thus, Extended R&D helps companies reduce bottom-line expenses and improve top-line growth;
4. Better knowledge sharing and expertise in-sourcing. You can start building in-house expertise from scratch or expand existing knowledge by bringing in remote talent to work on-premises with your internal specialists.
5. Fast and cost-effective MVP/PoC development.
Aggressive competition, tech talent shortage, limited internal R&D capabilities and slow time to market are some of the main reasons why brands choose to leverage extended R&D centres in offshore/nearshore locales. As the speed of innovation delivery is one of the most important success criteria ensuring business continuity and a competitive edge, extended R&D gives organisations an excellent opportunity to accelerate the pace to innovation and reach business goals faster and in a more cost-effective manner without compromising on quality.
Are you looking to build a highly-effective Extended R&D Team in Ukraine? Send us your enquiry or request a callback to discuss how Evolve can help!