The origin of Contract Work can be traced back to ancient civilizations alongside the emergence of small-scale industries. Gig economy may be a more recent buzzword but Independent Contracting had already found relevance in 1917 when the 1099 tax form was created. The 1099 tax form is used by Independent Contractors who are also popularly known as 1099 workers.
In today's interconnected world, the practice of hiring IT contractors from developing countries has become increasingly prevalent, driven by cost considerations and the global demand for tech talent. However, this practice raises ethical questions about fairness and equity in the global labor market. Not finding clients, administrative burdens and lack of social protection (retirement benefits, or borrowing capacity) are the top three fears among contractors and gig workers.
This article delves deep into the legal, cultural, and financial aspects of hiring IT contractors from CIS countries. It also examines both the opportunities and challenges involved.
Introduction to CIS countries
The term ‘CIS countries’ refers to the Commonwealth of Independent States countries. These are a group of nations situated in the Eastern part of Europe that were formerly part of the Soviet Union and have since gained independence. The CIS was established in December 1991 after the dissolution of the Soviet Union, and it initially included 11 member states. Over time, the composition of the CIS has changed, and currently, there are 12 member states. These countries include:
1. Armenia
2. Azerbaijan
3. Belarus
4. Kazakhstan
5. Kyrgyzstan
6. Moldova
7. Russia
8. Tajikistan
9. Turkmenistan
10. Ukraine
11. Uzbekistan
12. Georgia (formerly a full member, now an associate member)
These countries share historical, cultural, and economic ties due to their common Soviet past. However, they are now independent nations with their own governments, economies, and policies. The term "CIS countries" is often used in discussions related to regional cooperation, trade agreements, and geopolitical affairs involving these nations.
Legal Aspects
Understanding the legal framework is crucial when hiring IT contractors from CIS countries. Differences in labor and taxation laws between countries can impact hiring decisions and contractual arrangements. It's important to comply with local regulations, such as tax withholding and VAT obligations, to avoid legal issues and ensure fair treatment of contractors. A contract that is legally enforceable in Kazakhstan may not be valid in Russia. A compliance partner like Arbonum can help businesses bridge such gaps in minimal time at minimal cost.
Specification of the Local Workforce
Developing countries often boast a highly skilled workforce, particularly in the fields of technology and engineering. However, cultural differences and language barriers may pose challenges in communication and collaboration. Employers must assess the skill levels and capabilities of local contractors to ensure compatibility with their project requirements.
For instance, despite comprising just 8 per cent of the global software developer population, the Eastern European region stands out for its exceptional cost-efficiency in software development. It surpasses even India which was traditionally considered the go-to destination for cost-effective software development. Eastern Europe boasts a remarkable 9.56% higher cost efficiency. This demonstrates the region's remarkable ability to deliver high-quality software solutions at a competitive price point, positioning it as a compelling choice for companies seeking cost-effective development options.
When it comes to sourcing talent, few regions in Eastern Europe rival the abundance of highly educated and qualified professionals. Countries like Belarus and Ukraine are renowned for their robust mathematical and cybernetic schools. These countries have consistently nurtured top-tier developers and IT professionals, making them highly sought-after destinations for talent in the tech industry.
Various reports highlight the prevalence of higher education in these regions. According to UNESCO, Eastern European countries consistently rank among the top in terms of tertiary education enrollment rates.
However, a notable challenge in hiring from this talent pool is the language barrier. While proficiency in English is widespread among IT professionals, there remains a segment with limited language skills. The Eastern European region, especially the Russian Federation, may not have an inclination towards learning English, especially when Russian is more widespread. Hiring team leaders fluent in English to bridge the gap between local developers and international clients can help overcome this shortcoming.
Additionally, the issue of tax compliance can pose challenges for both contractors and hiring companies. Historically, contractors in these regions have been known to address tax matters only after being prompted by local tax authorities. A study by PricewaterhouseCoopers found that delayed tax reporting and compliance are common among independent contractors in Eastern Europe, often due to complex tax regulations and bureaucratic hurdles.
While Eastern Europe offers a wealth of talent and expertise in the IT sector, navigating the ethical and economic considerations of hiring from this region requires careful planning and proactive measures. By leveraging the strengths of local professionals in problem-solving and technical prowess while addressing challenges such as language proficiency and tax compliance, businesses can maximize the benefits of hiring IT contractors from emerging markets.
Financial Institutions and Currency Restrictions
Navigating financial transactions in developing countries requires an understanding of local banking systems and currency regulations. While domestic payments may be straightforward, international transfers can be complex and subject to currency controls. Employers must consider the efficiency and cost-effectiveness of payment methods to ensure timely and secure transactions.
Countries like Kazakhstan, Kyrgyzstan, Ukraine, and Russia have highly developed banking ecosystems. Almost every bank in these regions provides an ecosystem of services with user-friendly online applications and widespread VISA/MasterCard acceptance. Domestic payments are typically swift because of efficient online platforms. However, international transfers present a more convoluted process, requiring verification by the bank's currency control and scrupulous documentation and contracts. Any discrepancies in the provided documents can result in payment rejection. Locals are accustomed to receiving payments promptly, in contrast to Western European countries where transactions may take days to process. Moreover, in some regions, conducting transactions in foreign currencies can be costly or even prohibited.
Work Culture
The work culture in developing countries may differ significantly from Western norms. It is common for contractors to go beyond the initial agreement, working weekends and outside regular hours. They often deal with poorly prepared briefs and multiple task revisions specified in the contract. Work is typically measured in days rather than hours, and a 50% advance payment before starting work is common practice.
Locals prefer to skip small talk and get straight to the point, which is not considered rude but rather an eagerness to work efficiently. However, once you gain the trust of a local contractor, it leads to genuine empathy and brand loyalty. You must understand these cultural nuances to ensure effective project management and relationship-building with local contractors. Employers should strive to create a supportive and inclusive work environment that respects cultural diversity.
Contractor Expectations
Local contractors in developing countries may have different expectations and motivations than their Western counterparts. While competitive salaries and career advancement opportunities are important, job stability, work-life balance, and professional development may also influence their decisions. Employers should align their offerings with the needs and aspirations of local contractors to attract and retain top talent.
Potential Pitfalls
Despite the benefits of hiring IT contractors from developing countries, there are potential pitfalls to consider. These include verification of contractors, compliance with sanctions, and issues related to intellectual property rights. Employers must conduct due diligence and implement robust risk management strategies to mitigate these risks effectively.
Case Study:
A leading Scandinavian IT company specializes in e-commerce platform development. The nature of an IT Service business demands cost-effective yet competent employees who can deliver projects on time. The Scandinavian firm has successfully implemented Arbonum’s streamlined process for recruiting developers from Ukraine and Belarus. Over the past two years, the company has invested $2.1 million in hiring developers abroad, resulting in significant team growth and expansion. Arbonum starts the onboarding process without any upfront cost required. Focusing on developing Magento-based online stores, they identified the need for specialized skills in Ruby, Python, and JavaScript. This strategic focus has enabled the IT company to excel in providing tailored solutions to its clients.
Starting with the development of a single platform, the company has since expanded its operations and now employs hundreds of contractors from Ukraine and Belarus. The growth trajectory has been remarkable, with the team size increasing 7 times in the last two years
By leveraging Arbonum’s streamlined payment process, the Scandinavian IT company has successfully overcome the challenges of hiring international talent. The company's investment in recruiting developers from Ukraine and Belarus has resulted in significant growth and expansion, positioning them as a leader in e-commerce platform development. This case study serves as a testament to the effectiveness of strategic partnerships and streamlined processes in achieving business success in the global market.
Conclusion
Balancing fairness and cost-effectiveness in hiring IT contractors from developing countries requires careful consideration of legal, cultural, and financial factors. One must address potential pitfalls and leverage local expertise, so employers can achieve equitable treatment and sustainable business growth in the global marketplace.
