IT Outsourcing Markets Review: Hungary vs. Ukraine
Hungarian economy has been showing significant growth within the past few years with IT outsourcing, automation and telecommunication services on top of it. Today, we will analyze the IT market of Hungary and correlate it with Ukrainian.
Hungarian IT market overview
Hungary, despite its small size has a vast number of IT specialists. According to the most recent data, local IT market employs up to 150K specialists which amounts to 1,5% of the country’s population. What makes Hungary one of the most attractive nearshoring outsourcing destinations is the EU membership, vast talent pool and mid level of the English language (one of the positive trends is that most young people are studying English, therefore). Moreover, Hungarian labor legislation is completely compatible with the European laws and standards, therefore; the country is in high demand among Europe’s businesses amidst the rest of IT outsourcing destinations in the Eastern Europe. Probably, owing to these factors, the industry generates almost 10% of the annual Hungary’s GDP. Hungarian IT outsourcing sector’s main priority lies in software development of anti-virus and IT security services. Therefore, within the past 5 years, such giants as Lufthansa, IBM, EPAM Systems, Microsoft, Nokia, and HP chose cooperation with the local IT specialists. The main IT centers of Hungary are Budapest, Debrecen, Pécs, Szeged, Miscols, and Veszprém.
Besides the global companies, there are numerous IT market players of the local scale. IT Services Hungary is the largest IT outsourcing company that employs over 4,000 specialists and has offices in the main IT hubs of the country: Budapest, Pécs, Debrecen, and Szeged. The company also set up a subsidiary company T-Systems International, which provides the most of the back-office-type services in Hungary.
The IT market in Hungary is in a great need for staff, therefore demand here surpasses the supply. To establish a better learning process, Hungarian students get involved in numerous programs and are hired as trainees by the local companies practically from the beginning of their studying. Within the past few years over 25K students have been enrolled in different types of programs, classes, training, boot camps, etc. Hungarian universities graduate over 6000 specialists annually, yet, by that time, almost all of them are either already employed or are going through the trial period (it is similar to the situation in Ukraine where many students apply to IT companies as trainees and work part-time while studying at universities, however, the trial period usually lasts up to 1 month before the final decision is made). According to the local reports, the technical education in the country is too general (although it provides great background knowledge useful for future advanced learning of the specific sphere), therefore, if an IT-specialist-to-be wants to learn something narrower or precise, he/she is more likely to start taking certain classes out of the formal state higher education. It is obvious that joining certain courses would be more useful since such education is more individual-oriented and specific; it applies modern methods of teaching, numerous practical tasks, and opportunities to work on real projects.
As to the most known higher educational institutions providing tech education they are:
- Budapest Metropolitan University
- The University of Pécs
- The University of Debrecen
- Óbuda University
- Dennis Gabor College
- Eötvös Loránd University
NOTE! Those foreign students who want to study in Hungary should pass IELTS test and obtain a certificate proving the English language level since all the classes are taught in English.
Salary and Taxes
Since, Hungary became the EU member on May 1st of 2004. Hungarian companies do have a high value for their specialists, therefore a vendor is most likely to charge not less than $40/hour (this is the sum paid by a client to the company, gross salary of a specialist is lower) for a senior specialist being involved in the project. Average salaries for software developers are:
- Junior - $900-1500
- Middle - $2200-3100
- Senior - $3400-4600
- TeamLead - $3550+
Viewing the numbers, average salaries for IT specialists in Hungary are rather high if compared to those in Ukraine, however, net income is significantly lower because of high tax rates: Personal Income tax equals to 16% + Social tax of 18.5% for employees, and 28.5% for employers. The Hungarian government established Corporate Tax rates in amounts of 10% and 19%. According to the Corporate Tax Rate if a company’s profit exceeds HUF 500 mln ($1,715 thousand), the tax rate is 19%, if the sum is less – then it’s 10%.
Hiring, Notice Period and Dismissal
Hungarian legislation has very strict regulations related to both hiring to and dismissal from the job. The trial period takes from 1 to 3 months and is completely upon the company.
According to the Labor Code of Hungary there are dismissal and summary dismissal. The two differ in terms of reason and period. Often employers and employees in Hungary conclude an agreement pursuant to which that within an established time span the contract cannot be terminated. Usually, such agreements are followed until it ends. The reason for breaking this type of contract may only be valid in the case of liquidation of the department or company due to the bankruptcy or economic crisis. If employees consider the dismissal irrational, an employer should provide documentation supporting the decision. There are also collective dismissals (if at least 10% of company’s staff is subject to dismissal). In such case, an employer is obliged to have an official talk with the employees’ representative within 15 days prior to the dismissal period start. Such meeting is arranged in order to discuss the terms and conditions for firing as well as payments established by the law but the period may be shifted upon agreement between the parties.
Minimum notice period equals to 30 days. However, depending on the duration of being employed within a company the notice period may be extended by:
- 5 days (if a person was being employed for 3 years)
- 15 days (if a person was being employed for 5 years)
- 20 days (if a person was being employed for 8 years)
- 25 days (if a person was being employed for 10 years)
- 30 days (if a person was being employed for 15 years)
- 40 days (if a person was being employed for 18 years)
- 60 days (if a person was being employed for 20 years)
However, by the mutual agreement such period may even extended up to 6 months.
One of the main peculiarities of Hungarian IT market is a system of non-cash fringe benefits (aka cafeteria system). This approach allows purchasing different staff and services at more reasonable prices and even gets tax exemption. This type of remuneration is found seducing and is often included in the strategies for recruiting talented specialists. According to the Hungarian legislation, an employer picks out of the list those benefits that will be provided to the staff be that certain products or services. Afterwards, the employees can choose those items that suit their personal needs or preferences the best.
In addition the companies offer their employees medical care and insurance.
Jennifer Hahn Masterson
Corporate tax is Hungary is 9%, compared to 18% in Ukraine.
Thank you for your comment. The information will be updated in our catalog for the most popular IT outsourcing destinations.
Jennifer Hahn Masterson
You’re welcome, I’m glad you found the info that I provided useful.
Outsourcing is a good idea for your business. It is much cheaper and easier than custom development. It makes no sense to debate which outsourcing country is better. In my opinion, it is better to evaluate the portfolio of each firm and make a decision based on this. By the way, I recently read a similar article with similar arguments. You can read and compare different points of view if you are interested: https://www.cleveroad.com/blog/it-outsourcing-ukraine