CEO Generation partners Sergey Kartashov (Sergejs Kartasovs) talks about the relocation of IT companies in 2020 and outlines the main factors affecting the choice of a comfortable location.

In 2020, Re.Locate.IT conference was organized with the participation of Generation Partners and directly Sergey Kartashov. During the event, speakers and participants identified the best countries for the development of the IT business and discussed the difficulties the companies may face once they decide to relocate.

Why do startups relocate?

There are many reasons for this. And as paradoxical as it may seem at first glance, taxes are not the first of them. Investors and representatives of the IT-industry assure that the main reason is comfortable and, most importantly, effective legislation that protects IP – intellectual property. According to this parameter, countries can be divided into categories.

‘There are not so many countries in category A. It includes the USA, Germany, the Netherlands, Estonia, Lithuania, and Cyprus. Poland, Czech Republic, Portugal, and a number of other countries are in category B,’ says Sergey Kartashov. ‘Companies are moving to places where their work will be protected first of all and where the project team can comfortably find accommodations. In this case, we are talking about real estate prices, developed infrastructure, and whether there is a professional community. Another important factor is the flight time to the home country and the key locations important to the business.’

Business infrastructure is also an important issue. Apart from protecting intellectual property, companies require comfortable conditions for their financial and economic activities. It is essential to be able to work with banks, lawyers, accountants, auditors, and officials without any problems.

‘There is a recent bad example. Latvia is losing its position as one of the best relocation countries in Eastern Europe. The reason is the tightening of AML (anti-money laundering) rules. Today, non-residents who come to Latvia to create a company there cannot open bank accounts,’ notes Sergey Kartashov.

The companies also consider subjective factors, such as venture funds and angel investors in the relocation place. Although in 2020, you cannot talk about these aspects without a degree of skepticism, as for almost a year, the whole world has been working remotely. During this time, there have appeared many opportunities and communities that can help you advertise and sell your projects without leaving your home.

Another important factor is the mentality. You can come with a Christian mentality to a Muslim country, but you’ve got to be prepared to adapt to a local culture which is quite different from what you may use to. Also, according to experts, it may be quite difficult to adapt to Asian countries.

Where is it better?

So, there are enough countries with good and effective legislation to develop IT companies and that have a suitable infrastructure, but how to choose the best among them? One of the factors that developers and investors prioritize is having a strong community. For instance, one of the most popular locations for game developers is Cyprus. There is a really large community from the CIS countries and the largest Russian-speaking community in the world. And this community is not virtual, it is real. Local developers hold a lot of tech-related and personal meetings, they even organize clubs. At the same time, machine learners prefer to work in Berlin where there is a strong community of machine learning specialists.

There are many successful cases of moving to Estonia because the local legislation allows you to register a company fast and easy there. There is an effective digital government in Estonia so you can process almost all documents via the Internet. This way, you can relocate practically without leaving the office, i.e. open a bank account, issue all permits and other documents online.

Previously, Israel was a powerful center for IT developers, but it is quite an expensive country to live in. Plus, the cultural and political characteristics of this state do not make it such a calm place compared to, for instance, Cyprus or Malta.

Although, Malta has been losing ground recently. This country is very small and lately, it tends to be overcrowded. As a result, prices have gone up greatly, it has become difficult to find good lodging and offices. And, most importantly, Malta has been experiencing a very serious political crisis for the second year already which has turned into an economic crisis as well. In addition, Malta is on the verge of being placed into the EU gray zone for failing to comply with EU requirements. Therefore, today Malta is not the best option for relocation.

What to take with you?

First of all, experts recommend taking an experienced HR officer with you. HR specialist is extremely important as it is better to find local specialists for your team rather than relocate a lot of people as it is simply not quite profitable. Startups are fast-growing companies and there is a constant need for new people and new professionals.

‘Dividing a team between two countries is also a common situation. The companies transfer intellectual property to a place with a more suitable jurisdiction, such as Cyprus, while keeping the developing or manufacturing part of the company in a country with a large choice of personnel, for example, to Ukraine or Belarus. We are talking about times before the latest events, of course,’ says Sergey Kartashov.

In practice, the startups from, for instance, Ukraine or Belarus, have the following situation: the CEO and 20% of the company’s employees move to a place like Cyprus, and the rest of the team stays at home or works on outsourcing with countries with a cheaper cost of living. However, each business is unique, so managers should take into account their situation and customize the location appropriately.

Despite the large number of objective factors influencing the choice of the country for relocation, Kartashov considers the key factor the one that is actually the most subjective one. The companies relocate to a country where they have friends and people that have already studied its special aspects and that can help with all the necessary processes.