With contractors, it may be easier to manage the legal aspects of the engagement. I set up 3 remote tech teams, and only one of those employed directly - the overhead was not worth it, and the employees were asking to go into a contract so that they can claim some tax breaks on their end.
Depending on a country, the employment compliance could be a real hassle, and the benefits are so different from the US, that it practically makes startup operation impossible - multi-month sick leave, 30-60 day notice, all kinds of vacations from day one. :)
We hire almost all of our overseas team members as contractors, but we've found that the biggest potential problem is that different countries have different rules regarding how "long-term" they can be (e.g. Taiwan only allows non-sequential short term contracts). You don't want to be stuck calling someone a contractor when the government would define them as an employee and wants you to pay back taxes.
Especially in Bulgaria and Ukraine people work with local companies as contractors for tax purposes. So there is no real incentive to open a company.