How about IT outsourcing in Central and Eastern Europe?

5 experts interviewed, over 240 companies operating in 16 CEE countries surveyed, and much much more. These are the headlines of the comprehensive “Central and Eastern IT Outsourcing Review 2010” which has been currently published.

This 164-page-report examines the role of ITO sector in Central and Eastern Europe and delivers answers regarding recession and its impact on ITO sector, market volume, development in number of companies and their characteristics, number of IT professionals and hourly rates. Except of that a brief characteristics of countries of the region has been delivered and contact data of companies and other organisations operating in the region have been presented.

Below a short excerpt from the interviews with outsourcing experts: Phil Fersht, Boris Kontsevoi, Magdalena Szarafin, Christoph Prieler and Franco Dal Molin.

Question 1. What are the main development trends on IT outsourcing services market and what will be the main outsourcing drivers for the years to come?

Phil Fersht: IT outsourcing is reaching a pivotal juncture in its maturity. Many of the large
enterprises today have now moved much of the “low hanging fruit” application development and maintenance work to service providers and are now need looking at new ways of finding further savings beyond utilizing low-cost labor services. They are still driven by cost and efficiency, but also by innovation – i.e. unique and creative methods to find new levels of productivity and topline growth.

Question 2. Has the recession and the following cost-pressures changed the companies’ attitude to outsourcing (IT outsourcing specifically)?

Franco Dal Molin: Yes, it has. Many companies are now seriously evaluating outsourcing for the first time, or at least they do consider the possibility with a genuine interest and open
mindset, whereas in the past we encountered more skepticism, widespread black-and-white
thinking and cynicism.
Obviously most companies are looking at outsourcing primarily as a means for saving costs. In a number of West European economies there is – despite the crisis – still a significant shortage of skilled IT specialists. Finding developers and hiring them fast enough becomes often more crucial than just lowering costs. Finally, in times of uncertainty and volatility, outsourcing is looked at as an ideal way to become more flexible and/or scalable.

Question 3. View of the CEE region as a cluster of IT outsourcing services providers. Advantages, disadvantages, trends, image, specifics.

Magdalena Szarafin: One friend of mine, who comes from Canada, visited Poland a few years ago. Then he said to me: you know what? I am very impressed by what I saw. That is a very modern country. I visited some companies: everywhere young, dynamic, high-motivated people speaking foreign languages.
In my opinion, that statement describes the CEE region very well. Another maxim which points out the situation very well is: “Outsourcing is people’s business” – the geographical, cultural and language proximity are of importance for buyers. Customers from Western Europe are likely to make business with partners from Central and Eastern Europe as their locations are available within 2-3 hours their business partners speak their languages. They are high-qualified and the prices are still lower than those in Western Europe.
And another maxim yet: “We are the second (third, fourth) – we try harder” implies that a customer doing business with partners from CEE countries can expect to be delivered with highquality services.
One of the challenges is cost explosion: wages and salaries in the CEE countries are rising quicker than those in Western Europe. Also lack of professionals which can already now be observed in many industries is the next challenge for the upcoming years.

Question 4. Europe outran US as the biggest outsourcing spender last year (http://bit.ly/5PQcFA), will this trend remain?

Christoph Prieler: The US economy has experienced the highest impact of the economic
downturn around the globe. Consequently US companies were securing their short term survival rather than closing strategic outsourcing relationships in 2009 and many outsourcing deals in the pipeline were therefore put on hold. Since the economy has picked up, we experience outsourcing spent in the US on the rise , overtaking European revenues again. The interesting trend within the European outsourcing spent consists of the fact, that continental European countries such as France and Germany have for several quarters now overtaken the UK in spending amounts.

Question 5. How growth of new technology trends (Cloud computing, virtualization, etc) impacts IT outsourcing and business models?

Boris Kontsevoi: I don’t see any impact from technology innovations on outsourcing
models, at all. Cloud computing, virtualization, etc. is exactly like a new version of .NET platform, or operating system, or any other technological advance. These are new tools, that will be utilized of course, but won’t directly impact the business models, except, perhaps, for IT infrastructure companies. It’s more interesting to discuss a new trend of cloudsourcing, (or
crowdsourcing, e.g. Wikipedia success, Tripadvisor and tons of other product review websites, Google maps, blogging, etc.), when the power of “a public cloud”, a crowd is utilized to create a new value. Of course, such public clouds will need cloud computing technologies to run (and some are already available from Microsoft, Google, Amazon, etc. and we should see a lot of new start ups yet) but there is not yet a good business case. I can understand the drive behind the people who write a Wikipedia article or a product review but doing anything like this for a commercial organization will immediately require some incentive and compensation. We’re yet to see in which form the new crowdsourcing models will appear.
One more interesting trend is a new reincarnation of rural sourcing. Offshoring still is more cost effective but with all populist political agendas regarding job outsourcing and, in some situations, availability of a good business case to use native speaking resources and culture, rural sourcing will increasingly compete with offshoring.

The full report can be downloaded from the following location:

http://ceeoa.org/CEE_ITO_Review_2010.zip

Magdalena Szarafin
http://www.szarafin.info

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One Response to “How about IT outsourcing in Central and Eastern Europe?”

  1. Oleg Yudin Says:

    Artezio is one of the leading software outsourcing companies in Eastern Europe. Targeting mainly on banking, healthcare and telecom sectors Artezio provides cost-effective IT services that include custom software development, testing, implementation and consulting.

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