Posts Tagged ‘CEE’

How about IT outsourcing in Central and Eastern Europe?

November 30, 2010

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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Think to outsource operations? Why not to Poland?

June 28, 2009

In the past few years a new outsourcing wave has come: after successfully outsourcing of production function to the countries of Central and Eastern Europe, big multinational groups have come to the conclusion that also other functions, for instance the administrative ones can be relocated to CEE.

The preparation for the EU entrance and then the entrance to EU has made the CEE countries more stable and thus more attractive for foreign investors.

There are some important reasons why companies from Western Europe choose the CEE region as their nearshoring destination:

  • membership in the EU: this requires the same legal and institutional framework,
  • performance/cost factor: employees in CEE region are well-qualified and do qualified work at lower hourly rate than the Western European employees,
  • destination: key CEE locations can be reached within a few hours time,
  • cultural background and language skills: Poland, Czech Republic, Hungary and other CEE countries have similar cultural background to that of Western Europe. Many people (mainly the younger generation) speak fluently 2 or 3 foreign languages.

According to NIB (National Irish Bank) Poland ranks second worldwide (after India) in terms of attractiveness to foreign investors. Comparing with Hungary, Czech Republic, Slovakia, Slovenia, Croatia, Poland in on the top of the most attractive BPO destinations. That for good reasons.

The population of Poland amounts to 38.2m. Poland is the biggest market in CEE region in terms of population. The capital town, Warsaw has 1.7m residents.

The GDP growth of Poland was 6.2% in 2006, 6.7% in 2007 and 4.8% in 2008. The unemployment rate decreased from 15.1% in 2000 to 9.5% in 2008.

Warsaw belongs to the most attractive towns in Central and Eastern Europe regarding wages and salaries, comparing with other capitals, as Budapest, Prague or Bratislava.

Poland is located in Central Europe, that is a good location in terms of offering goods and services to both: Eastern and Western parties. Berlin, Moscow, Vienna, Bratislava, Kiev, Vilnius and Minsk can be reached within a few hours from Poland – by rail, car or by air.

Poland also possesses a very good system of education. There are almost 500 universities and other types of higher education schools in Poland and about 2 million people study there. Almost 50% of population between 19 and 24 are students. The fact that big corporations locate their R&D centers in Poland and Polish specialists are very welcome in multinational groups in the country and abroad shows their recognition to high quality level of their educational background.

According to PAIZ (Polish Information and Foreign Investment Agency), foreign companies invested EUR 15.7 bn in 2006, EUR 16.7 bn in 2007 and EUR 11.0 bn in 2008 in Poland. The leading investors are the German (17% of the whole investment volume), the French (11%) and the Dutch companies (10%). There are many attractive incentives for investors, motivating them to invest in Poland. Also the tax rates are relatively low in Poland, CIT rate is 19% for instance.

According to PAIZ, Poland does not intend to compete with India with labour costs but with the possibility to provide more technology advanced projects. As the demand for high-qualified specialists in India in very high, there is the lack of them experienced in the market, which can now be fulfilled by Polish specialists.

Magdalena Szarafin
http://www.szarafin.info

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Magdalena Szarafin is a Polish economist, residing in Frankfurt, Germany. She works as an international management accountant in a big multinational group. In her leisure time she prepares a PhD dissertation focused on shared service centers. Her research interests include insourcing and outsourcing in connection with the value chain. She is the author of many publications dealing with outsourcing, knowledge management and total quality management.