Posts Tagged ‘nearshoring’

Magdalena Szarafin participates in “Central and Eastern Europe IT Outsourcing Review 2010”

November 30, 2010

A unique, valuable, 164-page-report “Central and Eastern Europe IT Outsourcing Review 2010” has been just released. Except of a comprehensive country anaylsis, presentation of reasearch results and the list of IT companies operating in the CEE region, expert interviews (Phil Fersht, Boris Kontsevoi, Magdalena Szarafin, Christoph Prieler and Franco Dal Molin) have been published.

Here is an excerpt from the interview with Magdalena Szarafin:

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?

Let’s perceive the IT market from the perspective of the trends affecting its main players (vendors and buyers). The following trends can be observed on vendors’ side:
· Searching for new products and solutions to increase sales revenues,
· All big suppliers (and many smaller ones as well) deal with new service models (e.g. cloud computing, managed services, SaaS),
· Integration of IT and telecommunications solutions,
· Using service models based on economies of scale: having a large number of customers, low sales revenue per customer and low costs of sales per customer.
And the trends observed on buyers’ end can be summarized as follows:
· Cost pressure and limited budgets for IT investments,
· Security concerns,
· Need for flexible solutions,
· Multi-site collaboration, need for product and services supporting home office and mobility solutions.

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

For many vendors the crisis time has brought the opportunity to increase revenues as many companies think about outsourcing their operations to third parties in difficult times. Also those of them who were skeptical about outsourcing until now. The decision whether to outsource (or not) tends also to be met quicker and easier under the pressure of crisis.
Companies try to focus on their core competencies and to cut costs. Therefore IT outsourcing has been as popular in the crisis time – trying to improve their cost structure, companies tend to implement projects which help them to improve performance and have short time of amortization. Also outsourcing infrastructure to third party enables the buyer to improve shortterm liquidity.
What is going to come after the crisis? Vendors can be optimistic, after the phase of cost-driven, quantitative outsourcing the phase of qualitative outsourcing is likely to come. Companies searching for innovations, quality improvement and use of external know-how will try to outsource their operations, expecting vendors to help them to achieve these objectives.

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

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?

Yes, I would definitely say yes. The improvement in macroeconomic
conditions will actively contribute to this positive trend. According to Gartner, IT spending in Europe increase in 2010 by 5.2 percent comparing with the previous year while the average increase of IT spending in the US amounts to “just” 2.5 percent in 2010 comparing to 2009. And one thing cannot be forgotten: there is still a gap regarding IT and telecommunications between Europe and the US so that European companies have no solution than to spend more than the US to make up for the distance missing.

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

It is expected that IT outsourcing will get much more heterogeneous than ever before. Security concerns buyers have tend to motivate vendors to offer new forms of business relations. Traditional outsourcing with personnel, assets and responsibility transfer is very likely to be amended by outtasking and utility sourcing where no personnel and assets transfer takes place and the buyer is responsible for processes.

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.