IT Outsourcing in Central and Eastern Europe 2009

The alignment of forces in Global Outsourcing Industry will change, there is no doubt about it. There is some dominant reasons further to big changes:

- Current economic crisis swept the global markets and already hit the IT industries around the world. In this tough environment organizations have to carefully weigh all benefits and risks of sending work to outsourcing providers as well as once again reexamine what might be outsourced and what should stay in-house.

- Recent scandals in Indian IT outsourcing markets where service providers are losing their advantage against global competitors for providing IT outsourcing services as customer satisfaction levels fall (satisfaction with Satyam declined 15%, TCS dropped 8% and Wipro fell 4%)

- Europe has a record number of contracts were signed during last year and finally outruns US for outsourcing deals in 2008, despite a 50 per cent fall in the value of deals in the second half of the year

- Recent Gartner's report of TOP30 outsourcing destinations claims that BRIC (Brazil, Russia, India and China) dominated as offshore leaders in 2008, but it has also marked the rise of new outsourcing destinations as well as well scoring of CEE countries. Because of India's higher IT staff turnover and recent horror stories companies are choosing offshore providers in Eastern Europe where language skills are better and outsourcing providers appear to have a more in-depth understanding of their clients than competitors farther east.

Partially or entirely, all those facts strengthened positions of Central and Eastern Europe region as a major player in the global IT outsourcing market in terms of market volume, the number of IT professionals and IT companies offering outsourcing services. Increasing demand of Nearshoring services is also caused by a general interest of EU companies in entering to the CEE market with a desire to cut costs by using local outsourcing resources during an entrance.

Indeed, CEE countries are still more expensive compared to their Asian competitors such as India or China. However, Gartner's outsourcing report claims that recent EU entrants Slovakia and Romania, together with Russia and Ukraine were scored well on cost grounds and the CEE region whilst far from homogenous, enjoys close geographical and cultural links, particularly with the Western European markets.

Although the country (Eastern Europe) currently taking third place after India and China, it promises to rise up in near future with such attractive offshore work centers as Russia, Ukraine, Czech Republic, Poland, Romania, Belarus and the Baltic. These destinations not only offer low cost skilled labor force, but also an attractive regulatory environment with a close proximity and cultural ties to Western Europe and US. The other advantages of moving to Eastern Europe offshore markets are connected to its political stability, while India has an ongoing conflict with Pakistan and Sri Lanka.

Eastern Europe has highly efficient school system that adds thousands of skilled labor every year to its professionals, for example The Soviet Union's solid legacy in the fundamental sciences provides students with a strong education in numerous technical disciplines. According to the GoalEurope, there are 30,000 IT graduates only in Ukraine every year. With government commitment to the industry there is highly skilled labor force with minimal socio-cultural differences found in CEE countries.

As quality becomes more important during this recessionary times and outsourcing is not Just a Way to Cut Costs Anymore, customer wants to get better business processes from outsourcing providers in order to increase customer satisfaction and save more money. It requires from outsourcing providers more in-depth understanding of their clients along with ability to go beyond the traditional outsourcing services.


Alexey Patsko said...

In india they "produce" hundreds thousands of skilled and trained graduates every year - all trained and fluent in English. How Eastern Europe can beat that?
Former SU education system (greatest asset of the EE countries) is getting screwed with corruption and loss of best professors... Asia (China in particular) is ramping up swiftly, upgrading their universities and quality of management....
What's is being done in EE to compete with that?

Roberto Montandon said...

For the near term Eastern Europe will still have the great advantage of good language skills.
India is fine as long as you're doing business in English only. But there's still a huge opportunity in Eastern Europe for Multilingual Outsourcing Services.

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