The Nearshore Blog in conjunction with Levi9 Global Sourcing are pleased to present an analysis of “the Central and Eastern European IT Outsourcing Review 2010” annual research conducted by CEEOA with the aim to study main trends, figures and predictions and update the perspective on the potential of the CEE region for provision of nearshore IT outsourcing for the Western European countries and for offshore IT outsourcing for the US market.
The CEE IT Outsourcing Review is the research work that became one of the most demanded analytical source about the state of IT outsourcing market in CEE region within such a short period of time celebrates its third edition this year.
Being an information partner to CEEOA traditionally the Nearshore Blog team conducts its overview of the research and provides the perspective on the main trends and predictions surrounding IT outsourcing market in CEE region.
From this partnership it became a good tradition to exchange the views and predictions for the time to come and we are pleased to say that historically our views are in line, therefore our work represents a complementing rather than debating character.
This year the study appeared exactly the same way, so we’re pleased to present our overview of “Central and Eastern IT Outsourcing Review 2010”.
Central and Eastern European Outsourcing Association (CEEOA), an information partner of the Nearshore Blog has been conducted the research project “CEE IT Outsourcing Review” annually since 2007. The previous issues of the report have been accessed by more than 15,000 people annually and were referred by industry research heavyweights. KPMG referenced the report in its “Exploring Global Frontiers” study.
This year “CEE IT Outsourcing Review 2010” represents a unique combination of proven research methodology, meaningful expert view and representative online surveying. By encompassing 246 companies operating in outsourcing service market from 16 countries alongside with 25 representatives of national outsourcing associations and impressive panel of leading industry experts the study provides a comprehensive yet accurate overview of the state of IT outsourcing industry in the CEE region.
Trends ConfirmedBeing an information partner to CEEOA, the Nearshore Blog team was particularly pleased to learn that many of the predictions and trends we indicated previously on Blog’s pages are in line with the study data and leading industry’s experts forecasts.
Several independent experts and outsourcing activists kindly responded to the survey questions and provided their insights with regards to major trends and currents in IT outsourcing industry worldwide and in the CEE region specifically. Among the expert panel there are:
Phil Fersht, Founder and CEO of Horses for Sources outsourcing advisory firm,
Christoph Prieler: Offshoring Executive, Managemen Consultant, University lecturer
Magdalena Szarafin - Chairman of IFRS Practice Committee at German CPA Society
Boris Kontsevoi - Founder and President of Intetics Co.
Trend 1. Shortage of IT specialists in developed economiesThe publication of the “CEE IT Outsourcing Review 2010” coincided with the series of studies “Nearshore as a solution to EU labor shortage” conducted by Nearshore blog this month. Similarly to our predictions the study “CEE IT Outsourcing Review 2010” together with the expert panel paid a great deal of attention to the growing shortage of IT specialists in the developed economies which might develop into a dangerous brake on post-recession recovery and innovation in developing economies.
One of the study experts Franco Dal Molin indicated:
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.The survey trends summary reflected that increase in skilled specialists shortage is among TOP 10 region’s main trends with 32 per cent of survey respondents indicated it as the major trend.
Trend 2. Growing IT workforce - Romania and Ukraine leadersFrom other side the study indicates a continuing increase in the number of employed specialists
working in the Central and Eastern European IT services market throughout 2009. The higher education that formed the base of educational systems in former Soviet Union countries experiences a further improvement of their already strong focus on fundamental engineering education.
This is one of the most important factors contributing to the preparation of qualified specialists in the industry. The presence of strong science schools and further education system conversion, fueled the rapid increase in the number of companies providing IT outsourcing and software development services in the CEE region.
In 2009, the number of IT specialists employed in companies providing IT outsourcing and software development services in the CEE region reached 95,000. Romania and Ukraine led in growth in the number of IT specialists with 12.33 and 9.51 per cent growth.
Trend 3. CEE IT Outsourcing Market Growth The most prevalent trend in 2009 was the increase in the volume of IT outsourcing services
provided. The volume of work exported in 2009 indicated a noticeable growth in comparison to
the findings of the ‘CEE IT Outsourcing Review 2008’.
The general volume of IT outsourcing and custom software development services exported from
the CEE region reached USD $4 billion in 2009. The largest growth took place in Romania and
Ukraine. These two leaders invariably show high rates of market growth and leave other countries far behind in terms of the volume of IT outsourcing services exported. Hungary, Poland, Belarus, Czech Republic and Bulgaria close out the list of leaders.
Outsourcing services providers are quite optimistic about their development prospects for 2010. Respondents from all countries forecast 10%-30% growth depending on specific circumstances at work within each individual country.
According to the forecasts of those surveyed, the volume of IT outsourcing and custom software development services exported from the CEE region will reach about USD $5 billion in 2010.
Trend 4. More market players despite crisisRather interesting trend might be observed from the study statistics on the number of companies within the region. As reasonably one might have thought about decrease in the number of companies throughout economic meltdown the actual figures are quite opposite.
Not only no significant bankruptcies, closures or IT outsourcing company failures were reported during 2008-2009, in fact 20% of responding companies were established during that period. These were mainly small-sized companies established in times of negligible redundancy at the
end of 2008 through the beginning of 2009. Many of these companies also were the result of
business restructuring when service companies shifted to independent organizations.
Trend 5. The EU - US outsourcing spending race will continueLast year TPI’s sweeping report marked that Europe outran US in terms of IT outsorcing spending. The report indicated that EU businesses signed a record number of IT outsourcing contracts in 2009 and beat US in terms of Total Contract Value (TCV). By the end of the third quarter of 2009, G2000 companies headquartered in Europe were spending more on outsourcing deals overall than G2000 firms with headquarters in the US and Canada.
The study surveyed the expert panel on the further dynamics in this competition. While most experts agree on the difference in economic cycles between EU and US being the main driving force in this competition, some respondents indicated the gap in IT and telecom between US and EU which can be a motive for European companies to spend more to make up the distance missing.
In a further perspective experts associated dynamic with the size of economies. Since USA and Canadian economies is just about 7% bigger than EU economy, the outsourcing spending of both regions, especially long-term, to smooth out saturation effects, should be about the same.
Trend 6. Nearshoring strengthen its positions at global arenaThe Key Conclusions chapter within the study signals that software development and IT outsourcing services provider industry in Central and Eastern Europe successfully overcame all of the challenges of the recession of 2008 and resumed its previous trajectory of growth.
The main drivers behind this dynamic experts named the numbers of long-term contracts and big clients who transferred their projects on software development to their CEE outsourcing partners.
The expert panel came to agreement that such a trend closely associates with the growing notion about outsourcing as a people’s business where geographical, cultural and language proximity are of importance for buyers. Sourcing buyers survey shows that 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 тв the prices are still lower than those in Western Europe.
The panel indicated a growing significance of nearshoring at the global outsourcing arena. As new stratums of businesses, especially mid-size businesses, are coming to outsourcing market, they feel more comfortable to work with nearshore providers.
Additionally, similar time zones and physical proximity promote more efficient operations. A noteworthy and interesting side effect of this is acquisition of Latin American and East European providers by Indian companies.
