17 July 2015

Eastern promise: IT Outsourcing destinations in CEE

By Sam Trendall


Outsourcing services available in Slovakia include: HR and finance and accounting outsourcing, network operations centres, technical support, multimedia services and sales support.


It is approaching 25 years since the Iron Curtain was decisively torn down. During that quarter century, Europe – always an uneasy patchwork of enmities and ententes – has become progressively more integrated. The proliferation of low-cost air travel has increased mobility across the continent, while the expansion of the EU has driven a big rise in east-to-west migration.


And the traffic has not all been in one direction. The growing popularity of the so-called nearshoring model has driven commerce eastwards, with many western Europe-based firms setting up customer service centres in countries including the Czech Republic, Slovakia, Poland, Bulgaria, Hungary and Romania. Tourism in those nations and others has also enjoyed a big boost, with many locations that might have been considered no-go areas as recently as the early 1990s becoming city-break hotspots.


But even now, some people’s image of central and eastern Europe (CEE) is characterised by greyly functional communist concrete.


“Some people still think it’s all black and white TVs,” says Daniel Olsson, chief operating officer of Soitron, a nearshoring specialist headquartered in Slovakia, with offices in Romania, Bulgaria, the Czech Republic, and Turkey.


The monochrome conception some of its customers have of the CEE region led to the firm setting up its first base in western Europe last year, opening doors on a UK sales office.


“[Some customers] do not want to get an invoice from eastern Europe. But if they get an invoice from the UK, they are happy,” explains Olsson.


But despite a handful of clients harbouring concerns, the nearshoring model is set to continue to grow in popularity, claims the Soitron man.


“The explosion in Europe of nearshoring, as opposed to insourcing, is the trend. The cost of going to India has increased, especially compared with somewhere such as Bulgaria,” says Olsson. “If [a client has] names of staff, or names of customers, then that [data] cannot go outside the EU. If you have a mix of onsite and nearshoring in eastern Europe, that is a very attractive mix.”


And as customers and service providers continue to hunt lower costs and greater efficiencies, new countries and cities are entering the fray.


“Slovakia was the hotspot two years ago, now it is Bulgaria,” he says. “In the Czech Republic there are quite a lot of taxes, and there is not enough difference from the western European countries.”


Romania mania?


Romania is another country with a burgeoning outsourcing market. UK-headquartered reseller giant SCC set up its first service centre in the country six years ago and recently announced it is to increase its Romanian headcount from 750 to 1,200. Chief executive James Rigby paid tribute to the nation’s credentials.


“We liked the multilingual capabilities – Romanian is a Latin language so is very suitable for France, and their English is very good as well,” he explains. “We also liked the education system, so we set up in two university towns (Bacau and Sadoveanu), so we could attract lots of students.


“And we also liked the low rate of turnover. Our turnover of staff is sub-four per cent and in Poland and India our research indicated that there is a much higher level of staff turnover, so we have some stability.”


One firm that believes in the potential of the Romanian IT space is start-up 123ContactForm. Based in Timisoara in western Romania, the company offers customers an online form generator. It recently secured a €1m investment from locally specialised private equity house Catalyst Romania.


Alex Balan, marketing specialist at 123ContactForm, claimed that the country – and perhaps the CEE region more widely – could become an increasingly attractive target for tech investors.


“Financial support is on offer for IT companies looking to do business in CEE,” he says.


“From 2016, the Romanian government is encouraging foreign and local investments by reducing taxation on dividends from 16 per cent to five per cent. In addition to this, it also supports angel investors, a common practice in the start-up universe.”


Balan also contends that vendors should establish locations in the CEE region, rather than running the whole of EMEA from London, Amsterdam, or Munich.


“The level of expertise in CEE is almost the same as in the west,” he asserts. “Furthermore, the costs – such as low operating charges and overheads, and the fact that energy, real estate and utilities are around four times cheaper than in western Europe – of opening a business in CEE are far lower than those of the UK, Germany, and the west generally.”


One vendor that has invested in the region is ZyXeL, which has established offices in the Czech Republic, Slovakia, and Hungary.


“It is a market in which we see big potential, and we know we have put in more resources than our competitors,” said the vendor’s president of Europe, Lee Marsden. “We are seeing fantastic growth in eastern Europe.”


This article was originally published in http://www.channelnomics.eu