When Wipro recently opened its development centre in Budapest (in December 2010), Gergely Lukácsy, investment director of ITD Hungary, welcomed the move.He stated that this would “prompt other technology companies from India to consider Hungary as a potential venue for their investments in Europe.” And it’s not just Indian IT companies that are setting up shop in Eastern European (EE) countries.
The EE region, already a popular nearshore location for continental European outsourced functions, is seeing a surge in locally outsourced contracts. It is also fast becoming a hub for shared services. Recently, global speciality chemical producer Celenase contracted IBM to run its financial shared services centre in Hungary, which serves as a single shared service centre that integrates Celanese’s global financial processes.
What’s driving growth and where?
Outsourcing in the IT/ ICT industry is particularly witnessing an upswing in the Eastern European belt. Romania, for instance, is being dubbed as the ‘new Poland’- gaining popularity for its business process outsourcing, offshore software engineering and contract manufacturing services. A shift in economic patterns, rise in tertiary occupations, improved FDI and government initiatives to promote trade and improvement of national fiscals are underlying factors for increased IT development and drivers for ICT and other knowledge based services. A key advantage is the region’s Latin language, making it the preferred destination for European states considering outsourcing. For instance, English, French and/or German are often the second language in most of these regions.Why EE?
There seems to exist very healthy competition within the EE countries,. Regulatory changes and a changing attitude to outsourcing makes it easier for IT companies to operate in the region. Germany, Switzerland and Austria in particular favour Eastern Europe as a favoured nearshore destination.Significant home-grown outsourcing potential
Traditionally, Eastern Europe’s regional companies did not prefer outsourcing. But as a result of their own modernization, cost cutting and expansion is leading to more outsourcing contracts, as seen in public utility, IT and telecom sectors.The cost arbitrage advantage
According to industry experts, the cost advantage offered by central and eastern European firms to Western European buyers is comparable with that offered by China. Factors that reduce costs include -
- Lower service charges and tax rates for service providers – Vendors can pass on these advantages
- Lower average labour costs – Newer member states of the EU often offer upto 40-60% in labour cost savings over Western European regions.
- Government incentives – through lowered tax rates
Eastern Europe ranks high in terms of work ethic and cultural sensitivity, adding to the region’s attractiveness as a base for outsourced activity. Several EE countries are now witnessing rising economic independence. Some, like Estonia, are in the process of adopting the Euro (signalling a much better position than debt-ridden Euro members like Greece and Spain). What these countries lack in size, they make up in sheer aggression recording a marked GDP growth this decade.