Eastern Europe competes for share of the IT outsourcing cake

May 25th, 2007

share of the IT outsourcing cakeThe rise and rise of Bangalore as the centre of outsourcing could be under threat from new challengers nearer to Europe’s commercial heart. Increasingly, companies are being attracted to workforces in countries such as Romania, which, a report suggests, have better language skills and a keener understanding of their clients than competitors further east.

A survey of European chief information officers (CIOs) found that nearly 90 per cent would prefer a more local supplier for at least some of their IT services and that just under a third had unsatisfactory experiences with companies in more distant countries, such as India and China.

In the KPMG survey of more than 100 companies, more than half of CIOs said that they planned to boost spending on suppliers in Central and Eastern Europe, including Romania, the Czech Republic, and Hungary; less than a third forecast similar increases in Asia’s emerging markets.

The survey found that although Eastern Europe still charged more for IT outsourcing than Asia, the cost was counterbalanced by the high quality of innovation and the ability to cater to local needs.

Virgin Atlantic, Lloyd’s and Thomas Cook are among the British companies that out-source IT to Eastern Europe.

Crispin O’Brien, chairman of the technology group at KPMG, said: “There’s a certain kind of work — low-cost/high-volume — where the customer experience doesn’t matter so much, but if you’ve got a ‘mission critical’ call centre, you’re going to want somewhere which has a greater level of cultural understanding, whether it’s knowing German law or French customs, and that’s where Eastern Europe is gaining ground.”

In all, Western European companies placed offshore about $2.28 billion of IT services in 2005, according to IDC, the research firm. The vast majority — $1.9 billion — went to India, but growth in Central and Eastern Europe was expected to be more than 20 per cent in the next few years.

“IT offshoring used to be all about sourcing low-cost suppliers in India,” Lionel Lamy, a research director at IDC, said, “but now it’s more refined. Every day we hear about companies opening service centres in Bratislava and Budapest.”

Smaller time differences and strong language skills are among the benefits in Eastern Europe, according to a government official in Romania, where the IT industry is worth €4.8 billion (£3.2 billion) and growing at 17 per cent per year.

Sorin Gavanescu, chief executive of IT Six Global Services, an IT supplier based in Craiova, Romania, said: “Romanian companies offer better communication, a strong work ethic and greater flexibility, and can provide a ‘cultural fit’ to many different markets.”

Kris Wadia, head of outsourcing at Accenture, which employs thousands of people in Warsaw, Bucharest, Bratislava and Prague, said that India would cater to the bulk of European offshoring, but for work requiring extensive collaboration between supplier and customer, companies were turning to Central and Eastern Europe: “It’s about clients managing their risk threshold. They’re saying: ‘I’d be more comfortable with the guy where I can turn up in two hours’ time if there’s a problem.’ ”

Jonathan Richards

Source: TimesOnline

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