The outsourcing of information technology services or business processes has already become a major part of the strategy for global expansion both for international companies and multinational conglomerates. When it comes to outsourcing services, there are three major models from which businesses can choose – onshore, offshore, and nearshore. While onshore means selecting a provider located in your own country or a neighboring one, offshore is for outsourcing companies separated by big physical distances from the business. Nearshore then is the model that involves delegating IT processes to companies located in a similar time zone or close geographical proximity to your country of business. This proximity majorly reduces development time and helps you resolve any obstacles quickly.
In this article, we are going to establish why you should focus on IT outsourcing to Eastern Europe, and how to select the best nearshore destination located in the region.
IT OUTSOURCING TO EASTERN EUROPE?
When selecting an outsourcing destination, you need to majorly consider the country’s IT market, prices, and technical qualifications. Below are some other factors that you can also tick off:
Commitment to quality technical education
The country’s commitment – both financial and infrastructural – to education should be one of the main green or red flags when selecting an outsourcing destination. Eastern Europe is considered a top outsourcing region when it comes to the quality of professional technical education. The main reason is that the Balkan countries have long-lasting traditions in obtaining high-quality technical and scientific studies. Students from the Eastern European countries, especially Bulgaria, have achieved the highest team scores and all-members-gold at International Mathematics Olympiads in previous years. What is more, Bulgaria is among the top 10 with the best all-time results. The Trends in International Mathematics and Science Study (TIMSS) also records increasing positive scores for students in high school from the region. In some of the Eastern European countries, including Bulgaria, there are profiled high schools entirely dedicated to the technical education of their students. They operate in collaboration with local companies that offer internships to the best-performing students and afterward even hire them long-term.
The commitment to education however does not stop at this level. Across Eastern Europe, there are specially created ICT educational tracks and programs, some of which are sponsored by both companies engaged in the sector and the local government. In Bulgaria, there are technical academies such as Telerik and Softuni in which developers can fast track their education in front-end, back-end, QA, or else.
Versatile Technical stack
The second factor, technical skills, is closely related to quality education. Eastern European developers have years of experience in different programming languages and technologies. They usually start working with one technology, but the specificity of the projects requires them to learn more and advance quicker. This is especially beneficial in today’s global climate where the most in-demand role is for full-stack developers, according to the 2020 report by Hackerrank. The report even states that over 60% of the full-stack developers are required to learn a completely new framework or programming language and be agile enough to meet changing projects setups.
Size of the talent pool
This is also a major factor for choosing an outsourcing destination as it also defines whether your projects can be staffed properly or there would be situations when one person does it all and can be prone to errors. According to data from Statista, the EU makes up 15% of the global ICT market. The IT landscape Report 2021-2022 indicates that the total number of IT professionals employed across Europe amounts to 1.99 million and is expected to reach 2.09 million by the end of 2021. Based on 2020 Predict DATASET, the annual growth rates for employment in the sector for Bulgaria are 5.2%, Hungary – 5.3%, while for Poland is 5.8% and for Romania 8.8%. Those percentages include both ICT services and ICT manufacturing. However, Bulgaria, Romania, and Hungary are the countries from the Eastern European region with the highest growth rates for ICT services.
Communication is always of utter importance, especially with IT projects. That is why the level of foreign languages competency should be high in the outsourcing destination you choose. According to the EF English Proficiency Index 2020, all Eastern-European countries have high to very high proficiency in English. This is somewhat of a mandatory factor for the Balkans where the majority of clients are from Western Europe, the USA, and the UK. What is more, Bulgaria has Technical University where students can obtain diplomas in German, French, or English from partner universities and polytechnics in Germany, France, and Great Britain respectively.
Comparing Eastern European Nearshore Destinations
Eastern Europe is not only an attractive nearshore outsourcing destination for Western European businesses. Over the last years, companies have observed the majority of projects coming from the United States, Canada, Israel, and Australia.
Once you have chosen to outsource IT to Eastern Europe, it is time to look at some of the outsourcing destinations within the region and what each one of them has over the other. The most popular destinations are Bulgaria, Ukraine, Poland, and Romania.
It is obvious that most of those countries have the advantage of being in the European Union, have relatively lower development rates, and are in closer proximity to Western Europe. That is why here we are going to look beyond those factors.
Source: IT Landscape: Future of IT report
Bulgaria is a major player with a long history in the ICT industry, dating as far back as 1980 when it emerged as a computing hub to become the third-largest computer producer in the world. It officially became an outsourcing hub in the 2000s. In 2015, it was named an “Offshore Destination of the Year” by the NOA Awards.
The growth of the Bulgarian ICT sector has been fueled by the transformation from pure cost savings and high-volume staff offerings to a more complex combination of quality, out-of-the-box services, proficient language skills, and cultural proximity. To this day, the country has been investing heavily in the field of math and science with some schools offering AI classes for students barely aged 15. The first ICT Olympiad was also held here back in 1986. Research from AIBEST for October 2018 – September 2019, shows that the country scores mostly first places in international high school competitions with 34 Gold medals in Mathematics and 9 in Informatics. Apart from that, there are many profiled schools preparing students for their future in the ITC sector.
The country also has the advantage of offering the world’s second-fastest broadband speed that further eases outsourcing work. As compared to the other countries in the EU, it employees the highest proportion of female software developers in the ICT industry with 27% of the force being female.
AT Kearney’s 2019 Global Services Location Index (GSLI) shows that Bulgaria takes 17th place in the world, based on factors such as financial attractiveness, people skills, and availability, as well as business environment and digital resonance. The majority of companies indeed choose the country not only for its flat tax rate of 10%, its economic stability, and strategic location but because of the price-quality ratio.
Indeed, highly qualified developers are the country’s biggest advantage. To respond to the growing demand, local companies have been partnering with traditional educational institutions, as well as establishing their own projects such as Telerik, SoftUni, and other academies. Through them, even people in different lines of work can retrain and fast-track their IT careers. Apart from that, specially designed science and tech hubs such as Sofia Tech Park also serve as social centers for knowledge exchange.
Source: IT Landscape: Future of IT report
Ukraine is another major outsourcing destination thanks to its engineering heritage and technical skills. The foreign companies wanting to outsource to it capitalize on the winning combination of a large, highly educated, and lower-paid labor force. Indeed, in 2019 more than 200,000 people are working in ICT. However, this number is still the fifth lowest in the region as per data by Emerging Europe. It indicates that there are certain strategies that the country can implement to attract more developers to the industry. Data also shows that private companies, just like in Bulgaria, have taken interest in improving the ICT infrastructure. Due to that in 2017, is built Kyiv’s UNIT. City innovation park that supports the free knowledge exchange and different tech events. Investments and collaboration between the private sector and educational institutions have also resulted in the successful launch of profiled schools and courses, as well as corporate accelerators and communities. Even though the country is ranked on 11th place in the IT Competitiveness Index, it still has some work to do in battling corruption and inefficient governance that obstruct the provision of a viable business environment and impede the entrance of foreign investors.
Source: IT Landscape: Future of IT report
The third country on this list, Romania, is another ICT powerhouse. It turned into an outsourcing hotspot in 2009 when the country started heavily investing in its STEM education system. Romania is the third-largest in the region in terms of the number of ICT students and graduates with only Ukraine and Poland occupying the leading positions. A major role here also plays the government that has been offering generous subsidies to new businesses in the ICT sphere. Even though software developers pay no income tax, the corporate one of 16% is still way above the all-time low of 10% maintained in Bulgaria. Just as in Ukraine and Bulgaria, in 2013 in the country was opened the first technological park – The Liberty Technology Park. Despite the progress being made, though, the country ranks poorly in corruption indexes and has a lower internet penetration rate as compared to the other countries in the region such as Bulgaria.
In the meantime, it is also in the sixth-lowest position for Ease of Doing Business which demonstrates the need for some improvement. That is also confirmed by the A.T. Kearney’s 2019 Global Services Location Index, which ranks Romania is on 28th place in the world for a favorable business environment, financial attractiveness, tech skills, and availability. This is more than 10 places behind its neighbor Bulgaria that has a much lower talent pool.
Source: IT Landscape: Future of IT report
Poland is quickly catching up to the other IT outsourcing destinations in Eastern Europe. It has the biggest economy in the region that has managed to continue growing even after the 2008 global financial crisis. In addition, venture capital investments made in recent years have jumpstarted the Polish ICT industry. This is a country famous for its gaming industry, the start-up-friendly climate, and the fact that it has managed to attract some international companies such as Siemens and Microsoft to establish their R & D centers here. Its students also record high positions in the International Mathematics Olympiad and have the highest PISA mathematics ranking in the region. Despite that, it also shows the lowest number of ICT graduates per 100,000 people for the region.
Eastern Europe is a desirable location primarily for nearshore outsourcing for numerous reasons, including a large highly qualified talent pool, technology stack versatility, English language skills, lower development costs, and deep-rooted traditions in Computer Science and Mathematics excellence. What is more, after the comparison between the most popular outsourcing hubs in Eastern Europe, one emerges as the most promising. Bulgaria’s ICT talent pool might be smaller than its neighbors, but it still offers the highest quality of services and the most beneficial environment for the development of open-minded, innovative software consultants.
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