THE BIGGEST CHALLENGE THAT THE CENTRAL AND EASTERN EUROPEAN MARKETS WILL FACE WILL BE THE LACK OF SKILLED POPULATION.
| CENTRAL AND EASTERN EUROPEAN SERVICES: MARKET OVERVIEW |
| Country |
Population
(in million) |
Pop. Growth
(’01-’05) % |
GDP ’05
($ billion) |
GDP Growth
’01-‘05 (%) |
Comments |
| Bulgaria |
8 |
-1 |
27 |
5 |
Strong on engineering, math and science skills, but small market with small workforce (approximately 1,000 new technical graduates/year). Little price competitiveness to India/China. |
| Czech Republic |
10 |
Flat |
125 |
3 |
EU member. Strong cultural/language affinity for German market. Nearly of population speak a second language. Costs rising but still competitive. One of the strongest locations relative to geographic peers. |
| Hungary |
10 |
Slight Decline |
160 |
4 |
EU member. Preferred location for several multinationals and global buyers. Good cultural affinity to Western Europe. Costs are rising and recent political unrest highlights challenges though overall strong destination among country peers. |
| Poland |
38 |
Slight Decline |
300 |
3 |
EU member. Strong as a nearshore destination for Continental Europe. Popular among Western defense contractors, with an educated IT workforce strong systems writing and R&D skills and good infrastructure. |
| Romania |
21 |
-1 |
100 |
6 |
IT workers are particularly strong in specialized software development and Internet–based services. Costs and cultural risk are low to EU countries. Good affinity to Italian market. Corruption concerns and uncertain legal system keep many companies from investing heavily in Romania. |
| Slovakia |
5 |
Flat |
50 |
5 |
EU member. Similar demographics to Czech Republic relative to services, though on a smaller scale. Economy doing well overall. |
Target of the Global Services Delivery and Management Model: Central and Eastern Europe
Outsourcing buyers need to tailor their global SDMs to account for the Central and Eastern European services market realities based on the attributes described above. The key areas to focus on are what to outsource or what services to access from these markets, and what is required to successfully manage and govern the outsourcing process. Also, while there are similarities across the region as a whole, buyers must address each country individually when assessing its appeal and viability as an outsourcing destination.
Outsourcing services from the Central and Eastern European markets are most viable for buyers with the following attributes:
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Moderate outsourcing experience and sophistication. These markets are not as exotic and complex as China, but are not for the novice outsourcing buyer, at least for larger projects |
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Strong language or geographic proximity needs or other existing operations within these countries. These markets are more appealing for Western European buyers or distributed multinationals than for the average North American buyer. If access to generic skills — especially in IT — and low costs are the only two motivating drivers, other markets have more appeal |
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Prior or existing market experience. This type of experience in these countries is not a prerequisite given the nature of their economies, though any parallel investments being made in specific countries should prioritize targeting from a services standpoint |
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Clearly defined and contained services projects with strong technical requirements. Highly collaborative projects, those requiring strong business process or vertical industry expertise and acumen on behalf of the service provider or open-ended projects with unclear goals are typically not suited for these markets, as is also the case with the Chinese market. Buyers must also remain sensitive to overall market capacity constraints |
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Lack of large-scale local service providers. Buyers needing larger scale operations will need to source services through a multinational service provider as there are not large local services providers in these markets today. Development of captive operations is viable in the larger countries, but only for buyers with strong language or geographic proximity needs relative to these countries, and with the usual captive center caveats |
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Risk management. The ability to define a degree of comfort, which will be relative to the legal and IP risk of doing business in some of these countries. |
The Central and Eastern European business and IT-services markets are often a solid alternative to other mature (India) and emerging (China) outsourcing destinations. Costs are generally competitive to slightly above the Indian market, and better than more nearshore locations like Ireland and Canada. Technical skills are strong, though English-language skills lag behind India.
These markets are typically best suited for Western European outsourcing buyers but can also prove appealing for North American buyers. Several large multi-national end-user organizations have established operations in this geography to serve as regional services hubs. Multinational as well as India-based outsourcing service providers are also investing in the region. Economies and political environments are generally stable but buyers should monitor; and corruption is also an issue to assess and track.
