Nearshoring in Eastern Europe – best fit for UK/Western European companies

Did you know that a typical Fortune 500 organization may use as many as 10.000 suppliers to meet its business objectives? 

Digitalization is transforming organizations. IT Directors face the challenge of doing more with less whilst navigating fast into a digital first reality. The good this is that although IT budgets are quite steady (global weighted average = +1.0%), CIOs estimate that much digital innovation can and will be funded outside planned IT spending. 

Furthermore, end customer needs evolve and organizations are pressured to adapt. Consequently, enterprises expect more from IT providers. They start replacing reactive IT service providers, that lack innovation and are not culturally aligned, with strategic technology partners that are able to deliver deep technology driven innovation.

BI/analytics, reliable infrastructures, cloud migration, business solutions such as ERP, CRM & SFA, mobility, digitalization, security, enterprise collaboration and social media, compliance, omnichannel customer communication, big data, IoT, legacy infrastructure modernization… are all priorities on CIO’s agenda.

These require many complementary skills to be handled at the same time and having all these performed internally just doesn’t make any sense.   Over the past few decades companies have used outsourcing to support their strategy of focusing on core strategic competencies, relying on an international network of external service providers to perform less strategic, but highly technical, functions.

To add here, European tech hubs are expanding, both in London (which produces the largest output of startups in the European Union) and in other Western and Central European locations.

All these led to a booming demand of IT Professional Services in the UK/Western Europe.

The volume of change required to keep pace with, and lead, the market means most companies are challenged around accelerated product development, thorough business and technical expertise, an agile/continuous development approach, fast prototyping and time to market of new products and services.

There is an acknowledged trend and inclination towards nearshoring in Eastern Europe to meet this challenges. The reasons are many, including cultural alignment, collaboration,  better business understanding, proximity, agility, better project management coordination, data/IP security.

Additionally, in recent years the cost gap has significantly narrowed between Eastern Europe and traditional  outsourcing destinations such as Asia, India or South America. What little gap remains, if any, is more than offset when traditional concerns for non-European destinations are taken into account, such  as communication, time difference, quality, security and local market understanding in outsourced projects,.

According to a Deloitte survey, companies that choose to replace offshoring with nearshoring have as their major drivers: poor supplier performance, inability to realize cost savings in the long term, time zone considerations, social beliefs or government incentives.

Large Asian IT outsourcers have recognized the Western European tendency to replace offshoring with the nearshoring model. As a consequence, some of the large Indian players already opened delivery centers in Romania, Poland, Hungary or Czech Republic or search for acquisition opportunities in Eastern Europe.

The IT industry is booming in the region. Hundreds of quality IT service providers appeared in Central and Eastern Europe (CEE) in the last 10 years, offering a powerful pool of technology talent. These service providers have already created a significant track record. The region became more transparent and visible in recent years and the combination of untapped talent, good universities and lower cost profile means it is well placed to be a serious competitor to existing global leaders.

Furthermore, according to the World Bank, the regional business regulations reforms in Eastern Europe are more advanced than those in South Asia, East Asia or Latin America. As a consequence, Eastern Europe now stands ahead of global competitors, making it easier and more cost effective to start and run a business in the region.

Central and Eastern European countries are technologically-minded and have a diversified range of foreign language skills, including English. Additionally, they share a similar work & fun culture to people from US and Western Europe. They’re easy and relatively cheap to reach by plane and you can always set up instant conference call meetings, as the work schedule is practically the same. Legal and financial issues are much simpler, as many of the countries are EU members. They are resourceful, as there are multiple cities with world recognized Technical Universities, with good infrastructures and affordable real estate.

CEE IT labor market

The Eastern European markets provide a large depth of experienced talent and IT services continue to grow fast in the region. Companies are aware that they need to be able to deliver increasingly innovative services. They need to grow and develop new skills in established and cutting edge technologies and complement them with industry specific business knowledge to satisfy enterprise customers business and technology demands and expectations.

How mature are some of the Eastern European IT Destinations?

How do some CEE countries rank globally?

Key highlights on some of the most active CEE countries:

In conclusion – what makes nearshoring in Eastern Europe a success?

There are many conditions that need to be fulfilled for IT outsourcing/nearshoring to work. Ideally it blends most of the below factors:

  • Transparency, no hidden costs
  • Access to highly qualified IT experts due to an excellent academic environment
  • A blend of technology and industry expertise
  • Similar working culture
  • Proven project methodology
  • Good communication and collaboration
  • The ability to grow and keep talented resources
  • No compromise on quality
  • Clear reporting
  • Straightforward business structures
  • Business stability

About Euro IT Group

Euro IT Group is a UK based technology provider with delivery centers in selected Central and Eastern European locations. Euro IT Group focuses on accelerating software development through a blend of first-rate people and technologies, acknowledged processes and methodologies and forward-thinking employee development programs, all combined to deliver value for customers. Euro IT starts from a base of 600+ IT professionals who have successfully executed 1000+ software projects worldwide to customers of various sizes from a range of industry sectors such as such as banking, insurance, ecommerce, telecom, media, travel or healthcare. www.euroitgroup.com

Notes:

  1. Vendor Management Program Office – Five Deadly Sins of Vendor Management, Deloitte
  2. Gartner, CIO Agenda Insights

Resources:

World Economic Forum, The Global Competitivness Report 2014-2015 Rankings
Romania across top 10 outsouring destinations globally article, Outsourcing Journal
Deloitte’s 2014 Global Outsourcing and Insoursing Survey 2014 and beyond
2015 TOP 100 Outsourcing Destinations, Tholons Conulting
20 BPO Destinations, Cushman Wakefield
Developers Survey 2015, Stack Overflow
How competitive are Eastern Europen Countries on the global scale, article
Global Competitiveness Report 2014 – 2015

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