Eastern Europe to Dominate the IT / ICT Outsourcing Space

Eastern Europe, already a popular and trusted nearshore location for continental Europe outsourced functions, is sweepingly ramping up as a hotspot for global players luring more and more software outsourcing contracts. Just consider the latest activity in the region: Wipro opened its development center in Budapest (in December 2010) and chemical producer Celenase has recently contracted IBM to run its financial shared services center in Hungary.

So what are the driving forces that make the Eastern European region so attractive? A shift in economic patterns, rise in tertiary occupations, improved FDI and government initiatives (lowered tax rates) to promote trade, and improvement of national fiscals are the underlying factors for increased ICT and are the major drivers for IT services and software development. Eastern Europe also ranks high in terms of work ethics and cultural sensitivity, adding to the region’s attractiveness as a base for outsourced activity.

And of course not to forget about the cost advantage. According to the industry experts, the cost advantage offered by Central and Eastern European firms to nearshore and offshore buyers is comparable with that offered by China.

Summing up, it is now highly likely that Eastern Europe will move out from being an ‘emerging destination’ to a ‘key destination’ for IT outsourcing activity. The region is expected to experience a new surge of demand from Western Europe and at the same time gain a ‘hard to ignore space’ on the world arena in the coming years.

Source: SourcingNotes

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Hungary: Optimal Nearshoring Choice for IT Outsourcing Buyers

Hungary, a beautiful country conveniently located in Central Europe, successfully made a transition from a centrally planned to a market economy at the end of the 1980s. Although the economic growth of the country has been often cyclical, the accession to the EU had an overall positive effect on its economic performance.

According to European Information Technology Observatory (EITO) the IT outsourcing market is showing a robust growth: already in 2006 it reached 91 million EUR (over 135 mln USD) and continues growing at an impressive pace. Hungary’s strong ITO value proposition, geo and cultural proximity to the Western Europe which recently outrun the US in terms of ITO activity (source: Forrester) makes it an optimal nearshoring option.

The global shortage of IT professionals has not touched on Hungary yet. The country supplies highly educated and well skilled IT workers who are in growing demand on the market as their level of education and overall background is above the European average. In terms of communication crucial for effective ITO relationship, Hungarians are also among the toppers: many foreign employers find them very flexible, highly motivated and dedicated. Foreign languages proficiency is also remarkable as according to the survey ”Offshore IT Outsourcing and Transition Economies” conducted by Business School of the University of East London over 50% of the workforce can speak either English or German, or both which helps eliminate the language barriers.

As for the infrastructure it is reported fairly adequate with all necessary facilities available for IT companies. Hungary has benefited from significant technical and infrastructure investment: Since the beginning of the transition to democratic market economy Hungary has attracted a steady stream of foreign capital, well-balanced across the various sectors. Hungary, a country of 10 mln inhabitants, can currently boast of having lured Foreign Direct Investment (FDI) of more than 60 billion EUR to date which represents the highest per capita rate in the Central/Eastern European region, reports Hungarian Investment and Trade Development Agency. According to the forecast of the Economist Intelligence Unit Hungary will retain its leading role in FDI stock/capita in the coming years.

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Hungary on the Offshore IT Services World Map: EPAM’s presence

Russia isn't the only game in Eastern Europe, though. Countries such as Poland, Romania, Bulgaria, Czech Republic and Hungary are all growing technology hubs. Like Russia, they are reaping the benefits of one of the few positive legacies from the Soviet era - a well-established education system.

EPAM Systems, for example, is a leading provider of outsourcing services in software development, technology reengineering and application testing. Belarus, Russia, Ukraine, and Hungary locate EPAM’s large-scale software development centers, while the USA and UK house the company’s client support and delivery units. EPAM’s Hungarian customer base includes London Stock Exchange and British Telecom (BT).

It helped BT Group, one of the largest telecom providers in Europe, for example, develop a massive customer portal. BT Global Services, a subsidiary of BT Group, is a service provider helping organizations master the complexity of business communication. The company has coverage in more than 200 countries across five continents, 20,000 skilled professionals and one of Europe's most extensive IP-enabled networks. Its old online B2B system was inhibiting growth.

"It was too tightly coupled with the backend systems," says Andy Pennington, senior product manager within the Virtual Business Center (VBC) BT Global Services. "Changes were complex owing to over-engineering and we were relying on a hybrid set of technologies."

EPAM helped BT Global Services deploy VBC using BEA WebLogic Portal 8.1. It is an online B2B resource area used by more than 1,500 multi-site corporate customers. It enables real-time Web-based access to a suite of service management and collaborative applications. It supports the company's virtual IP VPN network solution. Customers can raise and review orders, as well as access interactive tickets and service requests. They can also manage their inventory and configuration changes.

To accomplish this EPAM opened the BEA WebLogic NearSourcing Center (WNC), headquartered in Budapest. It comprises more than 700 experienced BEA WebLogic and AquaLogic engineers.

"We estimate that using the WebLogic NearSourcing Center was a quarter of the cost due to the expertise and efficiency of the team as well as the relative price advantage of near-shore resource," said Pennington.

EPAM CEO Arkadiy Dobkin lists similar advantages in Hungary to those mentioned earlier about Russia. Mark Minevich, an analyst at consulting firm Going Global Ventures, takes that a stage further. He ranked Hungary fifth as an ITO outsourcing destination behind India, China, Costa Rica and Czech Republic.

Source: Tech-2008

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