Expert Opinions on the Future of Central and Eastern European IT Outsourcing Market

Central and Eastern European Outsourcing Association (CEEOA) has just pre-released its “Central and Eastern Europe IT Outsourcing Review 2010” aimed to improve business viabilities and the services delivery capabilities of CEE service providers through strengthening knowledge and business management competencies to increase overall skill levels to attract more prospects. CEEOA surveyed more than 300 IT players in 16 CEE countries, which makes more than 6% of the region’s market players.

The research finds that in 2009 the number of IT specialists employed by IT outsourcing services providers in the CEE region reached 95,000. Romania led in growth in the number of IT specialists with 12.33 %; Ukraine followed with 9.51% growth.  During 2009, the global economy struggled with a major financial crisis. The second half of the year was marked by signs of stability, and many companies turned to outsourcing business practices in order to reduce their expenses. Thus, the ITO market received additional contracts. In some respects, the global recession became a good incentive for further developing the IT outsourcing and software development services market.

Regarding the main development trends on ITO market in CEE in the years to come, industry experts agree that the key market players (vendors and buyers) will be affected by search for new solutions to increase sales revenues, innovative service models such as SaaS, cloud computing and managed services, cost pressure and limited IT budgets, security concerns, need for flexibility, faster time to market and multi-site collaboration. “Clients expect more from vendors. They seek reliable partners helping them to solve business problems creatively. The trends in IT outsourcing go towards specialization and value-adding service offerings. Small providers are increasingly positioning themselves in lucrative niches, where they can focus and maintain a technical lead position.

Medium and large providers are competing with innovative business models. Examples include dedicated client teams, flexible mixed-mode engagement models, idea creation and fast prototyping, shared risks/reward models,” says Franco Dal Molin, Switzerland’s Country Manager at Ciklum, a Danish innovative IT outsourcing company. Christoph Prieler, a famous offshoring executive, believes that “the current buzz in IT outsourcing is certainly about cloud computing” that will drive CEE ITO providers to upgrade “their service offerings to match the cloud needs of their existing customer base and to enable the access to an entirely new customer segment, the SME market.”

Regarding the CEE region’s role as a cluster of ITO services providers, its advantages include historically strong engineering tradition and technical training, geographic and cultural proximity and relatively low turnover. “The main difference [compared to Asian ITO providers] is that Europeans will try to tell the client how to do things better and may even argue with the client on technical solutions, for the best client benefit,” says Boris Kontsevoi, Certified Outsourcing Professional and CEO of Intetics, Co. Franco Dal Molin thinks that we can think of clusters of outsourcing companies in certain cities, like Kiev or Minsk, but not CEE overall. He says, “Rather than just claiming to be an IT cluster, the various CEE economies should promote and actively support complete “ecosystems”. An outsourcing ecosystem should consist of IT companies, universities, business parks, entrepreneurs, venture capital, developers’ communities, training programs, a favorable tax system etc. Only if all ingredients are in place, a region can establish itself as a solid pan-European outsourcing hot spot.”

Regarding ITO competition between the United States and Europe, the experts polled share the similar opinion that Europe will continue to outrun US as the biggest outsourcing spender. “According to Gartner, IT spending in Europe increased in 2010 by 5.2 percent comparing with the previous year, while the average increase of IT spending in the US amounts to “just” 2.5 percent in 2010 comparing to 2009,” says Magdalena Szarafin, Social Networking Manager at Indo-German Software Competence Network.

Overall, outsourcing experts feel rather optimistic about the CEE region’s capability to reach traditional outsourcing destinations like India and China in the years to come. According to the forecasts of those surveyed, the volume of IT outsourcing and custom software development services exported from the CEE region will reach about USD $5 billion in 2010.


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