6 December 2018

Nearshoring to Central and Eastern Europe is New Trend in IT industry

For the first time I have met with nearshoring at the beginning of 2015. IT company from the Netherlands, which considered outsourcing of some business processes, contacted my organisation and ordered an analytical report on identifying new dynamic places for development of IT outsourcing in the Eastern Europe. One of the main assumptions in the received tasks was that Poland (as member of the EU) and Ukraine (as country which participates in free trade area with the EU) potentially could be the best places for this purpose. Our client was interesting in a wide range of aspects concerning outsourcing in those countries, in particular economic, fiscal, cultural, social, linguistic, political factors etc. Some of questions needed complex interdisciplinary approach.

It was quite new topic for me at that time, but I felt it was a beginning of new trend in IT industry, moreover — new geographical direction of its future development. I was wright. The IT industry is booming in the region today. Hundreds of quality IT service providers appeared in Central and Eastern Europe over last 10 years, offering a powerful pool of technology talent.

I have visited 5 courtiers of the CEE since 2015 in exploring what I called “new dynamic places for development of IT outsourcing” I would like share with you some value general findings I found out during my active work on that project.

1. Nearshoring is One of the Most Perspective Direction of IT Companies’ Development. The majority of IT companies from developed countries of the EU (especially from the Western Europe) are deeply interested in outsourcing (including nearshoring) of some business processes to the Eastern European countries. It is a consequence of an obvious disbalance in dynamics between development of IT sector and number of highly qualified IT specialists in the developed countries. IT companies need additional capacity, so they are in the process of looking for attractive places for this purpose.

2. IT Companies Can Obtain More Benefits by Operation in New Dynamic Places for Development of IT Outsourcing (Which are Not Very Popular Now) than In Actual Top Outsourcing Countries. The last ones are very attractive, but often their outsourcing capacity is near to its maximum level. They do not have enough free capacity to work with additional orders immediately. That’s why we need to focus on discovering new destinations with comparatively low labor costs, enough surplus of highly qualified IT specialists and state preferential conditions for IT industry like tax incentives etc.

3. Research Interdisciplinary Approach is Crucial in Such Kind of Studies. Set of factors determinates IT companies’ decisions concerning nearshoring of some services. Economic factors (noticeable lower labor costs, lower tax burden, surplus of highly qualified IT specialists, etc.) have significant impact on their choice, but political, cultural and social factors play essential role as well. That’s why work on such kind of projects goes beyond economic domain. Political, institutional, cultural factors need to be taken into consideration too.

4. Analysts Have to Pay More Attention to Non-economic Factors in IT industry. Individuals, their social, psychological and cultural background play an important role in IT industry. IT specialists are considered like people with particular type of thinking. Their decisions are based on personal and non-economic factors. Taking in account this fact the detailed research of the social and cultural factors should be made before looking for concrete partners for outsourcing. For example, it is not enough to analyze only the financing amounts for the outsourcing center in order to evaluate the prospects of its development. Non-economic factors like the quality and commodity of life should be taken into consideration too. The actual IT specialists changing their place of work and life very easy and often and such mobility should be considered like one of their particular features.

I've faced one particular situation during working on the above-mentioned project. Several outsourcing companies stopped their activity in one of technological parks in Katowice. They did not agree with the decision of the technological park to build a factory on the place of the nice park with a lake that was used by workers as a place for the rest.

5. There’s a Huge Potential for Local Consulting Companies in this Field and They Can Compete with International Consulting Corporations. The Big Four can provide a lot of useful information for IT companies about perspective of nearshoring, but they have no appropriate capacity to cover whole range of important questions. The Big Four deal mainly with legal aspects. Some particular aspects and topics need much deeper approaches and camp researches, which can be fulfilled by local consulting companies.

Adrian Verner

Economic Analyst

Author

Adrian Verner

Adrian Verner

Economic Analyst

Analytics and research

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