Outsourcing Journal

Independent ICT service business insights since 2010

Home Markets and locations Interview: Nearshoring, Total Cost Of Ownership & 
Some Thoughts About Different Markets

[vc_row][vc_column][vc_column_text]Adastra is one of the mature foreign service providers active in our markets and we have had the chance to interview the CEO, Mr. Ovtcharov, talking about nearshoring models, total cost of ownership, destinations and some thoughts about differences between markets.

Mr. Ovtcharov, you are coming from Bulgaria, a market and sourcing destination that has seen in recent years a rapid development. What were from your inside experience the main drivers for this development?

Before I answer the question ‘Why Bulgaria’, let me first briefly address the main drivers behind the IT off- shoring. Typically, the companies are seeking to attain one or more of the following business benefits: reduction of operational costs, faster time-to-market, access to talent, access to technological and business know-how, and improved quality.

The outcome of an offshoring initiative depends on the extent to which these goals have been achieved and the choice of the de- livery location contributes significantly to the failure or the success of the initiative. Important country selection criteria are country risk, labor, tax, and regulatory costs, telecom infrastructure, skills and availability of IT resources, cultural compatibility, and last, but not least intellectual property security.

So how does Bulgaria fit into that picture? The country is part of the EU and NATO which guarantees a stable business environment. Due to the flat 10% corporate and personal taxes, Bulgaria is one of the EU countries with the lowest operational costs. The telecom infrastructure is fast and reliable.

Strong information security and privacy regulations are in place in accordance with the EU legislation. The country is also known for the well-educated and highly-skilled talent pool with strong IT and language skills. And not to forget, the Bulgarian currency is pegged to the Euro which eliminates any foreign exchange risks.

I don’t want to get into general benefits of nearshoring, but at least in our markets people still need to be convinced to look over the border, be more practical and less reserved towards the idea of using the opportunities provided by outsourcing models. In a meeting with an IT executive, what would be your arguments for the nearshoring model – again without getting into the general benefits, like cost, great talent and so on?

The good news is that nearshoring really works, could be a low risk business, and the benefits are tangible and easily proven. The pre- requisite is an experienced vendor with a model tailored to the client needs and the right nearshoring location. Most of the IT executives are already “won over” by offshoring, so it is more about convincing them that you are the vendor to be trusted. Important vendor differentiators are maturity of the nearshoring model and processes, relevant experience and track record, and business attitude and ethics of the people. For example, at Adastra, we have our own Bestshoring model which has been specifically optimized to meet the Data Management, Business Intelligence, and Analytics needs of our customers without introducing any of the traditional offshoring risks.

The most valuable about EU nearshoring is that the delivery centers are just around the corner, situated in low risk geographies, and sharing the same or adjacent time zones.

These, combined with the natural cultural proximity of the EU countries, greatly reduce the communication and the management over- head. Further, nearshoring also allows greater flexibility, because the people can be relatively easily and cost efficiently moved onsite, to the customers’ premises, when- ever such need arises.

During the discussion at our annual conference this year (ITO&BPO Deutschland Forum) you were also mentioning the cost factor. Your point was that one must look at the total cost of owner- ship. What does that include?

No doubt, lowering the cost is one of the most important drivers be- hind the offshoring of IT services. Unfortunately, many companies are still attracted by unrealistic cost reduction promises by some vendors. What needs to be taken into consideration is that just the pure cost of services does not constitute the full cost of delivery over time or the so-called total cost of ownership (TCO). There are additional cost factors that should be taken into account. To name some: infra- structure cost, management over- head, exchange rate risk, potential productivity and quality loss, and communication overhead. They all contribute to the TCO equation and should be considered when evaluating different offshoring options.

At Adastra, we have developed a special offshoring productivity impact model which highlights the importance to focus less on the service rates and more on the real value delivered for every Euro spent for the service.

How one decides for a specific destination? How much does it actually matter if the solutions are created or the services are delivered from Bulgaria, Romania, Poland, Ukraine or Portugal? Are people focusing on the wrong question, when asking which destination should I go to?

I already mentioned some of the most important criteria for choosing a specific destination. The decision where to offshore requires a very stringent due diligence process and should not be taken lightheartedly. Depending on the outsourcing objectives and the nature and complexity of the services to be outsourced, one company might decide to go for one or an- other location. The preferred choice can vary when prioritizing different selection criteria, but typically most companies should use a balanced approach e.g. go for a low risk and financially attractive country with enough skilled resources available.

On one hand, all EU countries mentioned above provide stable business environments, but they differ in terms of cost and talent. Ukraine, on the other hand, is very attractive financially, but considered also business risky.

Infact, in the last couple of years I have witnessed several IT companies moving their delivery centers from Ukraine to Bulgaria, looking for greater political stability. In my opinion, if a company wants to have the best of both worlds (lower cost and risk), then Eastern Europe is a safe choice.

And last I would like to focus on one area that is most critical for our market: the marketing and communication output from service provider side. Here we are generally raising two issues: amount and quality. For that part I would actually like to extend on several questions. First, how does your marketing cycle look like? Second, which are the most effective marketing and communication activities. And third what are the challenges you experience in the German market compare to other markets, like the Nordics, the UK or the US?

I can share my experience in the In- formation Management area. The marketing and sales cycles typically take more than six months averaging probably a year. We are sponsoring leading conferences focused on the Adastra core business areas including Data Warehousing, Business Intelligence, Master Data Management, Big Data, and Analytics.

Further, we organize our own IM conferences, specialized events for Finance and Telco businesses, and customer visits to our delivery centers. Our unique expertise and methodologies combined with a proven track record and success stories, help us differentiate Adastra from the competition and win new opportunities.

The North American and the German markets are quite different. The companies in US and Canada have been doing offshoring for many years already. They are quite used to it, mature, and understand the risks and the benefits quite well. It is seldom the case that we talk to prospects that are not offshoring or have not done it yet.

There is a lot of competition with delivery locations from all over the world and many IT services are already considered as a commodity, which results in high pressure on their price.

In Germany and continental Europe in general, the adoption of offshoring is increasing, but the business- es are lagging behind the North American ones. While cost is still the main driver, access to skilled resources is rapidly growing in importance.

My observation over the past year is that companies are increasingly turning to nearshoring as an option to meet their internal demand for IT talent, because their home markets are exhausted in terms of skilled IT resources. Despite the differences between the North American and the European markets, what holds true for both of them is that the customers expect from the offshoring vendors more technological leadership, innovation, and delivery capabilities beyond the “standard”, commoditized services delivery.

Thank you for this interview![/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width=”1/3″][vc_single_image image=”3596″ img_size=”medium”][/vc_column][vc_column width=”2/3″][vc_column_text]Lyoubomir Ovtcharov, CEO Adastra Bulgaria, has more than fifteen years of international IT Outsourcing, Business Intelligence and Analytics, and Project Management experience. Throughout his career, he has participated in large projects in the Financial, Telco, Metal, and Tourism industries in Bulgaria, Czech Republic, Germany, United Kingdom, and Canada. Prior to be- coming the CEO, Lyoubomir led Adastra Bulgaria consulting teams and the successful implementation of Adastra Bestshoring consulting model for clients in North America and Western Europe. Lyoubomir holds a Masters in Computer science from the Technical University Berlin and a Masters of Business Administration from the City University of Seattle.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]This interview was done by Stephan Fricke, CEO, German Outsourcing Association and Chief Editor The Outsourcing Journal and published in the Outsourcing Journal Special Edition “The Interview Edition” 2016.[/vc_column_text][vc_empty_space height=”64px”][/vc_column][/vc_row]