Outsourcing Journal

Independent ICT service business insights since 2010

Home Markets and locationsEurope Romania The Nearshore Neighbor – European Businesses Discover Sizeable Opportunities

By Paolo Marcattilj / UK Director Global Remote Services. Companies have often relied on a limited number of geographic sourcing destinations, mostly far away (offshore), as part of their outsourcing strategies. With the focus now on delivering enhanced customer service and cost effectiveness, we are seeing European nearshore locations emerge as opposed to remote locations such as India, Africa, Philippines and China. There is a growing trend for choosing nearshore locations because of realizing other drivers other than pure cost such as proximity – either cultural or geographical, languages, skills and business environment. Whilst se still being cost-conscious, these nearshore locations create real value for today’s businesses.

Outsourcing strategies vary depending on sectors such as BPO, manufacturing and IT.  Most recent researches reveal two main overall trends:

  • A rebalance from conventional offshoring, generally focused on one/a few geographic remote areas),  to an increased usage of different sourcing disciplines and locations;
  • An increasing awareness of the opportunities offered by nearshoring locations.

Most of the recent on shoring initiatives are found in the manufacturing sector; probably because it offers job security for local people and can better relate to consumers and product diversity.

Alternatively, near shoring (locations in nearby countries), and in some cases farm-shoring (locations in lower-cost areas of home country) appear to be the most common current trends for customer care, sales-promotion, and technical help desk activities.

This is being driven by the increased weight that companies give to talent pool access, operational flexibility, culture and regulations in common with their customers, language skills, and – still very evident – low costs.

Usual offshore locations are being challenged by effective alternative destinations as more and more countries are considered potential offshore or nearshore locations.

Businesses are reassessing their global delivery choices; they are reconfiguring (rebalancing) their sourcing strategies to benefit from a broader geographic footprint, as new locations emerge with more effective outsourcing services.

The share of the outsourcing market sourced from Central-Eastern Europe (CEE) is growing.

According to Gartner Research Group, the global outsourcing market continues to grow with a forecasted rate above 8 percent yearly, with 38% of enterprises wanting to outsource to Eastern Europe, and especially to Romania.

CEE locations such as the Czech Republic, Hungary, Poland and Slovakia enjoy strong skills, EU regulations, advantageous labour cost and solid infrastructure.  However, these areas are becoming increasingly over-crowded while Romania, though being the second-largest CEE talent poolafter Poland but with a labour cost level tangibly (40 %) lower, is relatively still to be exploited.

CEE still underexploited by Western European countries

Gartner states that currently the top three locations used by Western European buyers are predominantly India (35%), Poland (21%), Brazil (18%) and China (16%).

Gartner also states that the closer locations will gain, in a short period, importance and a defined role, as customers seek benefits beyond cost reduction and demand more focus on local-language skills, greater cultural compatibility with demand centres and the benefits of proximity in terms of reduced travel times and same-working-day communications.

For example, from the whole UK services sourced from abroad (approximately 500 MM £ per year) 40% is estimated to be sourced from India, 30% from Philippines, 15 % from South Africa and other areas and only the remaining 15 % from the whole CEE.

France too is focusing on sourcing from North Africa or Madagascar and Mauritius; a non-significant share is currently sourced from CEE.

Romania the outsourcing CEE gem

According to Eurostat, Romania is the 17th largest economy in the European Union by total nominal GDP. Reports show that in the last 5 years nominal GDP had a steady growth of more than 5%.

The country is member of International Finance Corporation – World Bank Group since 1990, of the World Trade Organisation since 1995, of NATO since 2004 and of EU since 1 July 2007.

The macroeconomic environment in Romania is stable and the growth prospects are more promising than in the rest of the countries from the region.

Due to the international financial support package, the exchange rate has remained broadly stable with a fluctuation of maximum 2% over the last 2 years.  This along with delaying the entrance to Eurozone makes Romania interesting for foreign investments.

Romania is fighting its way towards the first positions in the latest reports on outsourcing and BPO

Tholon’s most recent report “Top 100 Outsourcing Destinations” which includes several CEE countries, ranked Romania, with its capital Bucharest at number 40, a better position than in the previous edition when it was on the 44th.  This places Romania on the 4th position in Europe.

A.T Kearney’s index from 2014 ranks Romania on the fifth position among the most attractive outsourcing destinations in Europe.

Attractive prices, flexible, skilled and multilingual workforce – key qualities for a viable nearshore outsourcing location

With attractive prices versus performance, a young motivated and flexible workforce with strong language skills, close cultural fit and similar mentality to US/ Western Europe and a high level of commitment to projects and client relationships, Romania is interesting both as an outsourcing destination of choice and for investment.

Main global players, such as HP, IBM, Microsoft, P&G, ING Bank, Deutsche Bank, Société Générale, Unicredit and others, choose Bucharest, together with some other Romanian cities, as main service HUB.

Due to the country’s university tradition, Romania’s human capital is considered to be one of the most educated in the CEE and SEE Region. More than 900.000 students are studying in over 100 public and private universities from across the country and more than 200 000 graduate yearly.

Romania is one of the countries of the CEE & SEE region where language skills are most proficient.  Eastern Europe in general, Romania in particular, is perfect for those markets where French, Italian, Spanish and English are preferred languages.

The official language, a Latin language similar to Italian, Spanish and French and with Slavic elements, offers Romanians the ability to become multi-lingual with ease. As an example, the latest Eurobarometer report states that 31% of the entire Romanian population speaks English and 17% speaks French.

Labour regulation is highly flexible in Romania thus allowing both efficiency (workload peak management) and quality (recording, supervising, incentive management, etc.)

The quality of the ITC infrastructure is very high – Romania is ranked 5th in the world in terms of internet connection speed, according to a top made by bloomberg.com and 9 of the world’s top 15 cities with fastest broadband internet are in Romania.

The offshoring and outsourcing industry is rapidly evolving.

Although rebalancing sourcing strategies and choosing sourcing locations will always depend on the type of work involved, Romania is fast becoming an outsourcing destination of choice for companies seeking high-level language skills, large pools of talent, low-cost skilled labour and economic and social stability. All these are key for customer care and to deliver customer service excellence. Romania today represents, a sizeable and promising, opportunity as a BPO nearshore “smart” sourcing location, s

About the author

Paolo Marcattilj is currently shareholder, administrator, and UK director at Global Remote Services, Romanian independent Contact Center providing outsourcing services for organizations from across Europe. Originally from Italy, Paolo holds an MBA from the SDA Bocconi School of Management and an Engineering degree from Pisa University. Formerly business consultant at McKinsey & Co, and then top manager at blue-chips and multinational companies, his key areas of expertise include change management, marketing strategy, business process re-engineering, and operational effectiveness.