IT services goes nearshore

The current economic climate is forcing world-leading organisations to re-evaluate both their local and overseas IT outsourcing options to improve efficiency and costs. These organisations are now looking to balance their location risk by moving some IT spend away from offshore regions, such as India, and utilise other talent pools in new, nearshore locations.

This nearshore option is becoming more attractive for IT projects, due to time zone, proximity, cultural empathy and quality of work.

The nearshore option

When considering any offshore location criteria, decisions should be based not only on price, but on the quality of the labour pool and level of cultural empathy with the UK. Thankfully, new, ‘nearshore’ locations of central and Eastern Europe have emerged that are closer and more accessible to the UK than ‘traditional’ offshore locations.

These nearshore regions are becoming an increasingly attractive alternative for UK firms to outsource business process outsourcing, IT services and engineering projects. A particularly popular nearshore location is Romania – famous for the world’s 2nd largest building and of course Dracula.

Romania has made a huge leap in the IT outsourcing arena following EU entrance at the beginning of 2007 and is now a highly attractive destination. The country is a new offshore star in Europe according to the A.T. Kearney’s 2009 Global Services Location Index – ranking 19th and having the highest climb compared to all the other countries in the analysis (from A.T. Kearney report), while the other countries in the region have seen a decline in the rankings.

Romania’s well-established IT centres have been shortlisted by KPMG in the top 31 emerging locations worldwide for IT-BPO outsourcing, with Cluj-Napoca being the most interesting location in Romania after global companies like Nokia, Emerson, Office Depot, Genpact or Evalueserve opened subsidiaries here in 2008. (excerpt from KPMG report)

Apart from the common advantages of nearshore destinations, including similar time zone, cultural affinity, lower overhead related to project set-up (i.e. travel costs), which in the long term, reduce the overall risk of a project, Romania is seen as a unique location. It is easy to reach with a 2-3 hour flight from London, is a member of the EU and has 5 major IT clusters to choose from: Bucharest, Cluj, Timisoara, Iasi and Brasov.

IT talent

However, Romania’s key strength remains the availability of skilled IT services labour pools at competitive costs. (Gartner Research 2007)

The IT professionals in Romania are recognised for their technical excellence, as well as, for their strong engineering background – which comes from a long-established tradition in technical higher education. Each technology cluster has a top-tier technical university and about 8,000 graduates are added to the IT labour pool each year, while there is a pool of about 134,000 people for various technology-oriented jobs (Gartner Research 2007).

Also, the fact that many IT companies already have established a strong foothold here – including giants like Microsoft, Oracle, Siemens, Infineon, Alcatel, Freescale, EA Games etc. This contributes to building specialist skills in niche areas, high levels of technical proficiency in leading-edge technologies, as well as software skills.

Good communications with nearshore teams is also a major factor to consider. Romania is known for having a multilingual labour market and this has led to Oracle opening a call center in Bucharest that is operating in 13 languages. Technical staff possess excellent language skills – Gartner reports that 60% of the IT workforce speak English, but from our experience figures are actually higher and all our employees are fluent in English.

Competitive infrastructure

Due to increased demand for high-quality infrastructure, the telecom infrastructure is currently being modernised and office space is available at highest standards. All these combined with only a two-hour time difference makes daily communication and reporting very easy throughout the project lifecycle.

Moreover, the leu, which is Romania’s national currency, has recently depreciated and is contributing to the strengthening of Romanian IT outsourcing vendors’ competitiveness. In this way Romania has kept its lower cost profile compared to other member states in the region (Poland, Hungary, Czech Republic).

Romania’s nearshore capability is most powerful and valuable to outsourcing clients in the UK when applied to highly-transactional, complex IT projects with evolving business requirements and new technologies, where the quality of the engineering and development teams and trouble-free communications ensure project success.

Outsourcing trends / looking ahead

In the current economic environment, across the industry verticals, it is expected that the Financial Services sector will be most active in outsourcing projects due to dramatic budgets reductions and the consequential drive to find lower cost methods of delivery. This situation will bring new opportunities to outsourcing vendors in Romania holding deep industry expertise.

As Romania is an EU member state, banks and financial services organisations will find software engineering and development expertise within the EU in a legally- and politically-stable environment, enabling them to match their compliance requirements with cost-effective and rapid project delivery.

As the world adapts to new risks and constraints, the opportunities are larger than ever in Romania for companies that want to outsource IT services and BPO projects. The rewards will go to those companies first to identify them.

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John Cotterell is Chief Executive at Endava. John graduated from Manchester Business School on the Director’s List in 1988. John entered the Computer Services industry when he joined Hoskyns (now Capgemini), and has subsequently had a broad range of experience of business practices in the industry. Rotating successfully through a number of roles including Business Management, Project Management and Sales and Marketing At Capgemini, John set up the Business Process Outsourcing division taking it from a Greenfield start-up to 450 people. In February 2000 he founded Concise which merged with Compudava to form Endava in 2006. John recently won Ernst & Young Entrepreneur of the Year 2011, London & South.

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