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ITO Landscape in Eastern Europe

By Elena Kozlovskya

The Global outsourcing industry is switching its focus from simple labour arbitrage to sophisticated models of expertise-based solutions. Eastern Europe is at the forefront of this change.

In a normal IT outsourcing scenario, the customer brings the vision for a particular project, hiring programmers for several months to execute this vision. When the project is complete, the outsourcing company receives its payment and the customer receives full IP for the innovation. After the innovation is in place, it becomes the customer’s responsibility on how to commercialise it, sell it, and capitalise on it.

There are many regions in the world with good IT capabilities. Historically, the countries in Scandinavia, the United States, UK, Israel were the owners of innovations, while the actual development was outsourced to places with cheaper labour like India, South East Asia, Eastern Europe.

Eastern Europe has quickly gained its popularity as an outsourcing player for its high quality, solid programming skills and rich engineering heritage accumulated during the times of USSR at this strategic technology zone covering current countries like Belarus, Lithuania, Ukraine, Latvia, Estonia.

Though if we look at the size of the Eastern European market, it can all squeeze in the size of Google alone. To compare, the biggest IT company in Eastern Europe employs around 10,000 people, while in Asia you can find companies employing over 100,000 people. To date, the average outsourcing rate in Eastern Europe is US$35 per hour, or around US$5,600 per developer per month. The market of Eastern Europe is already experiencing the lack of resources, which creates the constant increase in payrolls.

UNIQUE POSITION

Contrary to Asian vendors, Eastern European vendors cannot make much profits if they staff big teams, while Asian vendors have a comparatively “unlimited” resource pool. This puts Eastern Europe in unique position to be able to offer both cheaper services compared to local providers, and also cost effective complex solution with minimum labour involved. Thus, while competing on global arena, the Eastern European focus is to seek for labour effectiveness, accumulated knowledge base and solution delivery, rather then just selling IT heads.

IS IT SOMETHING NEW?

In fact no, the pioneers in corporate solution based approach are the companies Microsoft and SAP. These companies were getting in competition with outsourcing vendors by focusing on creating unique “solutions catalogue” to cater to corporate clients. By executing this strategy they not only created the competition to Asian outsourcing giants, but even made them absorb their framework and won the admission to Big 4 Outsourcing consultancy circle.

Microsoft is known to be the most effective Partners Networks strategists. It has successfully acquired Navision and Axapta companies (currently MS Dynamics Nav and AX) – turning them into own modules under the Microsoft brand. Or look at Facebook, which buys out small innovative teams for incredible amount of money, which demonstrates how high they value the expertise in specific fields.

IT business owners in Eastern Europe feel the pressure of high expenses and have to react by offering additional value. There are more and more companies evolving with the expertise based offerings, product components tailored to particular business challenges in different domains and technologies. This also fostered the creation of a startup movement in Eastern Europe around three years ago for new businesses. So, companies became mature enough to face the competition at global level while delivering solutions.

DEMANDING CLIENTS

Customers are becoming more experienced and demanding, and are not ready to pay by the hour for the solutions that they can get even for free. So, while cost advantage is not the best selling point, local IT companies have to evolve to that change, or die, being swallowed by more effective business partners.

While working at a big outsourcing company, I was in charge of handling customers’ requests. There were around 30 qualified requests coming in on a daily basis with the requests for quotes for different innovative products and services … and all of them were repetitive. All of them were trying to address similar challenges in slightly different ways.

There will be the time when outsourcing companies will have to stop writing the majority of code from scratch, because it has already been written, re-written and re-rewritten before. There will be no other way but commercialisation of the expertise.

Big outsourcing companies have huge accumulated experience to address business challenges and consult customers on the best way to resolve their problem. So, outsourcing buyers who are developing specifications in-house are often denying themselves the views of an outsourcing vendor.

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