Outsourcing – a view on the past and future – worldwide and in Romania
Article written by Amalia Sterescu, Senior Business Consultant, CEO and founder Outsourcing Advisors
Outsourcing – a view on the past and future – worldwide and in Romania
Many things have been said about the Outsourcing business in the past years – some of them praising the industry (placing the focus on organizations that are concentrated in using their valuable resources and focusing on with their core competencies while contracting third party providers who can carry on innovating on the non-core processes) and some of them not so flattering in regards to the jobs that have been sent overseas, in order to cut down costs. The pro’s and con’s remain balanced but we cannot ignore the fact that the Outsourcing business has risen in the last decades and a great number of companies have focused their attention towards areas that provide the best services suitable for their business needs.
Money is a tool of the past. An investment in knowledge pays the best interest
Global outsourcing has been continuously growing, with more and more Western European and North American companies seeking to open shared service centers, outsource products or manufacture in countries where they were offered relatively low wages. If costs may have been the main concern in the past, companies have now recognized the value of quality delivery and flexibility. They are now focused on superior services, geographical advantages, gainful business environment and stable economies.
Outsourcers that are searching to open shared service centers for support or other operational lines of business are more and more focused on countries that have a reputation for their educated workforce and language skills and that have as a resource a great number of specialists in terms of IT and finance. Their expectations are higher, and their investments are more sophisticated. They are aiming towards states that are active, powerful and with a high potential for future development.
Small companies make a statement
If we are used to hearing about Outsourcing giants opening Shared Service Centers around the world is because they have, indeed, been the pioneers in the industry. But in the last years, mentalities have changed while medium and small companies have also taken the steps towards off shoring their non core competencies. They have also understood that the competition is getting its strength from focusing on what they do best while leaving the true outsourcing professionals handling their secondary lines of business. It’s no surprise that at present, small companies provide most jobs in America and Europe, and most of the economic growth. Big companies create headlines but the greatest impact is elsewhere and almost invisible. The UK has 3.3 million companies. If each one takes on just one more person on average, the result would be more than 3 million new jobs, and that is what has happened in the last few years, with unemployment at very low levels despite several million people added to the labour force. Yet 6,000 redundancies at a factory is mistakenly seen as a national crisis (source in numbers: globalchange.com).
The outsourcing map – forever changing
The choice for the perfect Outsourcing location is never an easy task as companies seek to receive the best deal in terms of costs versus efficiency. For many years, India remained the undisputed leader in offshore outsourcing, and there is no question why: the country offers its financial benefits and produces over 870,000 new IT graduates/year. According to a study made public by Gartner, at the beginning of the 2000’s, India accounted for 90% of the total offshore revenue. At present, India is still making a statement with its already well known cities such as Bangalore, Mumbai and Delhi, but the interest has somehow switched towards Asia Pacific. The Philippines (with the city of Manila) have earned a second position in the top Outsourcing destinations of the world (according to a study published by Tholons at the beginning of 2015). The same report makes us look in interest towards South America as well (Columbia and Guatemala are just two of the countries that have shown a fast growth in the previous year from this point of view).
Europe, as an Outsourcing location, is not to be overlooked at all: it presents itself as a stable location, with Kraków still leading the list as the most desired city to outsource the non core competencies. Dublin (a long-time hub for the shared services industry – and home to SSCs for well-known brands) is also a city to be considered along side with Prague (still one of Europe’s strongest centers for outsourcing).
Romania – always surprising
When talking about Romania as an outsourcing destination I am proud to mention the fact that our country has maintained a stable, well-deserved top-side place on the global outsourcing map. According to the same Tholons review mentioned above– a review that focuses on the first 100 outsourcing worldwide locations – Romania, through Bucharest ( the most important outsourcing city in the country ) reached the 44th position. It would be most desired that this chart would also include other Romanian large cities as Cluj – that already has a strong outsourcing community – or Iasi, Brasov and Sibiu. But the future looks bright and these cities have all the advantages on their side to develop as true and most desired Outsourcing destinations as well.
The wind of change
Even though the Outsourcing line of business is highly challenging and perhaps lacks the maximum assistance from the state, companies in Romania are currently developing and growing their businesses while providing jobs for hundreds of professionals. The wind of change started to blow back in 2012 when several decisions of the government were taken for implementing a support scheme by the state to come in the investors’ help in different fields. The maximal value per company being approximately 28mil Euro. In order to obtain the state aid financing, the applicant had to demonstrate, among others, that the project will create and maintain a minimum number of new jobs, financial ratios and results, which over the next years will translate into profit tax, property tax and social security contributions in an aggregate amount at least equal to the state aid received. During the five year post-implementation, the project is to be subject to detailed monitoring period to ensure that these commitments are kept.
The reverse of the coin, however, looks promising: companies will be more competitive in terms of pricing, they will be given the opportunity to develop further and will be provided with the funds to create subsidiaries in other Romanian cities, not only Bucharest. We must not also forget about the numerous jobs and working places created for young professionals in Romania.
The number and most of all the names of the companies that acquired this state aid looks promising! We can outline many important Outsourcing giants – all of them currently having important outsourcing centers in various cities in Romania:
The IT market represents the fastest growing sector in Romania at the moment has demonstrated growth in rates each year. To make a comparison, the IT market in our country grew 4.3% year on year since 2012 (when it reached a reach a value of $2.92 billion) and is expected to grow over the next five years to total $3.37 billion in 2017.
Furthermore, Romania’s IT services offshore market reached approximately $485 million in 2012 (excluding the export of pure licenses) and is expected to accelerate its impetus in the next years ( as per the info provided by the Outsourcing Guide Romania).
Our country will continue to provide good off shoring conditions (appropriate labor force and adequate business environment) and it will consolidate its name further as an affordable region ( in terms of labor costs, property costs and inflation level).