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Outsourcing Romania – moving to Tier 2 towns, pluses and challenges

Developing Tier 2 towns is on European Union agenda since economical situation of Tier 2 towns started to undermine the achievements of Tier 1 towns with impact on  local economies.The importance of these issues has been underlined by the publication of EU 2020, The 5th Cohesion Report/The Territorial Agenda 2020 – the report draws attention on the need for an explicit discussion about cities and their contribution to a balanced territorial development across Europe.

Outsourcing Romania – How we define a Tier 2 town?

According with European Institute for Urban Affairs (UK) we define as Tier 2 towns those cities outside the capital whose economic and social performance is sufficiently important to affect the potential performance of the national economy.

It does not imply that they are less important than the capital cities. It certainly does not mean that they are second class. And it does not mean they are the ‘second’ city – because there is only one of these in each country.

Second tier cities are not all the same – they vary enormously. Sometimes they are very large regional capitals. Sometimes they are the second largest city of the country with huge national significance But many are much smaller. However, while they differ in many respects, second tier cities can play comparable national economic roles.

 

In Romania while Tier 1 city is considered Bucharest, Tier 2 are considered towns with good infrastructure, more than 120,000 inhabitants, reasonable pool of resources, positive population growth rate, universities, good real estate offer, skills/competences. (See distribution of BPO/Business Services per towns based on ABSL Romania report 2015).

tier 2 towns

When companies are choosing to move their BPO/Outsourcing business to Tier 2/Tier 3 towns?

  • We can have companies with financial potential but they will choose to expand also in T2 in order to have a more diverse offer to their customers;
  • When they cannot afford anymore the Bucharest competition or they cannot find anymore the extra skills that they need for their fast expansion;
  • T3 – we all witnessed a fast growing pace of RO outsourcing industry and in T3 are going companies which needs to expand fast, which are hunters, they look for a niche or they can cover their need by investing in a T3 town.

 

The positives of moving an outsourcing business to Tier 2 towns:

  • Considering that 20% of BPO companies present in RO mentioned that they have expansion plans for the next 2 years – expansion in T2, T3 can let Bucharest to breathe, this will have an impact on the battle of resources and skills, will slow down the Bucharest staff attrition a little bit.
  • Expanding BPO/Business Services in T2, T3 will ensure job opportunities, decrease in local unemployment rate, development of real estate and others.
  • Local employee mentalities will change, they will be more open to relocation.
  • More and more companies will be able to experiment handling outsourcing business from multiple Romanian locations, they will increase the diversity of their offer and they will be able to attract more investors.

 

Potential minuses: 

  • Pressure on local pool of resources; Unfair competition; Launching a battle of offers because sometimes is much easier to hire an already trained candidate rather than investing in his development; Not all the companies are ready to invest in talent development because their customers are asking for fast performance so hunting the best local skills will become a priority, a priority which may affect other local outsourcing businesses.
  • The local culture: Tier 2 towns employees are not used with multinational companies standards and working pace, you may have trouble making them to stay extra hours or to retain them while their dream is to migrate to Germany (if they are German speakers) or to Spain/Italy if their relatives are already there. Sometimes they follow the family tradition and they will not change their job from one of the traditional local industry to BPO. On the other hand Tier 2 employees will tend to not change companies so easily as employees from Tier 1.
  • Sometimes local HR departments are looking for quick fixes instead of implementing talent management processes or employee development programs which will increase tensions between local BPO providers.

 

In 2006 when I witnessed the process of moving from Tier 1 to Tier 2 towns in Romania, everybody was worried about Romanian outsourcing future. In time we demonstrated that we can be creative and we can look for new ways to deliver performance using the resources available even in non traditional places, implementing strong partnership with education institutions or remote working. So do not stop exploring new ways of generating performance, look for Tier 3 towns especially if they have local universities and pioneer new ways of delivering quality services!

Author: Amalia Sterescu

Outsourcing Advisors Founder

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