Road to Romania: The Next Breakout BPO Nation?
We recently discovered this interesting analysis written by Dan Berthiaume ( writer, editor, and analyst with almost 20 years of experience covering business, IT) about Romania’s high potential as future BPO Nation. Please find below his arguments:
Romania a member of the European Union since 2007 is one of the emerging destinations for IT outsourcing. The Information and Communications Technology market in Romania is estimated to be around $5 Billion putting it ahead of other regional powerhouses like Poland and Bulgaria. With its accession to the EU, prospects for IT outsourcing have improved as the harmonization of the laws and regulations and access to the common market means that the country can now launch itself into the global market as well as the European market. With its population of 22 Million, many of whom are well versed in technical skills, the country is poised to reap the demographic dividend. Added to this is the fact that the progressive system of taxation has been adopted in the country, which is a climb down from the socialist era of high taxation. Further, Romania has been more or less insulated from the European debt crisis as it has managed to mend its finances and become competitive to attract investment.
Though Romania has been the victim of a brain drain in the 1990s when waves of Romanian engineers left the country because of its crumbling political and economic system in the aftermath of the collapse of communism, many of them have returned bringing with them their rich expertise. Of course, this has jacked up the salaries as well leading to a dent in the cost competitiveness of the Romanian IT sector. The point to be noted is that while Romania has the labor advantage, it can do more with respect to costs of labor as this has been constraining the growth of the outsourcing sector. Considering the fact that IT outsourcing is primarily driven by cost considerations, this is a pointer to the policymakers to take note and improve its competitiveness.
Resources and Skills
With a total workforce nearing a Million and an estimated 64,000 IT specialists, the country is endowed well in the resources front. Indeed, with exports of nearly a Billion USD from the IT sector, the country is ahead of Poland and Philippines that are considered heavyweights in their own right. Of course, Romania is still way behind China and India that have clocked impressive growth rates over the last few decades. The key aspect here is that the country has the requisite infrastructure and the IT networks are well equipped. Hence, if it can attract migrants from recession-hit countries like Ireland and others in the EU, the country can leapfrog the limitations of having a resource base that is miniscule when compared to Asian standards.
Business and Economic Environment
The country has been ranked moderately in the competitiveness index because it has fluctuated from being called a “Tiger” economy a few years ago to a situation where growth has cooled down a bit. One reason for this is the slackening of demand for IT outsourcing across the EU in the wake of the debt crisis. The other reason is that the high levels of corruption have dented the competitiveness of its economy leading to calls for reform from concerned economists and policymakers. Of course, this is an aspect that dogs the growth stories of China and India as well and hence, Romania can take a leaf out of their book to harmonize the prevalence of graft coexisting with high growth rates. The biggest advantage that Romania has is that the regulations are business friendly and unlike the Asian countries, there is no policy paralysis or logjam because of bureaucratic and political factors. Indeed, it has been ranked much ahead of the Asian IT juggernauts where the aspect of ease of doing business is concerned. It takes an average of 10 days to start a business in Romania, which contrasts favorably when compared with other IT outsourcing destinations.
Aspirations and Realities
Romania is on the road to reform and this has implications for the other European countries that fancy themselves as IT powerhouses. Though Romania can only aspire to be a limited player globally because of its size, the regional competition is one area where it can win easily. The point to be noted here is that whereas Romania can only stare agape at China and India, it can look down upon Poland and Ireland that are the basis of comparison. If it can rein in its pervasive corruption and bring down its high labor costs, there is no reason why it cannot emerge as a hot destination for IT outsourcing. A note of caution is due and that has to do with managing its finances. Given the rapidly spreading EU debt crisis, the least that Romania can do is to insulate itself from the crisis and ensure that its competitiveness is intact and its IT outsourcing sector flourishing.