EU Enlargement and Its Impact on Nearshoring Perspectives

Posted: May 19, 2010 in Benefits of nearshoring

The report made by the global management consulting organization A.T
Kearney Global Services Location Index, in which the agency analyzed
and ranked top 50 outsourcing destinations worldwide has brought some
surprises in terms of location delivery preferences for provision of IT
outsourcing services. While American and Asian clusters experienced no
significant changes during last year with all traditional leaders,
India, China and Malaysia retain their top positions, the biggest IT
outsourcing spender in 2009 namely European continent experienced
noticeable rearrangements in terms of location delivery preferences.

The
results of A.T Kearney analysis indicated that leading nearshoring
destinations in CEE region including Poland, the Czech Republic and
Hungary have fallen significantly in location ranking because of
increasing operating costs and wage inflation. While new regional
leaders, in terms of financial attractiveness, people skills and
business environment came to the scene.

The report data
suggest that the best score in Central and Esatern European region
earned recent EU entrants Romania and Bulgaria, while Russia and
Ukraine were scored well on cost grounds. The criteria the agency cited
were “salaries, infrastructure, taxes and financial attractiveness”.

Although,
the data from another research conducted by Deutsche Bank Research
indicated that many of German, Swiss and Austrian vendors still
outsource their IT activities to Poland, Czech, Slovak Republic and
Hungary, the overall shift towards Eastern neighbors becomes
increasingly evident. The first wave of popular nearshoring trend that
was commonly associated with Central European states has begun to
decline. With a lapse of time membership in EU minimized the cost
advantage as countries experienced rise in labor wages and development
costs.

Both, Romania and Bulgaria joined EU just in 2007 and
represent fast-developing markets with IT industry growth stronger than
average in the region. This trend is likely to continue as countries
offer large talent pool, good quality services and competitive rates.
However, in the long run the EU membership could minimize price
advantage that countries offer today. According to Natasha Starkell,
CEO of Goal Europe, the higher wages will push outsourcing further
east.

Source: Levi9 Global Sourcing

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