Central and Eastern European countries like
Poland and Romania are strong spots on the global outsourcing map

Globalization & Integration Group Project

Table of Contents Abstract 3 Introduction 3 Poland 4 Significant savings costs 5 Ability and quality of resources 5 Low risk location 5 Culture Similarity 6 Investment Climate 6 article 7 Romania 8 Government support and business environment 9 Quality of the language and educational skills 9 Low labor costs 10 Culture 10 Intellectual property security and privacy 10 article 11 Comparison 12 Cost competiveness 12 Resources and skills 13 Economic competitiveness 13 Regulation 13 Corruption perception 14 Legal protection 14 Conclusion 14 References 14

Abstract

In this paper, we discuss why are the Eastern European countries like Romania and Poland potential destination for outsourcing. Given an economic condition, Geographical advantage, business environment and quality issue explanation of each country. Both countries are economically competitive in outsourcing market in Eastern Europe, promptly emerging as a favorite destination.

Introduction

Outsourcing is a practice used externally in order to reduce costs by transferring works to outside of suppliers that it considered as an effective cost-saving strategy within a country’s borders and popular as doing so internationally.
On the other hand, Offshoring is referred to as a subset of outsourcing that having the outsourced business functions completed in overseas.
According to Kyle Blaine, ABC News, outsourcing occurs when a company contracts with a third party who is specialized in its process and offshoring happens when businesses send in-house jobs abroad that both are used to save a company’s money.
Global outsourcing has been continuously growing, especially Western European companies seeking to outsource product and manufacture in the countries where offers relatively low wages, low risk profile for key factors, cultural and geographical proximity to Western Europe.
Most of all, Poland and Romania have chosen as a potential outsourcing destination due to their educated workforce, lower wages, economic and political stability.
Both nations are the biggest outsourcing sector in IT industry, have great reputations due to the language skills, high quality, possessing many specialist in terms of IT and finance.
Poland and Romania are active, powerful and developing regions that position as competitive alternative to other global IT and business process outsourcing destinations.

Poland
Population: 38.5 million

Language: Polish (official), Kashubian

Education:
Adult literacy rate – 99.5% {23rd best in the world}

GDP (nominal):
Per capita - $20,334
Total - $ 514 billion
Population: 38.5 million

Language: Polish (official), Kashubian

Education:
Adult literacy rate – 99.5% {23rd best in the world}

GDP (nominal):
Per capita - $20,334
Total - $ 514 billion

Poland is one of the fastest developing countries in Central Europe. Even in the midst of the global economic crisis, Poland is one of the countries that were able to maintain economic stability. Poland has achieved a high GDP growth in the midst of global economic problems.
Among the population, most of the people have average age of 35-40 years, which makes the country one of the youngest in Europe by population.
In addition, the location of Poland in the middle of Europe is essential, which the country is located in the central point of the network connection and communication structures do not differ from the Western European in terms of quality. Based on the facts given by research, we can safely conclude that Poland is by far the most potential country in Europe in terms of outsourcing.
The biggest part of outsourcing focuses on IT and BPO (business processes offshoring) and this trend continues to accelerate.
According to the largest IT outsourcing companies outsourcing services in Poland will grow in large and medium-sized enterprises, particularly in the manufacturing and financial sectors.
Poland has a lot of experts in software products focused on embedding systems, business intelligence, human resources, banking, and accounting.
The best evidence of the Polish market for outsourcing can be found in the fact that the world's largest corporations like Microsoft, HP, Google, Oracle, IBM, SAP already have invested in Poland market IT-services.

Poland has become the world’s outsourcing destination due to the following reasons:

Significant savings costs

Many European organizations have been discussing the issue of cost reduction and increasing overall profits. Outsourcing in Poland gives access to cost-effective services. Poland offers the same service with the same quality with a much lower price than in other countries. In addition, In Poland, IT professionals meet the highest quality standard with low labor costs.

Ability and quality of resources

Poland has a large number of highly qualified specialists. Poland has the largest number of scientific centers and produces a large number of graduates, about 40,000 per year. Krakow is considered "Oxford Poland" there is seven universities that have a good reputation for producing highly skilled, multilingual graduates each year. High number of excellent graduates each year but better the graduates come from a wide range of areas such as engineering, medicine, economics, IT, languages, administration and management. Krakow’s position as the academic, scientific and research ‘capital’ of Poland feeds perfectly into these requirements.
Furthermore, Polish programmers have strong academic backgrounds and rank rather highly in global ratings. Even some of the best-known technology companies in the world, such as Google, Motorola, and IBM have opened research centers in Poland.

Low risk location

Choosing a location for BPO requirements is largely a question of risk versus reward. The advantages for outsource the business-processes include significant cost savings, improved process performance. The risks mainly relate to the alleged loss of control, which accompanies the movement in BPO in the organizations. This is a natural reaction for organizations that use BPO service providers, especially the first time. The geographical position of the city of Krakow and the abundance of companies, which are already there, in combination with the EU and the upcoming arrival of a single currency means that this is a very low risk of outsourcing location.

Culture Similarity

It is important to choose right place for outsourcing, which in the cultural aligned on them in own country or countries in which the majority of clients are. There should be cultural and linguistic similarities in order to prevent the perception of the trip will appear. The development of outsourcing is headquartered in Poland, where is a cultural and linguistic are in line with the Western world of business.

Investment Climate

Poland each year attracts more foreign direct investment. Throughout the years in Poland become modern BPO services, which is reflected in investments made by international corporations.

Outsourcing in Poland helps to reduce costs, increase revenues, to improve customer service. Key assets in Poland are trained and educated staff, economic stability, the depreciation of the local currency and political stability. Of all the facts, we can say that Poland remains an attractive location for outsourcing for a long time.

Article: Poland – A strong sopt on a global outsourcing map

Romania
Population: 21 million

Language: Romanian (official), Hungarian, Ukrainian, German, Serbian

Education:
Adult literacy rate – 97.3% {52nd best in the world}

GDP (nominal):
Per capita - $8.029
Total - $ 171 billion

Population: 21 million

Language: Romanian (official), Hungarian, Ukrainian, German, Serbian

Education:
Adult literacy rate – 97.3% {52nd best in the world}

GDP (nominal):
Per capita - $8.029
Total - $ 171 billion

Romania is one of the preferred destinations for offshoring and outsourcing. Nowadays it is the major player on the outsourcing market such as, China, India, Philippines, Poland, Ukraine, etc. There are some of the company examples that have established their businesses in Romania including: Siemens, Motorola, Alcatel, HP, Oracle, Xerox, Bosch, Nokia, Boeing and Intel. It is interesting to know, that the most popular field for outsourcing in Romania is IT. At the moment are more than 1,000 IT companies, roughly 90% of which are foreign-owned.
Today, Romania is near the top of anyone’s list for best place to outsource. In order to have a clear understanding why Romania is good place for outsourcing, first needs to question, is there enough resource, knowledge and reliability; is the foreign company's organization is reliable; how the communication will develop; how the structure of the project will work out; how the financial and legal aspects will be noticed.
One of the most important facts to consider is that since 2007, Romania becomes a part of the EU, which is significant for outsourcing and offshoring. The Gross Domestic Product at the moment is $274.070 billion (source: “Romania”. International Monetary Fund. Retrieved 9 October 2012.)
In addition, the cultural diversity and the number of the population play a big role. Now there are about 22 million people from different origins who can speak languages such as, English, Hungarian, German, Romani, Serbian and some Russian. After becoming the part of the EU, the government changed its tax system and made Romania as a “nation with the lowest fiscal burdens in the EU”, so the country is seeing the improvement and expecting the growth.

Romania has become the world’s outsourcing destination due to the following reasons:

Government support and business environment

The government implemented a set of measures in order to attract foreign business into the country. These include accelerating the construction of an information society, education, training, and developing country’s infrastructure. Moreover, Romania has also signed several trade agreements with foreign companies and offers different benefits to attract investments into the country. Romania has provided improvements in terms of freedom of expression, employment and judicial system. Its consistent with European standards has been adopted to create a favorable economic environment for the media. The Romanian government supports foreign investors and it gives the opportunity to improve Romania’s economy with the help of EU programs as it positively influences on the creation of new jobs as well as tax payments.

Quality of the language and educational skills

Multinational firms have opened centers and competition for skilled labor is high, as Romania is known for its language diversity. A large percentage of the population is multilingual: service providers can easily find English, French, German and Italian speaking labor force. The Eastern European Translators Association classed Romanians as “the best foreign language speakers in Eastern Europe" Romania is the only place in the world that can deliver outsourcing services in terms of language skills, advanced quality level and no additional investment in training. On top of that, education is becoming more developed nowadays, especially in IT and business management fields. There are more than 100 universities in the country now with professionals in those areas, which make Romania a big competitor among other European countries in terms of educated talent.

Low labor costs

There is a tendency of rising in Romania due to the fact that labor wages low compare to those Western European nations and the US. This fact makes Romania as an attractive country to do business due to saving the cost more than 50%.

Culture

The culture, along with a good geographical location, time zone small difference and high-quality education, make Romania an excellent place for foreigners. If we compare the country to the leading outsourcing countries like China and India, it will have a competitive advantage over them. Romanian culture and people’s mindsets are similar to all the other cultures in Europe as well as US.

Intellectual property security and privacy

In order to develop and raise the economy, Romania is improving the intellectual property (IP) privacy protection for its outsourcers. It is a full member of the EU, WTO and many other trade associations. To satisfy foreign firm’s needs and avoid the problems, Romania is under the supervision of the EU and there are strict punishments for e-commerce crimes.

As a result, a great manpower, the innovative solutions, the effective costs and the positive inclinations the government is showing towards the development of technology led Romania to one of the best place for global outsourcing.

Article: Romania is in top ten globally for outsourcing, growth in cities across the country expected to continue.

Comparison

The outsourcing market in Eastern Central Europe keeps growing, mostly due to the rise of new markets for Business Process Outsourcing and Knowledge Process Outsourcing. Poland is still the biggest outsourcing destination in Eastern Europe that are ranked 16th worldwide in the outsourcing index. Poland is also ranked third after China and India for shared services centers and business process outsourcing in the world. Poland has a growing economy and has now the sixth largest economy in the EU and one of the most dynamic and productive economies in Eastern Central Europe. Despite the economic crisis, Poland was able to maintain its economic stability due to the depreciation of the Zloty but Poland achieved the highest GDP growth of the EU.

Although Poland is the biggest outsourcing destination in Eastern Central Europe, it becomes more competitive like Romania. Romania's outsourcing industry in BPO and KPO is growing quickly, mainly due to their lower wages. Romania is ranked ninth among offshoring locations by the number of jobs created. Between 2008 and 2012, they have created 11,438 jobs in Romania as a result of outsourcing 40 projects, which is only 2,000 less than in Poland, a country that is almost twice as large in terms of population. Romania is strong in the following areas: mechanical engineering sourcing, research and development, systems integration and security and embedded software development outsourcing. In addition, Romania became a popular destination for antivirus software development as well.

Cost competiveness

Poland is ranked 24th for the cost competiveness. Poland has many large regional business centers outside the central districts, which is major advantage for offshoring companies due to the fact that those districts have lowers costs. This is important for companies in order to save up on their expenditures. The wages in Poland are also cheaper than other countries in the EU. The minimum wage in Poland is 329 euro/month. This is only 23% of the minimum wage in Belgium.

Romania on the other hand, is known for its low labor costs compared to other EU states. The minimum wage in Romania is around 157 euro/month, which is 47% of the minimum wage in Poland and only 10% of the minimum wage in Belgium. The tax rates in Romania are relatively low that is around 16%.

Resources and skills

The biggest outsourcing sector in Poland is the exports of computer and information services. Poland has an excellent reputation within the IT industry. They were able to attract some of the best technology firms in the world, included Motorola, IBM, Google, etc. They all have established their own research center in Poland. Many companies invest in Poland due to the fact that they have one of the best-educated populations in Europe.
Four Polish universities have been included in the top 25 schools in the world. Poland has an average of 533,000 university graduates every year, which are six times the graduates produced in India. Poland is a great location for the IT industry to offshore or outsources their operations and most of the people speak fluently English, which is an advantage factors for global outsourcing.

Romanians are also able to speak multiple languages including English and they have a high level of engineering and economics education. Companies that have established their businesses in Romania are Wipro, Siemens, Motorola, Alcatel, HP, Oracle, etc.

Economic competitiveness

The economic competitiveness is an important factor for long-term development of an outsourcing location. Poland has an above average overall index; they rank as 41st with an overall score of 4.5.

Romania has rank of 78th on the economic competitiveness with an overall score of 4.1.

Regulation

Poland has rank of 55th in an ease of doing business; on the other hand, Romania has rank of 72nd. Although, the level of complexity in starting a new business for Poland is average (ranked 124th) compared to Romania (ranked 68th).

Corruption perception

Poland has rank of 41st in the corruption perception index with a score of 58, while Romania has rank of 66th with a score of 44. Specifically, there is a serious corruption problem in Romania, compare to Poland that Romania needs to improve its reputation as one of the most corrupted countries.

Legal protection

A nation's economic competitiveness is correlated with its complexity in enforcing contracts. Poland has rank of 56th in the list of enforcing contracts. There are 33 procedures to enforce a contract, which takes around 685 days.

Romania has rank of 60th in the list of enforcing contracts. There are 32 procedures to enforce a contract, which takes 512 days.

Conclusion

References

* Kyle Blaine. (2012). Outsourcing and Offshoring: Is There Really a Difference?. Available: http://abcnews.go.com/blogs/politics/2012/06/outsourcing-and-offshoring-is-there-really-a-difference/. Last accessed 14th Mar 2013.

* Blommestein, M. (2012). Poland feels the outsourcing heat as Romania, Ukraine step up the competition. Available: http://www.zdnet.com/poland-feels-the-outsourcing-heat-as-romania-ukraine-step-up-the-competition-7000005696/. Last accessed 14th March 2013.

* Stony Hill Group. (2009). Global Services & Outsourcing Locations.Available: http://www.sourcingline.com/outsourcing-location/romania. Last accessed 13th March 2013. * Audoin, Pierre . (2003). Advantages of Romania. Available: http://www.auximus.com/why-nearshoring/advantages-romania.html. Last accessed 13th March 2013.

* TRADING ECONOMICS . (2012). POLAND GDP. Available: http://www.tradingeconomics.com/poland/gdp. Last accessed 14.03.2012.

* Dania International. (2011). Poland as your outsourcing destination. Available: http://www.daniainternational.dk/271.asp. Last accessed 14.03.2012.

* GoalEurope. (2011). Multilingualism – Poland’s Outsourcing Advantage. Available: http://goaleurope.com/2011/09/06/multilingualism-poland-outsourcing-advantage/. Last accessed 14.03.2012.

* (2012). ease of doing business. Available: http://www.doingbusiness.org/data/exploreeconomies/poland/. Last accessed 14th March 2013.

* (2012). CORRUPTION PERCEPTIONS INDEX 2012. Available: http://www.transparency.org/cpi2012/results. Last accessed 14th March 2013.

* Romania. Available: http://www.sourcingline.com/outsourcing-location/romania. Last accessed 14th March 2013.

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[ 1 ]. Kyle Blaine. (2012). Outsourcing and Offshoring: Is There Really a Difference?. Available: http://abcnews.go.com/blogs/politics/2012/06/outsourcing-and-offshoring-is-there-really-a-difference/. Last accessed 14th Mar 2013.
[ 2 ]. TRADING ECONOMICS . (2012). POLAND GDP. Available: http://www.tradingeconomics.com/poland/gdp. Last accessed 14.03.2012.
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[ 4 ]. GoalEurope. (2011). Multilingualism – Poland’s Outsourcing Advantage. Available: http://goaleurope.com/2011/09/06/multilingualism-poland-outsourcing-advantage/. Last accessed 14.03.2012.
[ 5 ]. Stony Hill Group. (2009). Global Services & Outsourcing Locations.Available: http://www.sourcingline.com/outsourcing-location/romania. Last accessed 13th March 2013.
[ 6 ]. Audoin, Pierre . (2003). Advantages of Romania. Available: http://www.auximus.com/why-nearshoring/advantages-romania.html. Last accessed 13th March 2013.
[ 7 ]. Blommestein, M. (2012). Poland feels the outsourcing heat as Romania, Ukraine step up the competition. Available: http://www.zdnet.com/poland-feels-the-outsourcing-heat-as-romania-ukraine-step-up-the-competition-7000005696/. Last accessed 14th March 2013.
[ 8 ]. /. (2012). ease of doing business. Available: http://www.doingbusiness.org/data/exploreeconomies/poland/. Last accessed 14th March 2013.
[ 9 ]. /. (2012). CORRUPTION PERCEPTIONS INDEX 2012. Available: http://www.transparency.org/cpi2012/results. Last accessed 14th March 2013.
[ 10 ]. /. (/). Romania. Available: http://www.sourcingline.com/outsourcing-location/romania. Last accessed 14th March 2013.