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IT outsourcing

December 16, 2010

A new industry report says IT outsourcing to Eastern Europe is up to 3.7 billion euros annually. That's a 23 percent rise over last year, as Western European tech companies discover the benefits in their backyard.

A man at a computer
Outsourcing is up over 20 percent in Eastern EuropeImage: Nate Tabak

It's morning at Appdec in Pristina, Kosovo, and Betim Drenica's development team is hard at work.

A flock of twenty-somethings sit glued to their computers, coding, as the 24-year-old chief development officer surveys his flock of Europe's newest generation of information technology professionals.

"Here, we have different projects," Drenica says. "We have finance software we are trying to put to market. This software is very complex and they are, as you can see, developing freely, without any need to help. But if we see for example, next to this monitor, they are developing very sensitive software for small arms control."

Yes, Kosovar interns working on a system to allow the country's nascent law enforcement authorities to track guns. It's a pretty big responsibility for interns, and some even work for free in exchange for training on the latest software development platforms.

A notepad and notes
Siemens and Deutsche Telekom are amongst two major Western European companies currently outsourcing to Eastern and Central EuropeImage: Nate Tabak

Outsourcing is booming

Despite being in one of Europe's most improvised nations, these young people are poised to enter a gold rush happening in central and eastern Europe. IT outsourcing in the region has become a huge business - 3 billion euros ($3.9 billion) in 2009, and it's expected to hit 3.7 billion euros this year, according to a new report from the Central and Eastern European Outsourcing Association, an industry trade group.

Keen to cut costs, Western European companies are increasingly sending tech work eastward. Deutsche Bank has some of its software developed in Ukraine, while Siemens has a research and development center in Romania. Those countries also are seeing the largest growth in IT outsourcing.

Furthermore, with the exception of the Baltic states, countries from Bulgaria to Slovakia defied an economic downturn as the number of the number of IT specialists working for outsourcing companies grew to almost 100,000 people, according to the report.

It's quite a big number and it means it outsourcing and services in Central and Eastern Europe are developing very fast," says Andriy Cherevko of Softserve, an outsourcing firm that sponsored the study.

Kosovo's unemployment remains high

The IT industry is still very new here in Kosovo, but it offers a glimmer of hope for an otherwise dismal economy, where unemployment exceeds 40 percent. Widespread internet access didn't arrive until after the war with Serbia ended in 1999.

Still, Kosovo has the youngest population in Europe, many of whom are well educated, tech savvy and eager to work.

It helps explains why Appdec - the software development firm in Pristina - has no shortage of talent. A junior developer might only make 500 euros per month. That's a pittance by Western European standards. However, it's more than twice the average wage in Europe's newest country.

For Adem Gashi, a 25-year-old Appdec web specialist, his job isn't just about having a decent wage. It's also about helping his country without having to leave it in search of work.

"I kind of feel that I'm chosen to work in IT in Kosovo," Gashi says. "I can work in tele-presence, tele-remote working; I can do outsourcing from here, but I'm not going to leave my country.

People coding at computers
Countries like Kosovo have an advantage over other outsourcing hotspots like India, as they are physically closer to Western EuropeImage: Nate Tabak

After all, Kosovo is closer than India

Despite the fact that Kosovo, with its high poverty and broken infrastructure, seems a world away from Western Europe, it's no more than a few hours from the continent's major cities like Frankfurt, Athens or Rome. That makes it a key attraction for companies on the other side of the continent.

That proximity to the rest of Europe isn't lost on Joan de Boer when shuttles back and forth between Amsterdam and Pristina, where the 49-year-old Dutchman heads a web development firm called Sprigs.

"Wages are quite low here," de Boer says. "We can compete with India, actually, And still it's a European country. It's quite near - it's in the same time zone. And if there's a problem, you can actually get on a plane at 10 o'clock on the morning and be at a meeting in Amsterdam."

Sprigs' offices in Berlin, Amsterdam and Paris bring in work from Western European clients, but the jobs then go to a team in Pristina. De Boer says his developers create better work than their Western European counterparts, with an overall discount of about 20 percent.

Going forward, the Central and Eastern European Outsourcing Association sees continued growth in the region's IT sector.

But with more Western European companies catching on, the CEEOA reports that wages for these sought-after developers are rising. While it's good for the developers in the short-run, it potentially could make them less competitive with their western counterparts.

"They're well-educated, they have good universities - ok, they lag now because of the war," de Boer says. "But if the software developers that we have would work in a company in Amsterdam, you wouldn't tell that they're from Kosovo. They would just blend in with the rest."

Author: Nate Tabak, Pristina
Editor: Cyrus Farivar