Central Eastern Europe Outsourcing
Upcoming SlideShare
Loading in...5
×
 

Like this? Share it with your network

Share

Central Eastern Europe Outsourcing

on

  • 5,279 views

Presentatation at Culminatum Alumni meeting 30.5.2008

Presentatation at Culminatum Alumni meeting 30.5.2008

Statistics

Views

Total Views
5,279
Views on SlideShare
5,246
Embed Views
33

Actions

Likes
4
Downloads
292
Comments
2

6 Embeds 33

http://markkinoille.wordpress.com 11
http://www.slideshare.net 10
http://markkinoille.com 6
http://globat1dm01 4
http://ragrawal.wordpress.com 1
http://translate.googleusercontent.com 1

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
  • HI dear i am Priscilla by name, i read your profile and like to be in contact with you, that is why i drop this note for you, please i we like you to contact me in my privet mail box to enable me send my picture to you,and also tell you more about me thanks i we be waiting for your reply, (bernard_priscilla@yahoo.com)
    Are you sure you want to
    Your message goes here
    Processing…
  • Video is here: http://www.youtube.com/watch?v=W5BDxuvmDlk
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Central Eastern Europe Outsourcing Presentation Transcript

  • 1. Software R&D and Nearshoring in Central and South Eastern Europe - Still Unknown Opportunity in the Finnish ICT Business? Tommi Pelkonen Business Consultant Finpro © Finpro ry / / Hungary
  • 2. Software R&D and Nearshoring in Central and South Eastern Europe ★ Introduction and definitions ★ Outsourcing basics ★ CEM as market area ★ Conclusions and recommendations / © Finpro ry /
  • 3. Eastern Europe? History gives us keys to understand current situation in the area / © Finpro ry /
  • 4. Eastern Europe? History gives us keys to understand current situation in the area / © Finpro ry /
  • 5. Eastern Europe? History gives us keys to understand current situation in the area / © Finpro ry /
  • 6. Eastern Europe? History gives us keys to understand current situation in the area / © Finpro ry /
  • 7. Outsourcing? • A company’s / organisation’s process such as product design or manufacturing, carried out by a third-party company. • The decision to outsource is often made in the interest of: • lowering firm costs, redirecting • conserving energy directed at the competencies of a particular business, or • to make more efficient use of labor, capital, technology and resources. Source: Roland Berger, 2008 Outsourcing is now a common IT practice / © Finpro ry /
  • 8. Outsourcing? • A company’s / organisation’s process such as product design or manufacturing, carried out by a third-party company. • The decision to outsource is often made in the interest of: • lowering firm costs, redirecting • conserving energy directed at the competencies of a particular business, or • to make more efficient use of labor, capital, technology and resources. Source: Roland Berger, 2008 Outsourcing is now a common IT practice / © Finpro ry /
  • 9. How does it look like (for example)? Trend: from simple functions into complex operation sourcing / © Finpro ry /
  • 10. How does it look like (for example)? Trend: from simple functions into complex operation sourcing / © Finpro ry /
  • 11. Nearshoring? • Sourcing service activities to a foreign, lower-wage country that is relatively close in distance or time zone (or both). • The customer expects to benefit from one or more of the following constructs of proximity: • geographic, • temporal, • cultural • linguistic • economic • political • historical Nearshorers are seeking for better control and trust / © Finpro ry /
  • 12. Nearshoring? • Sourcing service activities to a foreign, lower-wage country that is relatively close in distance or time zone (or both). • The customer expects to benefit from one or more of the following constructs of proximity: • geographic, • temporal, • cultural • linguistic • economic • political • historical Nearshorers are seeking for better control and trust / © Finpro ry /
  • 13. Challenges in South-East Asia? / © Finpro ry /
  • 14. Software R&D and Nearshoring in Central and South Eastern Europe ★ Introduction and definitions ★ Outsourcing basics ★ CEM as market area ★ Conclusions and recommendations / © Finpro ry /
  • 15. Some facts about outsourcing... Outsourcing is constantly increasing and reaching new areas / © Finpro ry /
  • 16. Some facts about outsourcing... Outsourcing is constantly increasing and reaching new areas / © Finpro ry /
  • 17. Some facts about outsourcing... Outsourcing is constantly increasing and reaching new areas / © Finpro ry /
  • 18. Rationale for outsourcing Cost, quality and ease of management / © Finpro ry /
  • 19. Rationale for outsourcing Cost, quality and ease of management / © Finpro ry /
  • 20. How to outsource? 1.Deciding to outsource (board decision, only with a created business case) 2.Supplier proposals (RFPs) 3.Supplier competition (face-to-face) 4.Negotiations (can take time) 5.Contract finalisation (lawyers needed) 6.Transition (staff transfer, service level increases etc.) 7.Transformation (SLAs, standardisation, centralisation) ... 8.Ongoing service delivery ... 9.Termination / renewal of contract Simple process, yet so many challenges and pitfalls / © Finpro ry /
  • 21. What to outsource? R&D outsourcing via Build-Operate-Transfer is gaining ground / © Finpro ry /
  • 22. What to outsource? R&D outsourcing via Build-Operate-Transfer is gaining ground / © Finpro ry /
  • 23. Outsourcing benefits difficult to realise... Focus should be put more on total costs, not nominal values / © Finpro ry /
  • 24. Software R&D and Nearshoring in Central and South Eastern Europe ★ Introduction and definitions ★ Outsourcing basics ★ CEM as market area ★ Conclusions and recommendations / © Finpro ry /
  • 25. The Emerging Europe? 23 countries Total population of 76 million internet users. At EU’s homefront there is a major emerging market! / © Finpro ry /
  • 26. Attractive Business Region New and coming EU members • Growing economic interdependence with Western Europe • Improving business climate • Rising living standard • Lower transaction costs • Developing infrastructure • Less regulatory barriers • Cultural similarities • EU funds to development of knowledge based economies Favorable Location • Central location in Europe Cost advantages • Geographic proximity to Finland • Employment costs 30-40 % lower than in the Western Europe • Good transportation possibilities • Centralization of supporting activities bring cost advantage e.g. buying of goods, services or logistics Fast growing markets Westernization of customer behavior • GDP growth rates 4-9 % • Appreciation of western products and life-style Attractive location for IT operations! / © Finpro ry /
  • 27. High-tech scene and popularity also catching up Internet Penetration +50% +40% +30% +20% < 20% Slovenia Slovakia Lithuania Romania Ukraine Czech Latvia Croatia Bulgaria Macedonia Estonia Poland Cyprus Bosnia Serbia Greece Turkey Albania Hungary Moldova Broadband +60% of all connections Malta Montenegro Belarus Online Advertising Share (2006) +4% +2% +1% +0.2% Hungary Poland Lithuania Bosnia Estonia Slovenia Romania Turkey Czech Slovakia Belarus Bulgaria Latvia Croatia Greece Ukraine Macedonia Serbia Albania Moldova Montenegro (source InternetWorldStats, CIA) / © Finpro ry /
  • 28. Constant supply of IT talent Yearly graduates in ICT sector Yearly graduates, all engineers (source Finpro & Tekes, 2007) / © Finpro ry /
  • 29. Salary levels are on the rise, yet still competitive EUR 24,1% Latvia 1700 33% Latvia Gross salaries and employer side Estonia 1346-1679EUR 1500 costs (tax %) per country 33,5% 1085-1353EUR Hungary 35% 1330EUR Czech rep. 36,67% 1300 34,4% Ukraine 1202-1335EUR Slovakia Estonia 21,28% 1080-1283EUR Hungary 26% Poland 1079EUR 1100 31% St.Petersburg 739-1267EUR Czech rep. 1000EUR Ukraine Lithuania 900-1000EUR 909EUR Poland Slovakia 800-950EUR 40.25% 756-882EUR 900 29.55% 790EUR Romania 737-825EUR St.Petersburg 750EUR 550-950EUR Bulgaria Lithuania 700 420-841EUR 600-700EUR 389-777EUR Romania 550-630EUR Junior Software Developer 300-600EUR 300-600EUR POLAND: Total labor cost 19.83% -22.72% of gross wage, 500 depending on the accident insurance chosen level. Case Poland used average 21.28% 300 (source Finpro & Tekes, 2007) / © Finpro ry /
  • 30. Salary levels are on the rise, yet still competitive EUR 35% Czech rep. 2200 33,5% 34,4% Gross salaries and employer side Hungary Slovakia 1350-2835EUR 2000 costs (tax %) per country 33% 1277-2688EUR 1802-2002EUR Estonia 36,67% 24,1% Ukraine Latvia 1800 26% 21,28% 1729EUR Czech rep. St.Petersburg Poland 1640EUR 1679EUR Slovakia Hungary 1600 31% 1134-1890EUR 1516EUR 1000-2100EUR Latvia Lithuania Estonia 950-2000EUR 1350-1500EUR Poland St.Petersburg Ukraine 1400 1140-1520UR 1300EUR 1353EUR 40.25% 1250EUR 29.55% 900-1500EUR 1200EUR Romania 1200 Bulgaria Lithuania 777-1296EUR 841-1403EUR 870-1160UR Senior Software Developer Romania 1000 POLAND: Total labor cost 19.83% -22.72% of gross wage, depending on the accident insurance chosen level. Case Poland used average 21.28% 600-1000EUR 600-1000EUR 800 (source Finpro & Tekes, 2007) / © Finpro ry /
  • 31. Salary levels are on the rise, yet still competitive 33,5% Hungary EUR 35% 34,4% Slovakia Gross salaries and employer side Czech rep. 2336-2870EUR 21.28% Poland 2600 costs (tax %) per country 40.25% 1747-3360EUR Romania 1620-3375EUR 33% 26% 1819-3032EUR Estonia St.Petersburg 36,67% 2400 1122-3506EUR Ukraine 2261EUR 1890-2646EUR Poland 2200 31% 2159EUR Hungary Slovakia Lithuania 24,1% Czech rep. 1500- 2500EUR Latvia St.Petersburg 2000 1300-2500EUR 1750-2150EUR 1520-2279UR Estonia 1200-2500EUR 29.55% 1862EUR Romania 1500-2100EUR Bulgaria 1800 1700 Ukraine Latvia 800-2500EUR 1250-1943EUR Lithuania 1600 1500EUR 1580EUR Project manager 1160-1740EUR Bulgaria 1400 POLAND: Total labor cost 19.83% -22.72% of gross wage, 1000-1500EUR depending on the accident insurance chosen level. Case Poland used average 21.28% 1200 (source Finpro & Tekes, 2007) / © Finpro ry /
  • 32. Market vary on their attractiveness Source: Roland Berger, 2008 / © Finpro ry /
  • 33. EXAMPLES OF REAL LIFE Romania Ukraine High level of corruption, low level of English skills. “Foreign investors are increasingly worried that Getting car insurance may be impossible they won't be able to find necessary qualified personnel for projects that they wish Little success cases by Finnish companies. to develop in Romania, Ana Maria Cristina declared, the president of ARIS. Hungary quot;One of the main worries of foreign investors is linked to the existence of average Manpower adequately skilled but needs re- qualification labor force, knowing that many training on project management and quality Romanians are searching for jobs that are management of IT projects. better paid outside the countryquot; Taking responsibility of the projects is not as good of a level as in Finland. Motivation and dynamic behavior are lacking in many employees. Extremely unstable taxation. (source Finpro & Tekes, 2007) / © Finpro ry /
  • 34. EXAMPLES OF REAL LIFE Czech Rep. + Slovakia Bulgaria Rising labor and living costs. The administrative burden is huge. Company Intellectual property rights uncertainty. The has the equivalent of three full-time employees lack of clear definitions of rights, dealing with the state bureaucracy. Their work responsibilities and liabilities in the intellectual includes meeting arcane record-keeping property sphere is a potential weakness. requirements on workers' pay and conditions, and getting the right stamps on the right bits of Under-developed service culture. paper for the sleepy customs service. Brain drain and lack of marketing skills But more worrying is the education system. Teachers' skills are outdated and corruption is rampant. The shortage of good people is chronic (source Finpro & Tekes, 2007) / © Finpro ry /
  • 35. Software R&D and Nearshoring in Central and South Eastern Europe ★ Introduction and definitions ★ Outsourcing basics ★ CEM as market area ★ Conclusions and recommendations / © Finpro ry /
  • 36. How to succeed? • Own processes must be clearer than ever before when working with partners: specifications and definitions must be clear • Nearshoring requires investments before it can bring profits and results • When working with a partner you must remember • B-to-B has it’s perks but also downsides • E.g. rewards do not always reach the staff • Do you get the best resources or is it the other client? • Tight communication, plenty of traveling and personal contact are required • Outsource clear and well defined modules • Provide “Finnish view” or business information yourself • Treat your partner and their staff as well as your own staff • Agree on rewards and getting own named and accepted persons for your work / © Finpro ry /
  • 37. Critical outsourcing questions • What is to be outsourced and why? • What is the optimal sourcing model? • Who is the best partner? • What is the region/country/area operation should focus on? • What issues must be covered by the contract? • How is the project to be managed and by whom? • Who has to do what and by when? • How are we going to monitor target compliance? • What is the acceptable level of cost savings and can these be realised, also in the long term? Sound business thinking should always drive outsourcing operations Source: Roland Berger, 2006 / © Finpro ry /
  • 38. Few conclusions • Offshore outsourcing is a complex process with political, social, cultural, ethical and economic implications • Offshore outsourcing not a “mechanical“ operation, it is a social process of company restructuring. • CEM offers attractive business opportunities for Finnish sofware companies, also in R & D • Making offshore outsourcing sustainable: • It is ambitious, yet it is possible ! / © Finpro ry /
  • 39. Questions, thoughts, comments...
  • 40. For more information tommi.pelkonen@finpro.fi +36 -20 - 250 10 77