Software Outsourcing: Europe

Jun 26, 2008

Ireland had it great for a while, back when India was offering very low rates for a skilled resource pool. Ireland was the India of Europe, but its position was shattered by various internal and external political and social forces that have affected the outsourcing business. The good part about Ireland were the revenues of over $6 billion every year of which large percentage are license revenues on software sales. Even now the government is still setting up huge incentives for software companies in Ireland which are benefiting from this by creating "Software Production" for distribution in Europe. The Irish programmers are very skilled in latest technologies but their small number of production each year is not sufficient to build a credible and reliable software outsourcing industry. Ireland is graduating approximatively 5000 software programmers per year which is extremely low despite government initiatives to increase this. Consequently, companies are seeking suppliers elsewhere to enhance their production capacity, especially since the costs are double for a programmer than the ones practiced in India.

Since the offshore software development market is getting tougher, companies are seeking to provide advanced services such as ITES, IT Enhanced Services or BPO, Business Process Outsourcing. In Russia things are still in a gray area. Russian programmers are the greatest advantage of their software industry, they are usually scientists who have worked in complex defense programs during the Soviet Union like building missiles, space shuttles, satellites, nuclear power plants so programming would be a self taught secondary skill. Russian programmers, about 7500, generate revenues of almost $100 million every year. But Russian programmers alone can not handle the management of large scale offshore development centers, the level of management depth and processes are quite shallow. This is why there is not a single CMM SEI certificate for software operations in Russia.
Besides management problems, there are concerns regarding the English language which is a delicate subject with Russian developers who require special trained translators who understands their technical language. The government isn't making things easier for the software industry either, communication costs are at high rates, traveling there can be troublesome with so many restrictions and strict controls. Most problems are linked to the issue of intellectual property rights which are not clearly defined in Russian legislation. Sure there are tax exemptions but labor laws have not changed since the Soviet Union. Licensing is also burdensome when importing technical equipment, the bureaucratic system makes difficult the process of introducing new technology in the country by setting up several mandatory Agencies to liberate licenses.

Romania is seeking to find more UK businesses willing to take advantage of its IT expertise which, in 1962, was responsible for building the first computer in a Communist-bloc country. Among the socialist countries, Romania was the first one to develop computers and networking. Besides the cheaper labor costs, one of the biggest advantages Romania has is its multilingual workforce. Most Romanian IT professionals speak English, and many also speak French, German, Swedish, Finnish, Greek, Danish and other languages. There are about 45,000 software developers in Romania and 8,000 graduates enter the field annually and the government is set on expanding the ranks of IT professionals, providing incentives such as tax roll exemptions. If Romania is a relatively poor country that is changing fast, since it was long plagued by political corruption during its long transition from the communist to the liberal system and now it has cleaned its act pretty good since it has entered the European Union. From 2007 on, Romania is the hottest spot ever for offshore outsourcing business since it's close to any European location, it has closer cultural affinity with Western nations than its Asian or Indian competitors and it provides a level of extremely high quality in information technology at very low rates.

A special case for far Eastern Europe is Israel of which lack of natural resources has stimulated the knowledge based industry from early on. In present days, Israel represents a major software center with a growth of 25% per year. Although it has an extremely skilled programming workforce, the continuous regional turmoil and violence damage the the country's image and is keeping it away from receiving management of large, project oriented enterprises. Israel has a workforce of about 30,000 software programmers and is a center for high quality product software and embedded software. It is unfortunate for Israel IT industry that the country does not possesses the political stability necessary due to ingoing insurgence with Palestine. However, Israel is able to keep its status as a developer of licensed intellectual property, but will be limited in the match against large software industry with India.

Software Outsourcing: Romania
Software Outsourcing: Europe
Software Outsourcing: The Asian Region