By Natasha Starkell, goaleurope.com

21 September 2009

According to the data provided in CEE IT Outsourcing Review 2008 and 2007 issued by the Ukrainian High Tech Initiative, the outsourcing industry market value has increased by 2% from $2999 million in 2007 to $3056 million in 2008.

Growth Dynamics

On the country level, the growth was not consistent. Ukraine, Romania and Hungary showed slight decline, whilst Poland, Belarus, Serbia and a number of other countries showed a considerable increase in market value of the outsourcing industry.

Whilst overall in the region the IT outsourcing industry continued to grow in 2008, the reduction in rates and volumes was expected in 2009.

Already in the second half of 2008 there was a slight reduction of business activity by two to three percentage points, a significant reduction of 15-20% was seen at the beginning of 2009.

The cooling down of the industry growth is from our prospective a positive development, which offsets the accelerated price increases over the period of 2006-2007 fuelled not only by demand but also by cost of living, often reflecting the real estate boom in the region.

Prices

The report provides a consistently optimistic assessment of all of the Eastern European countries as cost effective outsourcing destinations. For example, the revenue per employee calculated on the basis of the figures provided by the report, shows very attractive equivalent hourly rates from $11 for Moldova to $23 for Hungary.

This may reflect the lower prices on the existing contracts than the ones offered to the new clients. In our experience the price of outsourcing services are more attractive in the locations such as Ukraine and Belarus, than in Bulgaria or Romania, where the hourly rate have increased beyond the $30 per hour. 

The report shows the maximum and minimum price per person per year for each country. For example in Hungary the cost of one man-year may ranges from $33’500 to $66’500  and in Albania it fluctuates from $25’000 to $48’000.

Summary

At the time of the worldwide economic downturn, outsourcing services typically experience growth, offering much needed cost efficiency. At the same time the Eastern European outsourcing providers, especially small and medium size companies showed revenue decline in the second half of 2008 and in 2009. Although the outsourcing market grew slightly in 2008 it has already shown decline of 15-20%  in the first half of 2009 and will undergo a further decline by the end of 2009.

Outsourcing providers will have to implement drastic cost-cutting measures to remain profitable in the foreseeable future.

Despite current difficulties, leaner organisation and more competitive pricing will position Eastern European region once more as an attractive outsourcing destination.

Further study needed

The report does not explain sudden growth or contraction on individual country markets, such as 25% reduction in market size in Estonia or 56% market growth in Croatia. We believe that an individual country study would be useful to explain such fluctuations to better understand the individual country dynamics.

Source: CEE Outsourcing Industry Review 2007, 2008
Analysis: by goaleurope.com