OFFSHORE OUTSOURCINGNEW DESTINATIONSEMEA & APAC

Prem Karthik Pandian

Cities of Interest (not in any order) Bucharest, Romania

Prague, Czech Republic

Cairo, Egypt

Cracow, Poland

Metro Manila, Philippines

St. Petersburg, Russia

Ho Chi Minh City, Vietnam

Dalian, China

Criteria that are important for selecting a destination

“Business transformation through services globalization is one of the most important levers that global companies can no longer afford to ignore,” stated Atul Vashistha, CEO, neoIT

A high availability of qualified personnel and the city's proximity to Western Europe make it attractive. Even better, prices are 40%-50% lower than in Western Europe

Cities/Centers of outsourcing: Bucharest

Companies: Genpact, Wipro, Infosys, Accenture

Romania

Romania

“There are about 45,000 software developers in Romania and 8,000 graduates enter the field annually", says Lianu, general director for export promotion at the Romanian Ministry of Economy and Commerce

Multilingual labor pool (Romanian, Hungarian, German) with very good cultural affinity for European countries

Transparent corporate tax environments with a simple 16 % flat tax on profits. Ranked as one of the top performers in the World Bank’s “Doing Business Report”

"Romania has the best human resources in the world for IT," said Florin , vice president of Aries, the Romanian Association for Electronic and Software Industry, which has some 300 member companies and the avg. salary of an entry level programmer is 24% lower than in the Czech

Romania have stable geopolitical situations that are conducive to outsourcing and better time zone comfort

Joined EU in Jan 2007 and this may lead to increase in costs, but neoIT predicts IT labor costs in Romania to remain lower than other EU destinations for the next 6-8 years

Romania has the least developed communication infrastructure in the region but the conditions are improving last 2 yrs.

Romania’s physical infrastructure lags behind other countries in the region.

“..Difficult to find good managers in the area..”, Jonathan Schwartz, of Sun Microsystems

IP protection is a major problem, although piracy rate has decreased recently

Most existing companies are small —15 to 20 people

Comparatively less support from government but the conditions are improving

Pros Cons

Capital City with good infrastructureBucharest is the most economically-developed and industrialized city in Romania, producing around 21% of the country's GDP and about one-quarter of its industrial production, while only accounting for 9% of the country's population

Bucharest, Romania

PRAGUE'S GOOD INFRASTRUCTURE AND PROXIMITY TO WESTERN EUROPE MAKE IT A GOOD PLACE FOR COMPANIES THAT WANT EASY ACCESS TO OUTSOURCING PROVIDERSCities/Centers of outsourcing: PragueCompanies : Accenture, EDS

Czech Republic

Czech Republic

The Czech Republic churns out 5,000 technical graduates every year, and the IT services market experienced double-digit growth when the global IT services market grew just 6 percent.

Overall Cultural compatibility is fair with very good foreign language skills especially German

Good IT and communications infrastructure (Solid investment of 8.5 percent of GDP in the same)

Country is relatively more stable (low geopolitical risk)

According to a study by EUROSTAT, the European Union's statistical office, 70% of the Czech population also speaks a foreign language, being especially proficient in German.

English proficiency is relatively poor in the country

Low pay scales give talent little reason to stay.

Little support from the government

According to Gartner, the IT process maturity is low

Real estate prices are also rising due to demand for commercial property, further reducing the Czech Republic’s advantage

neoIT says , the average rate of increase of salary is 5% and as a result, IT specialists are increasingly hiring themselves out as consultants to the highest bidding company

Pros Cons

The city is becoming a site of European headquarters of many international companies.Good Infrastructure and Proximity to western EuropeCapital City

Prague, Czech Republic

RANKS 12TH IN A.T. KEARNEY’S ATTRACTIVENESS INDEX WITH HIGHLY EDUCATED TECH WORKERS, HISTORICAL EXPOSURE TO WESTERN LANGUAGES AND LOW COSTS. IT IS TRYING TO BE “GATEWAY” FROM WEST TO MIDDLE EAST AND INVESTING HEAVILY IN IT INFRASTRUCTURE

Cities/Centers of outsourcing: Cairo, Giza, Heliopolis

Egypt

Egypt

Highly educated tech workers, historical exposure to Western languages and low costs

With over 80,000 technical graduates a year, the country offered a similar cost base to India while boasting a more multilingual workforce

Tax breaks from the existing 40% current corporate levy for Offshore development Centers that wish to establish in Egypt, regardless of location. ( Egyptian – UK Chamber of Commerce

These reductions last for a period lasting between 5 to 10 years; Free trade zones are in place for companies to establish operations, which guarantee a tax-free period as mentioned above.

Government has been very proactive in lowering the corporation tax rates and with Egypt only a four hour flight from most of Western Europe, compared to 16 hours to India.

IT skills shortage

Security and political stability concerns

Projected as a favorable location for call centers than as the software development hub

Ossama Nazmi, business development manager at Xceed, concedes that Egypt faces an image problem. “The misconception around Egypt’s [geopolitical] stability is an issue,” he said. “I have been asked by one potential US client if we could hear the bombing in Iraq.” However, Nazmi argues that a client list including Oracle and Microsoft could help to improve perceptions.

Reasonably modern telecom infrastructure. Telecom Egypt, though in the process of deregulation, has little competition and keeps rates high.

Homes, roads, electricity, telephone services were all suddenly in short supply ("hyper-urbanization.“) in cairo

Pros Cons

One quarter of all Egyptians live there. The majority of the nation's commerce is generated there, or passes through the cityCairo has long been the hub of education and educational services for Egypt Very good Infrastructure and facilities and also the capital city

Cairo, Egypt

Educated human resource, world-class quality offerings, and new initiatives of global technology leaders – these are the natural arguments for expanding outsourcing to Poland. Thanks to this fact outsourcing to Poland is not limited to cost-cutting – it is in fact an essential element of strategy of growth.Cities/Centers of outsourcing: Cracow, Wroclaw, Warsaw

Poland

Poland

Competent destination in Central and Eastern European (CEE) region next to Czech

Offers cultural and time zone compatibility for much of Western Europe

According to Gartner, nearly 400,000 German speakers in the country and also boasts multilingual talents

Poland is well known for world-class software engineers

“ the border between Eastern and Western labor markets is quite close and that also lowers costs”, tells Dr. Krystian Pracz, president of Capgemini Polska

McKinsey, the management consultancy, estimates that in Poland the number of posts in outsourced business services could rise from about 3,000 on 2004 to 200,000 by 2008.

Lack of IT service maturity

Relatively small labor pool

Wages and costs rising

The country's southern stretch is notoriously polluted

But Poland’s entrance to the EU has made its labor force more mobile and a significant number of college graduates are leaving the country to find better-paying work in other EU nations – a trend which may lead to labor shortages and increasingly higher salaries in Poland

Pros Cons

Off shoring of IT work from other nations in recent years has become important to the economy of Cracow and Poland in general. The city is the key center for this kind of business activity. There are about 20 large multinational companies in Cracow, including centers serving IBM, General Electric, and Motorola, along with British and German based firms.

Cracow

The Philippines, despite continuing political instability and infrastructure weaknesses, continues to benefit from the global exposure and English-language skills of its workforce

Cities/Centers of outsourcing: Manila, Cebu, Makati city

Philippines

Philippines

Government incentives include three- to six-year income tax breaks, exemptions from all government fees, licenses, dues

The Special Economic Zone Act of 1991 established IT parks to support the IT export industry, and the U.S. military left behind a solid telecom structure here

The English skills of this former U.S. protectorate and its close U.S. ties eliminate language and cultural problems

A large, skilled labor pool (universities churn out 350,000 technology-related degrees each year) works cheap

Allows 100% foreign equity participation & Market-oriented foreign exchange policies

Excellent infrastructure and government support in the National Capital Region (NCR) – Metro Manila

Telecom and broadband costs are slightly higher’

Political instability and corruption

Project manager supply doesn't meet demand

Low IT process maturity

Real estate rentals are increasing in the metro manila

Higher operational costs in the National Capital Region due to higher wages and rents

High Piracy rates and on IIPA priority watch list

Pros Cons

Talented Workforce with Strong English speaking skills with 92.4 % literacy rateGood cultural affinity with US and good telecom and communication infrastructureAn attractive cost structure that promises tremendous savings

Metro Manila, Philippines

DALIAN, A SEAPORT IN NORTHEAST CHINA, IS ALSO TURNING OUT TO BE AN IDEAL CENTER FOR OUTSOURCING, IN LARGE PART BECAUSE OF ITS GEOGRAPHY AND HISTORY

Cities/Centers of outsourcing: Dalian

Companies: Genpact, Accenture, IBM Global Services

Dalian, China

Dalian, China

Dalian's labor costs are lower than in Japan, so it's become a center for application development for Japanese companies. U.S. firms outsource some technology work there as well.

Dalian has roughly 26,000 experienced software engineers, and its 22 universities and technical institutes churn out 3,800 software engineering grads annually

The local government at Dalian offers generous incentives, including a two-year tax holiday on profits and an 80% reduction in value-added taxes..

Dalian has spruced up telecommunications and roads, and in 2000 opened the Dalian Software Park, now home to more than 50 foreign companies

The biggest challenge will be recruiting talent and increasing computer skills to compete

There are certainly challenges for companies that wish to outsource to China, including the potential theft of intellectual property

"Software engineers and programmers are easy to recruit, but it's difficult to find project managers and leaders," says Zhang Limin, chief technology officer of Hi-Think.

Poor language skills and least talent management skills

Pros Cons

Dalian, a seaport in northeast China, is also turning out to be an ideal center for outsourcing, in large part because of its geography and historyProjected as favorable location for Japanese clients because of good talent pool and low wages. Catching up with the US and European clients. Outsourcing to the mainland grew by 50% in 2004 and could reach $4.7 billion by 2009, IDC figures

Dalian, China

LABOR IS CHEAP HERE, COSTING EVEN LESS THAN IN INDIA, AND WORKERS ARE ADEPT AT PERFORMING LABOR-INTENSIVE IT SUPPORT SERVICES.

Cities/Centers of outsourcing: Ho Chi Minh City

Companies: Glass Egg Digital Media, TMA Solutions, First Consulting Group, FPT Software

Vietnam

Vietnam

Rock-bottom wages

Real estate costs are much lower than in china

Anheuser Busch, Bayer, Cisco, IBM, Nortel Networks and Sony outsource software development projects to Vietnam

Vietnam joins as the 150th member of the World Trade Organization on 11th January, 2007

Vietnamese government is making a big push to expand their economy out of deep impoverishment at the end of the American/Vietnam war; encouraging significant investments in education, transportation, housing, and technology

Another key attribute fueling Vietnam’s growth, is its multiple language fluency. As is common in much of Asia, many Vietnamese speak multiple languages fluently, and English is often a second (or third) language of choice

Vietnam is putting considerable effort into modernization and expansion of its telecommunication system, but its performance continues to lag behind that of its more modern neighbors

Less government support but conditions are improving

"One disadvantage of being here is that some people think we work in rice paddies and little grass huts," says Glass Egg Chief Operating Officer Charles Speyer.

Pros Cons

Hanoi University of Technology is established in 1956 and it is the first of its kind. About 30000 students graduate every yearGeo political risk is a major issue in Vietnam

Ho Chi Minh City, Vietnam

Informationweek.com says that “for American IT companies are almost impossible to find good developers and even so, they cost a fortune. Unlike India and East Europe has access to thousand programmers, most of them with solid knowledge in Java and other internet technologies and they are available for $20-50 per hour.”

Cities/Centers of outsourcing: St. Petersburg, Moscow

Companies : IBM Global Services, Luxoft, EPAM

Russia

Russia

The average annual programmer’s salary in Russia ranges from $5000 to $9000. Rocket scientists for nearly rock-bottom prices. Russia has the third-highest number of scientists and engineers per capita, according to the World Bank

Vast talent pool from top Russian military conglomerates with solid experience (av. 5-15 years)

Communication cost: (app) 8,000-12,000 $/month

Russian work ethic and culture are European

Income tax applies, but total customs duty exemption and no VAT for IT services export & No import duty on IT equipment

According to RUSSOFT there are approximately 250,000 IT professionals in the country

Russian corporate tax rate in 2005 is 24%.

Compounded growth ‘05–’09: 21% (source: Forrester Research)

Limited language skills

Limited understanding of foreign markets and no government support for industry

Image of instability and corruption and insufficient protection of intellectual property

Talented people flee out of country

Ranked 39th out of 40 on business environment metrics, according to A.T.Kearney

Project management skills are low

Relative geopolitical instability and Travel restrictions to and from Russia make Russia not so attractive for consulting as it is for R&D and high end development of IT services

communication costs are getting higher in St. Petersburg and Moscow

Pros Cons

Large technically competent workforce to perform high-end engineering services and R&DMaturing IT industry and the government support in the region for IT industry is raisingRated in “Top 50 Outsourcing Cities” by Global services media

Moscow / St. Petersburg, Russia

Global Outsourcing Report (Going Global Ventures Inc.)

Global Attractiveness Index (A.T.Kearney)

Salary index by neoIT

Offshore Location Attractiveness Index (A.T.Kearney)

Attractiveness Report (neoIT)

Overall Rating (A.T.Kearney)

Ratings based on Labor Force (A.T.Kearney)

Ratings based on Cost (A.T.Kearney)

EMEA Ratings (A.T. Kearney Index)

EMEA Growth (Forrester)

Final Recommendations

EMEA Romania - Bucharest Poland - Cracow

APAC China - Dalian Philippines - Manila

Other Noteworthy Mentions Czech Republic - Prague Vietnam - HoChiMinh City

Other Cities in China

Other Cities in Philippines