European IT Outsourcing Intelligence Report 2010. Part 1

This Intelligence Report summarizes the findings of IT Sourcing Europe’s online survey and the most up-to-date industry studies and analyses for the purpose of comparing the major Central and Eastern European (CEE) IT Nearshoring locations and determining the most appropriate one for Western European companies to locate their endto-end software/Web 2.0 application development. The Report targets at all types of Western European companies who either outsource or plan to outsource their IT function nearshore.In the course of IT Sourcing Europe’s online survey all Central and Eastern European countries were analyzed in terms of their factual capability to bring value to Western European outsourcers and readiness to work in the conditions of Outsourcing 2.01.

The survey discovered that the following six countries are the most attractive for the outsourced nearshore IT development: Ukraine, Poland, Romania, Hungary, Belarus and the Russian Federation. These countries were selected for final overview due to having:

a) the highest IT outsourcing (ITO) market value in the CEE region (as of 2009);
b) the lowest Total Cost of Ownership (TCO) of outsourced IT operations;
c) the biggest IT workforce involved in ITO industry;
d) the strongest R&D base;
e) the best grasp of innovation and emerging technology.

This Report finds that Ukraine is the most attractive location for nearshore software/web 2.0 development due to low IT salaries, high attrition, strong R&D heritage from the Soviet past, hightech education, innovation and available pool of IT resources.

Locating their core IT development in Ukraine, Western Europe’s companies are likely to save 40 to 60% of their total in-house IT spending. Ukraine is followed by Belarus and Russia, which offer rather low software development rates, but still have unfavorable regulatory environment, are rather process-packaged and focused on providing outsourced systems integration and complex enterprise solutions.

Unlike Ukraine, which shows significant ITO market maturity in terms of Agile development and innovative business models, Russia and Belarus demonstrate higher level of bureaucracy and inflexibility and focus on traditional software development methodologies such as Waterfall as well as traditional engagement models (e.g., Offshore Development Center), which are unable to meet with such challenging and pragmatic requirements of today’s high-tech epoch as fast time-to-market, better scalability and human capital-driven creativity versus process- and plandriven development. Being European Union members, Poland, Romania and Hungary demonstrate maturity of BPO markets and have a good offering of value-added and managed services. However, as our survey shows, they lag behind Ukraine in terms of end-toend development, available IT resource pool (all three countries face significant IT labor shortages) and low software product development rates.

European IT Outsourcing Intelligence Report 2010. Part 1