Here’s a story – A story of how globalization has been a way of the world since the early 15th century, popularly known as the age of exploration/discovery. Between 1450 -1750, the world went global, as Europeans discovered maritime routes to connect the Eastern and the Western hemispheres in search of gold, labor, and trade. This globalization made the world small and connected and allowed for the transfer of knowledge, which as Amartya Sen, a Nobel prize-winning economist, said has “enriched the world scientifically and culturally”.
Centuries later, even today, companies in search of skilled labor, talent, and innovation are taking the globalization route. With the increasing dearth of skilled talent, companies are willing to explore every nook and cranny of the world to get their hands-on unexplored talent hotspots and new technology ecosystems. Usually, Western countries like the US and countries in Western Europe turn to Asia in search of technology talent and cost arbitrage through offshore center setup. However, when companies go East, they often face challenges due to inconvenient time zones and cultural differences. Enter – Eastern Europe.
A once stagnant technology ecosystem, Eastern Europe, over the last few years, has emerged as a hotbed of technology talent. There has been a huge boom in the investment made by global organizations and investors both locally and globally, into the Eastern European technology ecosystem. As per Invest Europe, Private Equity investment in the Central and Eastern European region reached €3.5 Bn in 2017, an increase of 113% y-o-y and a record-high number for the region.
A lot of multinational companies like Accenture, HP, IBM, and TCS have already opened their centers in Eastern Europe. For example, Wipro has established delivery centers in Romania, Poland, and Hungary for IT and BPO. Google and Uber – a tech giant and a unicorn respectively – both have expanded into Eastern Europe by setting up their centers. Several venture capital funds have poured money into home-grown companies and start-ups. The influx of investment from across the key players in the global technology ecosystem has led the Eastern European talent to drive innovation locally by leveraging into the rich local talent pool.
Amongst the top 40 global outsourcing destinations, there are five Eastern European countries that have been recognized as thriving outsourcing markets globally*. Ukraine, Poland, Czech Republic, and Romania are a few of the major technology talent hotspots of Eastern Europe. The software development market of these 4 hotspots is growing at a rapid pace, with the US and EU being the main customers. There have been more than 76 IT Service M&A transactions between 2015-2018, and a lot of M&A opportunity lurking in these hotspots**.
All these together, are making the US and Western Europe-based organizations turn East to fulfill their talent demand. But what is it that makes Eastern Europe such a hot market for technology talent? What’s their secret sauce?
There are several factors that make Eastern Europe a favorable talent hotspot and an ideal destination for offshore center setup – Availability of affordable skilled labor, cultural similarities with the West, language proficiency, and near-shore proximity. But what makes Eastern Europe truly shine is its nascent but growing start-up ecosystem, education system, and its culture.
The entrepreneurial ecosystem of Europe has become decentralized with Brexit (UK’s withdrawal from the European Union). Several technology enthusiasts who once immigrated to the West (Western Europe and the US), are coming back home and bringing with them the innovation DNA of the West. With the increase in external investments, founders are willing to launch their businesses in Eastern European countries. Also, as newer generations step out of universities and schools, the fertile ecosystem of Eastern Europe is ready to bear the seeds of innovation for the young founders to grow companies of the future. The respective governments of the Eastern European countries are also supporting the growth of the start-ups by providing tax-related benefits and building innovation hubs in universities.
Unlike most education systems that focus on overall multi-disciplinary education, Eastern European countries focus on technology-based education focused on science and mathematics. The universities provide high-quality yet affordable education and specialization in engineering and IT. In addition, there are technology boot camps and technical schools that focus only on teaching technology-related subjects. This kind of ‘vocational’ training has given rise to a talent pool rich in IT and software development skills. It also helps a developer focus on their area of expertise and become a subject matter expert.
Apart from the educational aspect, it’s the strong cultural aspect that makes Eastern Europe a preferred choice for companies who are looking for technology talent. Like the thriving innovation ecosystem of its neighbor, Israel, East European countries have unique histories and cultures that have helped instill the innovation DNA in people. Eastern Europeans are hard-working and tenacious by nature. They believe in owning a project and seeing it through from start to finish. This level of ownership comes from the will to learn and the innate knack for technology that is instilled in them very early in life through education. The open-to-learn attitude and dedication towards the work they do are helping Eastern Europeans attract a lot of attention from companies focusing on quality rather than quantity.
In addition to these, there are several other advantages of the Eastern European talent landscape. First, it has a convenient geographical location for working with the US and Western European countries as it allows several hours of overlap and low cost of travel. Second, it also has a skilled yet affordable talent in abundance as a function of a robust education system and a growing job market. Third, the cultural and linguistic similarities with the West make communication easy and effective.
Eastern European countries are quickly emerging on every company’s globalization roadmap, and only companies that are fast enough to enter this market will gain access to the skilled talent pool. As multinationals and tech giants like Google enter this market, finding the right talent can become a difficult and expensive affair.
As per Zinnov’s analysis of 5 job roles (Mechanical Engineer, Embedded Engineer, Data Science/ML, Analytics/BI/BigData, Web/Mobile App Development) across four major Eastern European countries (Poland, Romania, Czech Republic, Hungary) there’s a total of ~0.24 Mn technology talent available.
Clearly, with this availability of a dense talent pool in Eastern Europe, there’s a huge window of opportunity for companies to get access to this talent not just through offshore center setup but also by building Centers of Excellence and driving innovation out of these global locations. Companies need to be nimble and tap into this growing pool of technology talent by setting up Global Capability Centers or by partnering, acquiring or co-innovating with local start-ups.
*Source: A.T. Kearny GSLI 2019
**Source: Emerging Europe, Software Development in Ukraine, Poland, Belarus and Romania in 2019.