Blog post

Central Eastern Europe (CEE) Positioning in Global Sourcing

By Frances Karamouzis | June 04, 2010 | 4 Comments

These past 3 weeks, I had the opportunity to visit four countries in CEE namely, Romania, Hungary, Czech Republic and Poland.  It was quite an interesting trip that was filled with a array of meetings with lots of different stakeholders and constituencies within the value chain of Global sourcing. While this was a three week trip, and I felt that I got an updated 2010 view of the region.  There is a great deal more to research and more input needed. 

I participated on individual visits with Shared Service Centers,  Centers of Excellence, vendor locations, workshop sessions with buyers and sellers (vendors), technology park visits, meetings with Govt officials and Trade Associations.

Clearly the region and the entire European economic landscape is experiencing lots of change and unrest.  Hungary just changed their government and everyone is braced for the unveiling and action plan for a new vision.  Poland recently lost a significant number of leaders to a plane crash.  Romania is a having protests in the streets related to the proposed Austerity decrees.  And the list goes on as it relates to exchange rates etc.  And right in the middle of the trip, there was a major incident with the Israeli’s in Gaza.

Amidst all of this change and shift, it was great to see a very enthusiatic group of stakeholders eager to take advantage of new disruptive technologies whether its cloud or SaaS or deliver core work within various functional areas of an enteprises.

The dilemma I found was that it was very hard to define a clear concise and definitive “brand” or “value proposition” that has been created to help differentiate each of these specific locations.  Everyone talks about India and China — and in fact, my previous post  a few days ago has had a very high hit rate.  I am very curious as to the responses to this post.

In my presentations to the stakeholders in the region,  I felt that one slide particularly resonated with the audience and creaeted lots of discussion regarding the future of the region (see a copy below).  The point of this slide is that I think that eventually, the global market will undergo an important shift from pure labor based driven models for value to Intellectual Property (IP) driven models.  If this does come to fruition, then countries in this region with populations of 10 or 20 million can play a significant role because this business model is not about scale rather about IP.  More importantly, the profit model in an IP driven business model is not about cost but rather about multiples of value. 

Please chime in with Thoughts, Comments, Ideas.



Shift to IP

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  • Larry Gordon says:

    Thanks for the pricing and Eastern/Central European info Fran.

    We are seeing many interesting things that straddle all these regions. We are seeing high innovation velocity and high market acceptance of Central European generated IP, particularly in the security space.

    We are also seeing India put a lot of distance between itself and China in terms of understanding end user needs, business process innovation, and on branding and trust creation. It doesn’t even matter if China comes close on price. There is such a wide gap now on what is available to support the newest and fastest growing business models, that small deltas in cost are irrelevant.

    Blue chip retailers, MSOs, software companies, and OEMs are all finding high value in software and services generated from combinations of innovators from Central and Eastern Europe and India.

  • Certainly Hungary is not much of a competition to India based on numbers only, this Intellectual Property (IP) driven model can give us a chance in focused knowledge oriented market gaps. Like us, who are specialized in making sophisticated search solutions to partners.

  • Frances Karamouzis says:

    You are correct that Hungary (and I would add the other CEE countries) are not going to compete with India based on scale of people. Thus, one of the messages that I put forth in my pressentation and the specific slide that I referenced is that Intellectual Property (IP) driven model will be a very interesting and executable goal for CEE region. However, the key is for each country like Hungary be much clearer in identifying more specifics. Intellectual Property (IP) is a big broad extensive area. Lets hear from the different groups within each country regarding thoughts of where some great work is being done that can expand and grow to be the well known area of value for Hungary.

  • Hungary has gone through various stages in the ICT sector providing exported services.
    In the 90’s the business was pure body shopping. Many talented software developers relocated to mainly Germany some to Switzerland, Austria etc… The origin of this step was the huge market demand in Western Europe for highly skilled engineers. Hungary had a massive base of engineers who because they had to make the best of systems which had limited resources due to technology export restrictions. This well educated population established its entrepreneurship during those years and returned to the home country. Why? They followed their clients: Hungary was leading the complete turnaround of the 100% state owned economic system into a 95% pure capitalist ecosystem. During this change huge Foreign Direct Investment inflow came to Hungary bringing the new corporate culture as well. The new software companies were already experienced in doing business with Western companies.
    Some of these folks kept their Western European clients and went through a dual development – growing the business both in WE and in Hungary. This model came to the end around 2000. Unfortunately the outsourcing market did not hit the local market as expected – with successful deals and many failures. Therefore the local experience with ITO, BPO and Apps is very limited.
    Many big ICT companies developed operation in Hungary based on the local market – as their clients arrived to Hungary as well during the privatization period. After the Y2K IT downturn many ICT firms explored how to leveraged their near-shore operation in Hungary. The first few flagship Shared Services Centers turned out to be very successful and encouraged other companies to consider Hungary (Budapest and many other countryside locations) for their captive or SSC operation location.
    Today more than 50 SSCs are based in Hungary and with a few exceptions no relocation was made to India or China. However the Hungarian ICT sector is facing with challenges:
    • The local companies are seeking for the new business model which can generate growth
    • The economy has to be put back on track by the new government
    • A specific ICT economic policy should support to open up for the new markets
    I believe that some key starting points can be as follows:
    • Industry specific solutions: biotechnology, finance and insurance, agricultural etc… solutions which needs strong mathematical background where Hungary is strong in the educational system
    • Adopt the global trends in the Application development techniques
    • Create virtual “clusters” with Western European partners and act as their back-end extension
    With high expectations towards the new government they can play an important role in this new era:
    • Provide support to enter new markets (marketing, coordination, tax benefits etc…)
    • Invest in ICT parks – similarly to China (learn from their best practice)
    • Encourage to explore synergy between local and foreign ICT companies
    Hungary has a big potential – despite the Hungarian behavior – I believe some companies will make it.