Eastern Europe May Lose Its Significance as a Nearshore Destination - Indus Net Technologies

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Eastern Europe May Lose Its Significance as a Nearshore Destination

September 12, 2014 by Mainak Biswas under Offshore outsourcing Strategy365 views
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A lot has been written about the importance of Eastern Europe as a nearshore destination. Nearshoring activities take place in countries which are closer in time and culture to the client countries. For instance, Ukraine, Serbia and other Eastern European countries are closer to Western European countries in terms of culture and time zones.

Nearshore destinations make things easy

When we compare France with India, the cultural difference is huge. However, though French people and the Serbians speak different languages, cultural similarities and geographic proximities trounce the differences. Thus, nearshore activities are considered to be much more advantageous to companies that outsource work.

Until now, countries like Bulgaria, Romania, Serbia, Ukraine and Greece have been nearshore destinations for both Western European countries and the North American companies. And it did work well for the clients as they found working with people who wake up at the same time as they do, much easier than having to deal with people who are between 6-12 hours away.

However, things are not looking too good in Eastern Europe. In fact, recent trends indicate that Eastern Europe may gradually lose its prominence as a nearshore destination. There are a number of reasons for this pessimistic outlook. In this article, let us take a look at why Eastern Europe may be losing its mojo.

Political upheavals

As we all know, Eastern Europe is not the easiest place to be a politician today. Whether one is running for office in Serbia or someone is trying to become a mayor of a Ukrainian city, things are as complex as it can get. Serbia, Bosnia & Herzegovina, Croatia and other former Yugoslavian countries have had a disturbing history, all of which leads to a general sense of doom and gloom.

Politics in these countries are invariably a reflection of what happened two decades ago and people are still coming to terms with the ravages of political upheavals. All this is reflected in the way they conduct business too. Though most countries in Eastern Europe are stable today, their political issues are not yet resolved. Serbia, for instance, is trying to become a member of the European Union but is still under the watchful eye of Russia, its prominent ally.

Serbia is also engaged in disputes with its neighbors including Kosovo, which Serbia claims as its own. All this is not recognized by the European Union and financial policies are often a result of these disputes.

Bad economy

Economy in Europe, as a whole is not really great at the moment. Portugal recently got its way out of EU handouts but others have not been so lucky. Greece is mired in economic difficulties and so is Italy. With that in mind, we must remember that Romania, Bulgaria and Serbia are all some of the poorest countries in Europe.

Their economy needs to improve a lot and the infrastructure isn’t developed yet, because of the conflicts that they have experienced. When we say infrastructure, we mean in terms of information technology. Of course, Serbia, Bulgaria and Romania have all responded very well to infrastructural demands but the sheer amount of economic troubles has often overwhelmed these East European countries.

With that in mind, we must remember that Ukraine is one of the largest outsourcing destinations and its economy is one of the reasons why its people are so disenchanted and disappointed with the way things are. Naturally, the country is not stable at the moment and it is not clear how long it will take for Ukraine to come out of the economic and political mess it is in right now.

Wars and conflicts

Europe is not the first region that comes to our minds when we speak of wars and conflicts. Unfortunately, no region in this world is safe from wars and conflicts and every region has populist movements and conflicts that feed into the troubles experienced by nations. Some of the most conflict-hit regions of Europe are Serbia, Kosovo, Albania, Bosnia and Herzegovina, Ukraine, Romania and Moldova.

All these countries still carry disputes that from the days of Soviet Union. All these countries were under the influence of former Soviet Union and currently, under the influence of Russia. Ukraine is descending into a civil war-like conflict whereas Serbia is still trying to fix its problems with Kosovo.

Meanwhile Romania and Moldova have their own regional problems where people with regional interests have begun to demand independence. With all these conflicts in mind, it is not possible to see a positive growth in terms of outsourcing and near shore activities. One needs to wait and watch to understand how things might develop but at the moment it does not look rosy.

Natural disasters

It may be surprising to learn that Eastern Europe is also plagued by natural disasters. Recently, Both Serbia and Bosnia were flooded after torrential rains. More than 40 people lost their lives and the floods have been described as the worst in history.

Both Bosnia and Serbia suffered equally, though they have been rivals for a very long time. Natural disasters like flooding and extreme temperatures are not unknown to Eastern Europe. What makes it different from natural disasters in China or India is that these countries are very small, with very fragile infrastructure. Even a small damage to their roads and other infrastructure is enough to cut of large parts of the country.

This is not so in India or China, where the area that is inhabited is so large that disasters are usually centered in small pockets. Nevertheless, these problems are often enough to drive away investors and look for greener pastures, where natural disasters are far and few. It remains to be seen how Serbia and Bosnia will cope with the recent floods.

General sense of pessimism

All these problems in Eastern Europe have led to a general sense of doom and gloom, which is not good for anyone. When there are political conflicts, wars and natural disasters happening, economy is bound to suffer. When the economy is bad, investors will move away. When they move away, outsourcing to a country becomes a hazard in its own right.

Thus, at the moment, there is a general sense of pessimism related to Eastern Europe. It needs to be seen how far these countries will manage to retain their image as outsourcing destinations. Of course, they will certainly come around, thanks to the indomitable human spirit. However, in the short term, outsourcing to these countries may not be a very good idea.

For instance, many outsourcing clients have begun to move away from Ukraine, though its newly formed government has begun a new exercise to lure investors. It is not clear how things will work in Serbia either, which is looking at becoming a member of the European Union. At the end of the day, unfortunate events are often connected to the economy and investors move away.

Where else can an agency try and send its work to?

Alternative destinations include India, Philippines and Brazil. These countries have better infrastructure and with new governments being elected, which are business friendly, things are definitely going to improve.

For instance, India has recently elected a business friendly government which hopefully will do something to liberalize the economy. That may pave way to more investors arriving in India and starting businesses. Likewise, Brazil is expected to vote for a new government this year too. It is not clear which party will come to the ruling seat in Brazil but it is likely going to be a business friendly administration.

With all this in mind, it becomes increasingly clear that when we choose an offshore destination to outsource work to, it is important to choose a business-friendly destination that is not plagued by economic and political issues. Eastern Europe at the moment is plagued by far too many problems and it is likely going to remain that for a while.

However, as saving grace, there are countries which are performing very well in Eastern Europe. Those countries are Hungary, Poland, Lithuania, Latvia and others. It is important to be mindful about the political and economic situation of a country before sending work to companies based there. If there is even a slight problem, your work might get affected. Thus, ensure that you choose your offshore destination with a lot of thought.

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