Bulgaria's Outsourcing Market Has the Potential to Go Up 10 Times

15.11.2010

Bulgaria has a great opportunity to become a niche player in Eastern Europe and be known for specialized skills

One key message dominated the first outsourcing and off-shoring forum titled “Realizing the potential - Bulgaria on the Outsourcing and Off-shoring map” held November 11 in Sofia: Bulgaria has several key advantages to become a preferred outsourcing and off-shoring location for international companies. The event gathered more than 300 international and Bulgarian delegates - government officials, senior executives and prominent experts, who shared valuable experience and engaged in a forward-looking discussion about the potential of the outsourcing and off-shoring industry in Bulgaria.

The strong analytical and language skills, stable business and legal environment, low labor costs and good geographical position are amongst the major factors for foreign companies to outsource their business in Bulgaria.

The conference, organized by American Chamber of Commerce and InvestBulgaria Agency, in collaboration with Colliers International, attracted prominent speakers and attendants of the event, including Traicho Traikov, Minister of Economy, Energy and Tourism, Rossen Plevneliev, Minister of the Regional Development and Public Works, Krassimir Popov, deputy-minister of Labor and Social Policy and senior representatives from McKinsey & Company, AES, Hewlett-Packard, TMF, Johnson Controls, OPI, Adecco, SAP Labs and Colliers International.

According to Traicho Traikov, the outsourcing market in Bulgaria is currently estimated at EUR 100 - 150 M a year, but has the potential to increase ten-fold over the coming years. The Minister quoted A.T. Kearney’s Global Services Location Index that ranked Bulgaria as the best European location for servicing business process outsourcing functions. According to the classification, Bulgaria ranks 1st in Europe and 13th in the world.

“Bulgaria has three major advantages: the location and cultural proximity to key markets, its political and macroeconomic stability and the qualified human resources and talent”, noted Mr. Borislav Stefanov, Head of InvestBulgaria Agency, who was also amongst the speakers at the conference. “It is our responsibility to ensure that the perception of Bulgaria reflects the benefits that our country offers”, said he, highlighting that the outsourcing and off-shoring industry could be a key driver of economic growth and foreign investments.

“In AmCham we believe that companies can benefit from the outsourcing and off shoring as that helps them focus on their core business; it helps them reduce costs; it helps them get access to new technologies and finally, it helps them improve their services and time-to-market and focus on growth and innovation”, AmCham president Anthony Hassiotis said at the forum.

According to him, “Outsourcing has become a global trend in the last years. It is not a cure for the economic crisis, neither is it a cure for every economy, but it creates a lot of opportunities.

“One of the key objectives of AmCham is to support the government in positioning Bulgaria as an attractive outsourcing destination. The event was an excellent opportunity for international companies to meet and network with Bulgarian companies and to explore the potential of Bulgaria as an outsourcing and off-shoring location”, comments Mr. Valentin Georgiev, Executive Director, American Chamber of Commerce in Bulgaria. He further said the government needs to ensure that the educational system can continue to produce a highly-skilled labor force to serve the high demand among local and international companies in Bulgaria.

"Bulgaria can develop its outsourcing and off-shoring sectors not so much through advertising low-cost, but through high knowledge and competence," said Dr. Peter Peters, Senior Partner at McKinsey and Company, during his presentation.

In order to become a leading outsourcing/off-shoring destination by 2020, the country needs a two-tier strategy, said Dr. Peters. He elaborated on two approaches, firstly on making tactical changes in the near term:

-ensure funding from public/private sponsors;
-conducting initiatives to improve suitable talent availability;
-identification of focus areas for the local outsourcing/off-shoring players
-ensuring targeted demand stimulation for each focus area

The second aspect of the approach includes long-term actions, such as implementing structural changes to the educational system to increase the number of qualified engineers; setting up a Bulgarian expats regain program, and assure competitive costs of operations driven by a larger suitable talent pool and highly reliable, cost-effective enabling infrastructure.

“Bulgaria has a great opportunity to become a niche player in Eastern Europe and to be known for specialized skills adding value to business operations and development”, said Atanas S. Garov, Managing Director of Colliers International, Bulgaria. According to him, the services with the highest development potential include IT, engineering, research and development (R&D). He noted that employees in the outsourcing and off-shoring industry in Bulgaria which at present are some 10,000-15,000, could potentially reach 100,000 within five years if there are concentrated efforts to attract investors and major service users.
According to Detlev Hoch, Senior Partner at McKinsey and Company,

“Bulgaria can become the Silicon Valley of the Black Sea with the united efforts of the business, the government and the academia". He pointed out that revenues of the outsourcing companies in Eastern Europe will jump 4 times to 325 billion euros annually in the next 10 years. Currently, the outsourcing industry revenues are about 100 billion dollars annually.

Poll of McKinsey shows that 72% of companies outsource their work overseas to save money, and about 65% quote as an important driver the flexibility. According to Mr. Hoch, the revenues of outsourcing companies in Eastern Europe will double up to $ 250 billion until 2015.

Minister of Regional Development and Public Works, Rossen Plevneliev agreed about Varna’s potential to become the Silicon Valley of the Black Sea as it offers a variety of reputational universities and schools, good infrastructure, key location and well-developed businesses.

"When choosing an outsourcing/off-shoring provider, the financial offer is not always the most important decision factor. The partnership should be viewed as an extension of the company’s team, and relationships are of crucial importance. Of course, the quality of the services, the infrastructure and communications, and the business environment are also essential factors, as well as local government’s support: developing university programs focused on outsourcing, providing incentives to business, sponsoring educational programs and helping local companies define the opportunities to leverage language skills and cost optimization”, said Elizabeth Hackenson, Senior Vice President and Chief Information Officer, AES Corporation, USA.

The conference was kindly supported by Colliers International, Adecco Bulgaria, Johnson Controls Electronics, Outsource Partners International, Sitel, Sofica Group, TMF Group, and UniCredit Bulbank. Conference media partners were SeeNews and Investnet.bg.

Presentations:

Global Sourcing_McKinsey
PeterPeters_McKinsey
JohnsonControls_TalentDevelopment
ElizabethHackenson_AES
DamianHarrington_Colliers
 

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