BY COSTIN LIANU AND FLORIN VREJOIU

With over 8000 computer science and electrical engineering graduates per year, Romania ranks 13th in the world in total quantity of IT graduates. As such, Romanian companies are not always in top consideration for applications development and BPO that are motivated largely by volume. Yet, Romania is becoming a destination of choice for customers and investors looking for a workforce with the right combination of skills in vertical industries and basic sciences, technology and languages, along with a friendly and cost-effective business environment, a dynamic domestic market, and a convenient European location.

The Romanian IT services and BPO markets are already significant although not the world’s largest, with over $250 million in exports in 2004. Significantly, though, exports grew at over 40 percent and are projected to continue growing at this rate for the next several years. Romania also ranks consistently in the top three in Eastern Europe in ICT-oriented foreign direct investment. This growth in exports and investment has been strong across all segments of the market, but a few segments stand out.

First, Romania has become the location of choice for large multinational outsourcing and technology firms looking for a European base of operations. Just this year, for example, Romania has seen investments in IT services, R&D outsourcing and BPO from Ness, Genpact and Wipro and significant expansions of previous investments by Oracle, Siemens, Alcatel and Freescale. For each of these companies, the Romanian operation is either the only or the largest outsource center in Europe.

Second, Romania is also becoming a leader in outsourced product development (OPD) and R&D especially in the demanding niches of chip design, embedded software and information security. Recent deals in these areas include Infineon, eSilicon and eAsic.

Third, Romania is becoming a leader in multilingual contact center. Domestic firms such as Interglobe, Connectys, EasyCall, Softwin and Cvantage provide services including CRM, financial services, customer support and survey administration and cater specifically to customers with broad language needs in addition to English. And, according to contact center operators, accent neutralization in English, German and European Romance languages is generally not required.

There are several reasons that growth and investment has been focused in these three areas: European offshore centers, outsourced product development and R&D, and multi-language contact center.

First, the Romanian domestic economy is one of the largest and fastest growing in Europe and, as such, is an extremely attractive sales market for global technology and services companies. With 21.9 million people, it is the fifth largest country in Europe. Its gross domestic product (GDP) topped $73.5 billion in 2004 with a growth rate of 8.3 percent. The country still has relatively low income levels with GDP per capita of only $3300, and costs both within the IT sector and outside are globally competitive. The domestic IT market is large at over $5 billion and is growing at over 20 percent, more than twice as fast as the next fastest growing IT sector in Europe. And, it is still early days with software and services comprising a small segment of the market but growing much faster than the whole.

Second, Romania has a large, well educated labor force that is still relatively untapped. As mentioned, Romania is only number thirteen globally in terms of IT graduates, with eight thousand per year. But, on a per capita basis, it has more IT graduates than the United States, 2 times more than Russia, 7 times more than India and 12 times more than China. HR professionals in both multinationals and domestic companies in Romania comment that the labor market still “feels relatively untapped” as opposed to leading offshore markets in Europe and Asia where good talent has already become hard to find and attrition is becoming an increasing problem. In addition, there are five cities with top-flight technical universities, and ten more in the second tier, which will help smooth demand as the market grows.

Third, Romania offers one of the most transparent and cost-efficient corporate tax environments in the world, with a simple 16 percent flat tax on profits. It has been ranked as one of the top performers in the World Bank’s “Doing Business Report” two years running. And, there are significant incentives for technology companies, which include exemption of software development headcount from all payroll and personal income taxes, duty free imports of much hardware and software, and proposed exemptions on investments in R&D.

Fourth, the work force has some fairly unique language skills. As a nation that speaks a Romance language, but with a sizable ethnic German population and excellent language training in the university system, Romania has an extremely multilingual labor market. One global IT player, for example, operates a Bucharest contact center in fifteen languages for its distributors in Europe and the Middle East. The same call center in Western Europe required employees from ten different countries. In Bucharest, all seats were filled locally. Pierre Audoin Consultants (2003) found that 80% of the IT work force speaks English, 25% speaks French and 11-12% speaks German including native speakers, and many other western languages are present in smaller percentages.

And, fifth, although hard to quantify, Romania clearly has a history and culture of technical excellence. The country produced the first computers and computer networks in the Communist block and was considered a leader even compared to the neighboring Soviet Union. And, it has maintained its educational system, still winning collegiate computer science competitions such as the IEEE Design Competition, the International Informatics Olympiad and other contests. In terms of IT vendor certifications, Brainbench calls Romania the “Most Certified Nation in Europe” and third in the world after the United States and India. Romanian business and academic communities clearly value engineering and sciences performance.

Where will the outsourcing market go next? As of this writing, the Romanian government and key players in the private sector are sitting down to elaborate a promotional strategy for the industry over the next few years. While the details are not nailed down, one aspect of the plan is to become a leader in IT services, OPD and BPO for key vertical industries already important in the country. Right now, Romania seems to be on its way in embedded software for telecomms and automotive, which employ 3000 and 4000 engineers respectively, and is becoming an important leader in information security software and chip design (over 2000 engineers in each) and for multilingual call center (1200 seats). Future plans include developing on existing capabilities in CAD/CAM for the automotive and apparel industries and for engineering services for the energy industry to grow exports and FDI. While it is an acknowledged fact that Romania will never be the biggest bulk outsourcing player in the world, the potential exists for it to be a leader in terms of sophistication and quality in these and other segments.

There are of course challenges. Romania will be admitted to the EU in 2007, and accession will bring increased competition. Romania needs to continue to attract both large and small companies in IT services and BPO as investors and customers. The government also recognizes the need to improve rural broadband access (where Romania is cooperating with the World Bank), to help the outsourcing industry improve its level of process maturity through CMM/I, and to introduce more entrepreneurial and project management classes into the university curriculum. Programs are underway in all of these areas, and time will tell.


Costin Lianu is the General Director for Export Promotion in the Ministry of Economy & Commerce of Romania. Florin Vrejoiu is the Executive Vice President of the Romanian Association for Electronic and Software Industry (ARIES), a trade association with over 200 company members. Contact Costin Lianu at costin.lianu@dce.gov.ro and Florin Vrejoiu at office@aries.ro.