Cluj-Napoca Hot Spot for BPO/KPO/SSC Companies
The practice of outsourcing B2B operations has significantly risen in popularity in recent years. Romania has been identified as a preferred nearshore location due to its solid technical proficiency, widespread foreign language skills and a large workforce at a competitive wage rate. The outsourcing market moves from a competitiveness model based on cheap manpower to one built on cheap brainpower. Bucharest is in competition with top large cities to attract Business Process Outsourcing (BPO) and Shared Service Centers (SSC) operations. Knowledge Process Outsourcing (KPO) activities are to emerge in Romania in line with other CEE countries. The majority of the main BPO players from Bucharest have each opened at least one service center in large cities, around the main established university centers. To name just a few: Wipro, HP, Siemens, Bosch have expanded in Timişoara, Intesa San Paolo Bank, Route 66, IBM’s second center has opened up in Braşov, Capgemini set up offices in Iaşi, XL World opened operations in Iaşi, Bacău and Oradea. Cluj-Napoca has emerged as a BPO hub not only for software developmenet services, but for IT helpdesk, financial & accounting, procurement, audit, tax and advisory services.
Key Information Technology Outsourcing (ITO) Industry Trends
Offshoring of business services to CEE grew by 15% in 2010, surpassing expectations. More than 33,000 additional jobs were relocated to the CEE region which now offers more than 250,000 jobs according to the latest McKinsey & Company Report.
A 2009 report published by CEEOA estimated the ITO market in CEE to be worth USD 3.1 billion, up by approximately 25% year on year. According to Gartner, the CEE ITO industry faced only insignificant decline of 5.1% at the end of 2008 – early 2009, when the financial crises had severely struck the world economies. In this period, ITO activity was characterized by focus on implementation of basic functionalities rather than execution of end-to-end development. North American and Western European large-scale enterprises chose to either outsource their projects nearshore or continue their existing outsourcing contracts in order to maintain their competitive position in the long run and to avoid extra investments in moving and completing operations in-house.
The recession has changed the profiles and geographical orientation of IT outsourcers: before 2008 major procurers were large companies who turned to offshore outsourcing to cover domestic market labour shortages. Today, these companies no longer outsource full life cycle software development projects, but engage in service-level agreements. Moreover, ITO appetite has decreased among big enterprises as a result of increased in-house IT personnal loyalty. Currently, ITO activity is performed by small to medium sized companies, start-ups, venture capital backed companies and non-profit organizations. These companies cannot afford to hire expensive domestic IT labour force, as they would not even be able to get use of their expertise and experience for their short and small-scale projects. They simply choose nearshoring to cut costs and to keep their IT services at a competitive level.
In the past years, US companies were the main market players of the CEE ITO market. They chose to expand their offshore operations to CEE to ensure a back office or an alternative for business continuity, if something goes wrong with their Indian suppliers.
According to Everest Market Vista Research, in 2009 36% of all ITO contracts were signed by EU companies. This figure suggests that Western Europe and UK are gradually gaining dominant terrain in the global ITO market, catching up with the United States.
In his European IT Outsourcing Intelligence Report from 2010 IT Sourcing Europe has assessed selected CEE countries on a 5-point scale (where 1 is unsatisfactory and 5 is excellent) in terms of macroeconomic environment, innovation and emerging technology, innovative business models, IP security, software development costs and overall availability of resources for effective nearshore development. The assessment results have shown that Romania is the third most favourable place for Western European companies seeking to outsource their entire IT function.
Fig. 1: Selected CEE Countries’ ITO Service Offerings. Source: European IT Outsourcing Report 2010. Part 1: Central and Eastern Europe, IT Sourcing Europe Ltd.
According to CEEOA’s 2008 CEE Review Report, there were 580 domestic and international IT outsourcing companies in Romania in 2008, with 12,000 IT employees working for the industry. Romania’s total ITO market value was worth EUR 300.5 million.
Business Process Outsourcing (BPO) Overtaking ITO Services
A study published by the London School of Economics and Political Science states that the global BPO market grew at a faster rate than the ITO market in the previous years. In 2008, the global ITO market was estimated to be worth between $220 and $250 billion, while the BPO market was less. The estimate for ITO market, over next five years shows that it will grow by 6-9% per annum while BPO expenditures are likely to grow by 10-15% a year, from $140 billion in 2005 to potentially $230 billion by 2013.
BPO companies entered Romania’s top employers list. Cluj-Napoca became leading shoring destination, competing with Timişoara. BPO centers have either been set up in large Romanian cities or entered the Romanian market through acquisition of local companies. The majority of the main BPO players from Bucharest have each opened at least one service center in large cities, around the main established university centers. To name just a few: Wipro, HP, Siemens, Bosch have expanded in Timişoara, Intesa San Paolo Bank, Route 66, IBM’s second center has opened up in Braşov, Capgemini set up offices in Iaşi, XL World opened operations in Iaşi, Bacău and Oradea.
Cluj-Napoca has emerged as a BPO hub not only for software developmenet services, but for IT helpdesk, financial & accounting, procurement, audit, tax and advisory services.
KPMG has opend an audit & tax advisory service center in Cluj-Napoca, serving banking, pharmaceuticals, energy, insurance, cosmetics and chemical industries. ‘Celebrating three years in Cluj confirms our belief that the economic environment of Cluj and the Transylvania region is competitive and has a significant potential for growth. The KPMG Cluj office team is consolidated and (…) we are readily available to assist our clients in Cluj and in the entire Transylvania region.’ – said in a statement Adrian Vascu, KPMG Director for Advisory, responsible for the Cluj-Napoca office.
Sykes is a US based BPO service provider in communication, financial and medical services, technology, transportation and entertainment. The office opened in Cluj-Napoca in September 2010 works exclusively for the South-Korean company Samsung in Europe, with focus on technical support and client service.
The HP BPO centre in Cluj-Napoca works with employees in California on data centre automation software sold globally and designed to help in allocating IT spend and resources based on business priorities. IT service centre was opened especially for companies from Western Europe with outsourcing agreements in the country.
Remarul 16 Februarie has signed an agreement with Bombardier through which Remarul will produce in Cluj-Napoca train sets under the license of Bombardier.
Other important BPO service providers with offices in Cluj-Napoca are: Genpact, PwC, Emerson, EXL Service and Deloitte.
‘We selected Cluj-Napoca to set up our delivery center because it will strengthen EXL’s multilingual capability and provide access to a very deep talent pool. Cluj is fast emerging as a leading outsourcing destination in Europe and offers high quality skills in finance and accounting services.’ – declared Rohit Kapoor, President and CEO EXL Services.
Knowledge Process Outsourcing (KPO) in Cluj-Napoca
Knowledge Process Outsourcing (KPO) is defined as the intellectual equivalent of BPO and has become popular in the last four or five years due to the fact that major international investment banks or multinationals in other sectors need to reduce their market analysis and research costs. The delivery centre of Evalueserve in Cluj-Napoca offers Business Research, Investment Research, Intellectual Property Research and Data Analytics services to European clients. Evalueserve selected Cluj-Napoca to set up the European research centre as it is located at the crossroad of Western, Central and Eastern Europe, giving it diversity in terms of foreign language speakers.
Shared Service Centers (SSC) in Cluj-Napoca
SSCs in the region evolve into advanced business units handling strategic processes based on knowledge and requiring highly skilled specialists (this type of service is closer to R&D activity than the transactional scope of typical shared services). Office Depot opened a SSC in Cluj with the purpose of supporting back-office financial operations at a pan-European level. The Cluj SSC is the first of this kind Office Depot has opened in the world and it is for the time the only office the company has in Romania.