The Rush to Eastern and Central Europe: Digital Momentum Drives Rising Potential

Having just returned from a visit to several of our software development outsourcing partners in Eastern Europe, I’m more convinced than ever of what this vibrant region has to offer.

Our focus on this two-week tour was on three rising-star locations in Eastern Europe: Croatia, Romania and Bulgaria. They feature among the group of 10 countries dubbed the “Digital Challengers” by global management consulting firm McKinsey.

For years, the digital economy has been a key growth driver for this group, which also includes the Czech Republic, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. Collectively, the digital economy of these countries grew 51% (by $42 billion) between 2017 and 2021, outstripping GDP growth in the region by more than half.

The Advantages of Europe 

The results of the increasing digital maturity are evident in the professionalism of the software development firms that have emerged, the highly-skilled developers they employ and the innovative approach they take to working with customers based across the world.

Accelerance is keeping pace. In Croatia, Romania and Bulgaria alone, we added an additional 1,000 professionals to our certified global software outsourcing network during our latest visit, raising our total developer count to more than 46,000. Now that’s an answer to Western tech talent shortages.

More broadly across Europe, our research for our 2023 Guide to Software Outsourcing in Eastern & Central Europe confirms the attributes that make this region such a compelling place for software development and digital transformation solutions:

• Large talent pools offering a wide range of quality skills 
• Strong educational focus on STEM
• Political and economic ties with the European Union
• Clear communications and cultural alignment with Western business practices
• Part workday overlap with US time zones and potential for rolling shifts

And, of course, there are cost savings. Developer rates are competitive, up to 30% lower than on the US domestic market. The bottom line is that Europe can offer significant cost-savings as well as some of the world’s most advanced software engineering talent. 

The Business Impacts of War

The war in Ukraine has upended the dynamics of the region. Beyond devastating consequences for the people of that country, it has sent shockwaves through the European development community.

Europe was cautiously re-emerging after a tough two years constrained by the COVID-19 pandemic when the war struck. It sent shockwaves through Europe’s software outsourcing sector:

• A flood of Western clients has pulled out of Ukraine, a key provider of software development to the international market, due to risk and stability concerns.
• Remarkably, many development firms in the west of Ukraine continue to operate effectively, despite the challenging circumstances. They are helping to ensure that Ukraine still has a functioning economy whenever hostilities finally cease. 
• Russia and Belarus are, of course, now simply off the table as outsourcing destinations. Much of the development work located there has shifted west in the lesser affected area of Europe, and  in some cases, to Latin America. Some estimates suggest that as much as 20% of the Belarussian IT workforce has left the country since unrest in the country in 2020, followed by the crippling sanctions imposed in the early stages of the war.
• Displaced Ukrainians, Belarussians and Russians will likely bolster the development workforce through Eastern and Central Europe as they pursue new opportunities to put their skills to work.

In the shadow of war, we are impressed by how our partners in the west of Ukraine, neighboring Poland and further afield, are adapting to the conditions and continue to deliver quality service to their customers. See our perspective from earlier this year about the impact of the Ukraine war on our clients and partners.

Economic Turmoil Ahead

There’s no sugarcoating it: Turbulent times still lie ahead in Europe. War is only part of the issue. In the US, the outlook among economists remains pessimistic, amid rising inflation and the looming specter of recession. And while Forrester Research predicts that software growth in 2022 has exceeded pre-pandemic levels, a record shortfall in tech talent saw a 23% overall spike in onshore development rates this year. 

A similar increase was recorded in Latin America, where the IT sector is scrambling to absorb an influx of business. Implementing digital agendas will remain a high priority in the year ahead, and companies looking to offset rising costs shouldn’t make the mistake of thinking Central and Eastern Europe is out for the count. Rates across the region have largely held steady, and outsourcing hotspots such as Bulgaria, Croatia and Romania are expanding rapidly.

Guiding You through It

With Europe rising as a destination but under disruptive and uncertain conditions, our popular region guide was due for an update. The 2023 version offers timely insights into the possibiities that Europe offers as you look to the year ahead to plan your needs for technology skills and resources.

Qualitied software engineering teams are not easily found. Challenging questions abound in the search. How do you know where to look for a high standard of skills and expertise, at the most competitive rates? Which international talent pools are overfished, and which are overpriced? What business and political conditions create the best opportunities? 

Our guide aims to provide a starting point. It profiles the outsourcing readiness of 16 key destinations in Eastern and Central Europe. Accelerance's proven assessment process combines a wealth of insights from world class international research along with our own in-person, on-site experience to provide a unique perspective on each location's potential for offshore partnerships. 

 The guide explores these locations:

• Far Eastern and Central Europe: The Czech Republic, Hungary, Poland, Portugal, Armenia and Ukraine
• The Balkans: Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Romania, Serbia and Slovena
• The Baltics: Estonia, Latvia and Lithuania  

We give you an instant snapshot of the factors likely to influence your decision to outsource development projects there. 

If 2022 presented a complex set of challenges following the turmoil of the pandemic, we can expect more uncertainty ahead. Eastern and Central Europe should be on your consideration list. Our thoroughly researched guide gives you the background you need to make the right outsourcing decisions in 2023.

Interested in exploring your global options for outsourcing? Contact an Accelerance advisor to help guide your strategy.