southeast europe sourcing industry 2019...5 the sourcing industry in see is becoming an important...

SOUTHEAST EUROPESOURCING INDUSTRY

2019

Table of contents

Southeast Europe Sourcing Report, 2019 5

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Automation triggers workforce reorganisation toward knowledge-base tasks, fosters new skills

IT, outsourcing sectors drive office demand in Southeast Europe

Blending Talent & Technology: Evolving Customer Care For The Millennial Generation

Cloud, AI, Big Data open up new opportunities for outsourcing sectoras demand for added value rise - BOA Chairman Ivaylo Slavov

Automation, robotics to accelerate sourcing sector’s developmentin SEE - ABSL Vice-President Catalin Iorgulescu

Kosovo: Riding the global wave of aggressive outsourcing

Key Findings

1. Overview of SEE as a sourcing destination

2. Sourcing analysis

3. Vendors landscape

3.1 General overview

3.2 Distribution of companies by incorporation date

3.3 Distribution of companies by ownership

3.4 Companies’ foreign markets

3.5 Languages used in sourcing

3.6 Shared services centres

4. Market size and financials

4.1 Market size

4.2 Costs

4.3 Profitability

5. Industry trends

6. Methodology

About BOA

The Bulgarian Outsourcing Association (BAO) is an independent industry or-ganisation whose objective is to consolidate and represent the interests of the companies offering out-sourcing services, to communicate the benefits of out-sourcing to a wider public, to boost the competitiveness of the businesses in the sector and create favorable environment to attract foreign investments in the sector.

The association groups companies from all spheres of the outsourcing industry – companies offering services related to BPO, ITO, KPO, LPO, HRO and others.

For more information:

About SeeNewsSeeNews is an independent provider of business news and market intelligence for Southeast Europe. As a one-stop-shop with over 15 years of expertise SeeNews gives a 360-degree perspective on Southeast Europe, helping the customers to make informed business decisions. SeeNews provides market moving news and analyses for business, finance and industry professionals. The news stories keep the customers ahead of the curve, while the market research and company intelligence give actionable insights. SeeNews delivers bespoke market research, focused on emerging markets around the globe.

For more information: phone: +359 2 8012 630 e-mail: [email protected]

This report was commissioned by the Bulgarian Outsourcing Association (BOA) and prepared by SeeNews, a consultancy delivering company profiles, market reports and analysis for the emerging markets. The views and opinions expressed in this report are those of the author and do not necessarily represent the views of the Association, nor does the report anticipate decisions taken by the Association.

Bulgarian Outsourcing Association57, Tsar Simeon StreetSofia 1000, Bulgaria

phone: +359 87 704 2142e-mail: [email protected]

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SOUTHEAST EUROPE SOURCING INDUSTRY 2019

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The sourcing industry in SEE is becoming

an important tax contributor for the countries in the re-gion. In 2017, the total taxes paid by all SEE sourcing vendors increased by 8.5% y/y to EUR 88.6 mln. The industry is among the largest taxpayers in Romania and Bulgaria, adding more than EUR 70 mln to their national tax revenue.

The sourcing sector employed more than 220,000

people in 2017, double the number they were five years ago. Half of them were in Romania and another 60,000 in Bulgaria. Sourcing employed nearly 2.0% of the total labour force in both countries.

Sourcing in SEE generated EUR 3.995 bln

in labour costs, a figure doubled only within three years between 2014 and 2017. ITO (Information Technology Sourcing) traditionally reports higher labour costs per employee, with the highest value recorded in Slovenia - EUR 3,739 per month, or more than double the average monthly values in the following countries – Romania and Bulgaria.

Despite the larger number of ITO companies,

the two main sourcing sectors are almost equal in terms of operating revenue with ITO’s share being just over half the total – 50.6%. Forecasts predict faster growth of BPO and a switch of power by 2021, when BPO is expected to contribute about 55% of the total operating revenue.

Key Findings

In 2017, the Southeast Europe (SEE) sourcing market was esti-mated at EUR 7.542 bln, jumping annually by 14.9% and contribut-ing 3.3% to the region’s GDP. The SEE sourcing market is expected to double its size by 2021, as it did between 2013 and 2017, and ex-ceed EUR 14.700 bln. In Romania, the sourcing industry is already a key factor, slicing a share of more than 11% in the country’s GDP. Bul-garia is another SEE country with a strong presence of the sourcing sector in the country’s economy – it contributed almost 5.0% to the national economy in 2017. In the rest of the region sourcing is still an emerging sector in the coun-tries’ economies.

Nearly 60% of the analyzed companies

primarily operate as ITO vendors, while the remaining 40% have BPO (Business Process Sourcing) as main activity. ITOs are more numerous in all SEE countries except Bulgaria and Slovenia.

After an annual decline in 2016,

the profitability of the sourcing industry in SEE recov-ered in 2017 when it recorded a rise, reaching EUR 451 mln. The bulk, or EUR 259.4 mln, was generated by ITO companies.

The major sourcing destinations in SEE are

the capitals of Bulgaria and Romania - Sofia and Bucha-rest, and Romania’s Cluj-Napoca. Among the emerging locations with promising potential are the capitals of the other SEE countries and the large cities in Romania and Bulgaria.

The new trends in the sourcing sector include

transformational and innovative services tailored to the clients’ requirements, such as mobility, analytics, cloud services, social media, digital marketing and cyber security. The key to success for SEE is to move from sourcing to tech innovation.

The workforce, which in SEE is smaller

in comparison to the other competitor regions in Eu-rope, necessitates concentration on high-value added tech activities performed by smaller teams and compa-nies rather than large SSCs (Shared Services Centres) and subsidiaries of multinational BPOs achieving econ-omies of scale.

Multinational corporations increasingly choose

partners in Southeast Europe, instead of Indian pro-viders, and even a number of large Indian companies move part of their operations to the region. The reason is that, besides creating a more comfortable environ-ment, SEE sourcing companies are not just a provider of services, but tend to engage actively in the clients business development.

An increasing number of sourcing companies based in SEE grow out-side their national markets and achieve regional coverage. Their growth and possible cooperation with peers in Central Europe will accelerate the development of the sourcing sector in SEE and make the region one of the most competitive BPO and ITO destina-tions in Europe and worldwide.

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A large number of leading global tech corporations,

including IBM, Microsoft, SAP, Hewlett-Packard, Con-centrix, Accenture, Endava, DXC, Luxoft and NTT Data have established offices or subsidiaries in one or more SEE countries. Companies and institutions from all sectors in the economy open shared services centres in SEE, most notably the World Bank, Google, Amazon, London Stock Exchange, Samsung, Deutsche Bank, Uni-Credit, Coca-Cola, Xerox and Siemens.

Investment in Research and Development (R&D)

sourcing in SEE is on the rise. Large multinational cor-porations have started to invest in R&D units in SEE countries rather than in more basic sourcing, such as call centres, as they did before. Skilled talent pool and government support are among the key drivers for con-tinuing growth in R&D investments.

SEE is highly integrated into the European economy,

as four of the 11 countries in the region are EU mem-bers and another four are EU candidates. Low corporate tax rates are one of the major competitive advantages of SEE over the rest of Europe. Another key advantage is the average hourly labour costs, which are just about 36% of the EU-28 average.

SEE countries have several key advantages

over other sourcing destinations: language skills and education, cultural similarity to European and North American clients, government support and small time zone differences. The sourcing industry in some of the leading countries in the region – Bulgaria and Romania, has evolved from providing relatively basic services, such as call centres, to offering more advanced and complex services in the BPO and ITO fields.

Romania is the most attractive mature BPO and SSC

destination in the world, according to international rankings. The country, the only mature sourcing loca-tion in SEE, surpasses all its Central European compet-itors in terms of conditions, which include talent, tax environment, costs and IT infrastructure.

SEE is a preferred destination by German, Swiss and Austrian com-panies, which outsource mainly their IT service and software de-velopment activities. Romania is the most popular destination in SEE and third in the world behind Ukraine and India and ahead of all Central European countries. Ser-bia, Slovenia, Croatia, Bulgaria and North Macedonia also see an in-creasing number of German-speak-ing companies looking for partner-ships.

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1. Overview of SEE as a sourcing destination

Albania

Bulgaria

Bosnia andHerzegovina

Croatia

Market SizeNumber of CompaniesNumber of EmployeesGDP Share




EUR 41.2 mln213130.4%

EUR 2.176 bln48761,8604.9%

EUR 45.3 mln361,1140.3%

EUR 248.1 mln12110,2940.5%

Taxes ShareMost Used LanguagesSourcing Association



N/AEnglishAlbanian ICT Association

N/AEnglish; French; GermanBIT Alliance

1.3%English; German; FrenchBulgarian Outsourcing Association

0.4%English; German; ItalianCroatian Call Centre Association


Montenegro


EUR 18.4 mln131,0310.4%


N/AEnglishChamber of Economy Montenegro, ICT Association

Fig. 1 - Country Profiles


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NorthMacedonia

Romania

Serbia

Slovenia





EUR 108.5 mln903,1701.5%

EUR 3.943 bln551117,22711.5%

EUR 447.6 mln18617,8971.5%

EUR 513.2 mln758,9511.3%





N/AEnglish; French; GermanICT Chamber of Commerce

1.9%English; French; GermanAssociation of Business Service Leaders in Romania

0.9%English; German; Italiane-Development Association

0.5%English; German; CroatianICT Technology Network

SEE is highly integrated into the European economy, as four of the 11 countries in the region are EU members and another four are EU candidates maintaining inten-sive bilateral partnerships with the rest of Europe. This contributes to the stable business environment.

Thanks to the flat 10% corpo-rate and personal taxes, Bul-garia has the lowest opera-tional costs in the region. The other countries also boast ex-tremely competitive tax rates compared to Central and West-ern Europe.

Furthermore, the region has a well-developed telecom infrastructure, with Internet connection speed in some countries being among the fastest worldwide. SEE has a talent pool of well-educated and highly skilled pro-fessionals in the areas of information technology and languages, but in order to match the demand for labour force and keep up with the sourcing sector develop-ment on European level, the talent pool with suitable skills needs to be expanded.

The intensive development of the sourcing sector in Ro-mania has turned the country into one of the most at-tractive mature BPO and SSC (Shared Services Centre) destinations in the world. In the latest edition of its BPO and SSC Location Index global consultancy Cushman & Wakefield’s ranked Romania on the top among the 35 countries in the world with the highest BPO foreign di-rect investment over the last five years.

The only mature sourcing location in SEE surpasses all its Central European competitors in terms of condi-tions, which include talent, tax environment, costs and IT infrastructure, while providing a more risky, hence

2. Sourcinganalysis

2.1 Sourcing destinations

less attractive, option in terms of economic and politi-cal stability and energy security. Beside Romania, SEE also features two pioneering locations in the same in-dex - Bulgaria ranks seventh, while Serbia came 13th out of 15 emerging destinations. Bulgaria excels in terms of favourable conditions, where it is second in the world, but its expanding labour costs compared to the other emerging nations turn into a competitive disadvantage in the race with other emerging destina-tions. SEE’s strengths lie above all in the favourable operating conditions and enhanced connectivity, while risk and costs indicators put the region in the middle between Central Europe and Asia and South America in terms of attractiveness.

SEE counts among the emerging sourcing destinations in Europe, according to the Top 100 Outsourcing desti-nations ranking 2018 by global sourcing strategic advi-sory company Tholons. Among the super cities, Roma-nia’s Cluj-Napoca is the best ranked SEE destination at 36th place, 10 positions up compared to the previous year, when it was a new entry. This is a consequence of the rapid transformation of Cluj-Napoca into an ITO and Shared Services Centres hub of European scale. Bucharest, Bulgaria’s capital Sofia and Ljubljana are the other representatives of SEE among the global sourc-ing locations.

The universal strength of the SEE cities in the sourcing industry is the attractive cost level. Cluj-Napoca excels above all in talent skills and quality, as there is still un-tapped potential, but its weak points are business influ-ence, infrastructure and quality of life. Bucharest, Sofia and Ljubljana, on the other hand, stand on par with the central European cities as far as infrastructure, digital innovation and quality of life are concerned, but lack quantity of qualified workforce.

Sofia, Bucharest and Cluj-Napoca are the SEE cities where the BPO and SSC operations are of highest com-plexity. These operations typically contain on-demand services, flexible software platforms, cloud-based solu-tions, social networking, and integrated online commu-nities and reflect the evolution of these cities as key sourcing destinations not only in SEE but in CEE as well. Mid-high complexity BPO and SSC operations, which in-clude predominantly HR, risk analysis, digital learning, product training, and integrated services, are carried out in Bulgaria’s cities Varna and Plovdiv, while Burgas had mid-complexity BPO and SSC operations. Based on a comprehensive analysis of business, economic and educational factors, the SEE cities with the highest

SEE countries have several key advantages over other sourc-ing destinations: language skills and education, cultural simi-larity to European and North American clients, government support and small time zone differences. Bulgaria and Ro-mania are the leading sourcing destinations in SEE. The sourc-ing industry in these countries has evolved from providing rel-atively basic services, such as voice-based BPO, to offering more advanced and complex services in the BPO and ITO fields.

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potential for attracting new sourcing companies in a short and mid-term perspective are Cluj-Napoca, Var-na and the already established destinations Sofia and Bucharest. Romania’s Timisoara, Iasi and Brasov, along with Bulgaria’s Plovdiv and Burgas are the other loca-tions that will be increasingly considered as options for opening of new sourcing businesses.

SEE cities and regions are among the leaders in Europe mainly in terms of cost ef-fectiveness with few of them maintaining attractive busi-ness friendliness and a feasi-ble FDI strategy.

2.2 Cities of the future

More than 50 corporations are present in more than one SEE country. They include growing local providers that expand into neighbouring countries, multinational IT corporations, HRO providers, BPOs and contact cen-tres, as well as global corporations in other industries,

2.3 Trans-border collaboration

Among the most promising locations for long-term investments in the region is Romania’s capital city Bu-charest. It features significant human capital, welcom-ing business friendliness, along with competitive cost effectiveness, compared to other major SEE sourcing centres, as well as such in CEE. Other major SEE cities with a promising development potential are Sofia, Plov-div, Belgrade, Zagreb, Chisinau and Iasi. Some small-er cities in the region, such as Nis, Zrenjanin, Maribor, Prijedor, and Sabac also have potential to develop into vibrant economic centres. All of these large and small-er cities were among the leaders in the rankings of the Financial Times’ European Cities and Regions of the Fu-ture 2018/19 report. Beside cost effectiveness, the SEE locations should focus their development strategies on improving their business environment, FDI strategies, connectivity, human capital and quality of life if they want to be competitive, especially with their CEE peers.

opening shared service centres in multiple locations across SEE.

In order to match the strengths of their competitors, the SEE countries need to collaborate. Most economies in the region share a high level of openness and compa-rable levels of digitalization, which makes it sensible to transfer experience for digital investments and reg-ulatory policies. Furthermore, the SEE countries should facilitate exchange of skilled workforce and innovative technologies. Joint efforts will be helpful in the urgent-ly needed reskilling of the talent pool and prevention of brain drain from the entire region.

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3. Vendors landscape

3.1 General overview

The sourcing industry in most SEE countries is almost exclusively concentrated in their capital cities. This is valid especially for smaller and underdeveloped mar-kets, where the second stage of development, i.e. sat-uration of the primary national sourcing location and expansion to other cities, has not been reached yet. Albania, Bosnia and Herzegovina, North Macedonia, Kosovo, Montenegro and Moldova have more than 90% of the companies in the sector headquartered in their capital, with very few secondary offices in other cities.

Sofia and Zagreb also occupy the lion’s share in their country’s sourcing sectors, which makes them major

destinations of regional importance. Sofia is the city where the biggest number of companies in the whole region have their headquarters, even ahead of Bucha-rest. As more sophisticated markets, Bulgaria and Cro-atia see the spread of the industry outside the capitals – Varna and Plovdiv have developed into the largest non-capital sourcing centres outside Romania in the region, while Rijeka also makes fast progress and is home to 10% of Croatia’s sourcing vendors.

Romania and Serbia have the most uniformly distribut-ed sourcing sectors in geographic terms. Bucharest re-mains the heart of Romania’s sourcing, but Cluj-Napoca develops very rapidly and is the third most important city for the industry in SEE after Sofia and Bucharest with more than 100 companies operating in it. Iasi and Timisoara, whose progress is fuelled mainly by com-panies opening secondary offices, also grow to mature sourcing centres and host more than 60 offices each. Serbia’s capital Belgrade is home to more than half of all Serbian sourcing vendors, but Novi Sad and Nis also gradually expand their base of companies.

Romania

Bulgaria

Albania

Serbia

KosovoMontenegro

Bosnia and Herzegovina

CroatiaSlovenia

NorthMacedoniaTirana

22/0

Sarajevo 24/1

Zagreb 82/0

Rijeka 11/4

Ljubljana 46/3

Maribor 11/2

Skopje 81/3

Pristina 34/0

Podgorica 12/0

Sofia 420/19

Varna 27/35

Plovdiv 21/39

Moldova

Chisinau 65/0

Bucharest 295/32

Iasi 33/37

Cluj-Napoca 78/34

Timisoara 29/30

Belgrade 115/0

Nis 14/9

Novi Sad 37/2

Fig. 2 - Major Cities by Number of Sourcing Companies

Headquarters

Secondary location

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3.2 Distribution of companies by incorporation date

The outsourcing industry in SEE has been one of the fastest developing sectors for the last 10 years. Most of the companies – 415 BPO and 480 ITO, or 52.4% of the total, were established after 2008. More than half of these companies were registered in the period 2013-2017. The years 2018 and 2019 continued the trend with 27 newly created sourcing vendors. Among the large sourcing destinations in SEE, Bulgaria, Serbia and Croatia maintain the dynamics of the sector with more than 35% of all companies established after 2013, while Romania and Slovenia show signs of market sat-uration and the resulting slowdown in the number of newly created entities in recent years.

0 20 40 60 80 100 120

20192018201720162015201420132012201120102009200820072006200520042003200220012000199919981997199619951994199319921991199019891985 1

612

1724

1620

141212

2127

414242

4867

7484

9277

5475

87104

101119

111118

4925

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Fig. 3 - Number of SEE Sourcing Companies by Year of Establishment

3.3 Distribution of companies by ownership

The majority of the SEE vendors in the sourcing sector are owned by individuals or legal entities based in the respective country. Out of the 1,708 sourcing compa-nies in the region, 726, or 42.5% are of foreign major-ity ownership. ITO is more widely represented among the foreign-owned vendors with 382, while BPOs num-ber 344. However, the share of foreign-owned BPOs is considerably higher than in the ITO segment – 48.6% against 38.2%.

Entities from 56 countries own majority stakes in SEE sourcing companies. More than half of them are owned by investors originating from five countries – the Neth-erlands, the UK, Germany, the USA and Italy.

Bulgaria and Romania are the SEE countries with most investments in other companies within the region – 10 of the sourcing vendors in the rest of SEE have Bulgar-ian direct owner and further 10 - Romanian. Serbia and Slovenia also expand as investor countries in the re-gion.

Fig. 4 - SEE Sourcing Companies with Foreign Owners

Foreign Owners

Netherlands

UK

Germany

USA

Italy

Austria

France

Switzerland

Cyprus

Hungary

Israel

Belgium

Luxembourg

Bulgaria

Romania

Others0 50 100 150

48 46

36 46

51 23

40 21

11 32

20 21

21 19

23 15

6782

20 11

6 8

5 9

5 9

3 8

6 4

5 5

ITOBPO

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3.4 Companies’ foreign markets

3.5 Languages used in sourcing

3.6 Shared services centres

Sourcing companies in SEE have a very broad client base which includes local companies and partners from 103 countries outside the region. Western Europe-an and North American clients dominate the customer structure of SEE sourcing vendors. More than 600 SEE sourcing providers are active on the European market, mostly in Germany, the UK, Switzerland and France. The second most important customer region for SEE sourc-ing companies is Central Europe, represented by Hun-gary, the Czech Republic and Poland. Russia and Tur-key are also markets of growing importance, while the most clients from outside Europe and North America are based in Australia, China, Japan, the UAE and India.

Given the nature of the sourcing industry, foreign lan-guages are the main components of the companies’ activity. SEE sourcing vendors cover more than 30 foreign languages from around the world. English is the working language in more than 1,000 companies, or 63.2% of all sourcing entities in the region. It is by far the most widely used foreign language in each SEE country. German and French follow with shares bare-ly touching 10%. The other popular foreign languages in the sector include Spanish, Russian, Dutch, Polish, Turkish and Swedish.

Shared services centres rapidly transform the structure of BPO in SEE, most notably in Romania and Bulgaria. Their entry into the local markets has happened consid-erably later than the rest of the sourcing segments and nearly half of the 45 SSCs in SEE as of end-2018 were established in 2016 or later. SSCs are still present only in the larger sourcing markets in the region – 67.4% of them are in Romania and 18.6% in Bulgaria. The rest are located in Serbia, Croatia, North Macedonia and Montenegro. Together, all SSCs in the region generated a turnover of EUR 593.7 mln in 2017 and accounted for 7.9% of the total SEE sourcing market. They employed close to 12,000 people, or 5.4% of the overall sourcing workforce.

Romania is the major SSC hotspot in SEE with global technology companies fuelling the development of the sourcing industry with their shared services centres in Bucharest, and increasingly in cities such as Cluj-Na-poca, Timisoara, Iasi, Sibiu and Craiova.

SSCs generally fall in the medium-sized or large enter-prises category and rely on a wide pool of talent, which is readily accessible only in larger countries and big cit-ies. SEE represents a significant opportunity for global organisations seeking less crowded markets, but in order this trend to be sustainable, inflow of suitably skilled talent into the national workforce is necessary in the short term.

Fig. 5 - Number of SEE Sourcing Companies Servicing Foreign Markets

Canada 38

USA 233

Germany184

Poland19

Denmark25

Sweden 42

France83

Italy55

Austria52

Czech Republic19

Hungary22

Ireland22

Turkey25

Spain24

Russia26

Nether-lands

84Belgium

38

UK164

Switzerland94

Australia24


4. Market size and financials

4.1 Market size

4.1.1. Number of companies

4.1.2. Employment

ITO is the leading sector of the SEE sourcing industry in terms of number of companies. In 2017, they numbered more than 900, while the BPO sector boasted about 660 companies. HRO and VBPO providers dominated the BPO sector, accounting for 60% of its total num-ber of companies. The Albanian and North Macedoni-an sourcing markets are the most ITO-focused – more than 80% of the sourcing companies in the countries operate in this sector. Slovenia and Bulgaria feature the highest share of BPO providers with Slovenia being well ahead – more than 60% of its sourcing companies were in the BPO field, while in Bulgaria their share was 52%.

The successful development of the sourcing sector in SEE is reflected by its constantly growing number of employees. In the 2014-2017 period, they grew by an annual average of 19%. As of 2017, more than 220,000 people were working in the sector, or double the num-ber they were just five years ago. BPO with its various segments accounted for the bulk, or 66% of the total sourcing staff.

Fig. 7 - Average Number of Employees in SEE SourcingIndustry by Country

2013 20152014 2016 2017

120,000

100,000

80,000

60,000

40,000

20,000

0

ITO

BPO

HRO

VBPO

KPO

FAO

Other BPO

SSC

Fig. 8 - SEE Sourcing Companies Size - Number of Employees

< 10 >249

10-49 50-249

236

142

47

46

9

11

13 19

26

380

186

61

52

11

186

182

64

48

14

15

43 3623

64

126

46

26

10

7 3

3 4

RomaniaAlbania

Bulgaria Slovenia

Serbia

North Macedonia

Croatia

MontenegroBosnia and Herzegovina

Fig. 6 - Number of SEE Sourcing Companies by Sector in 2017

Total:1,580

91336

48

43

227

178

135

ITO

FAO

KPO

HRO

VBPO

Other BPO

SSC

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4.1.3. Operating revenue

In 2017, SEE’s sourcing industry was worth EUR 7.5 bln in terms of operating revenue. Romania and Bulgaria were the region’s main sourcing powers, contributing a combined 81% to the total sum. The operating reve-nue of the sourcing sector in the region rose steadily in the period 2014-2017, achieving an average annual

Fig. 9 - Operating Revenue and Employees of SourcingSectors in SEE

2013 20152014 2016 2017 2018 2019 2020 2021

ITO Operating Revenue (EUR bln) ITO Employees

BPO Operating Revenue (EUR bln) BPO Employees

2.137

1.712

71,51740,482

93,57047,765

114,34656,673

131,73664,820

148,37573,482

160,24579,360

173,06585,709

186,91092,566

201,86399,971

2.207

2.8043.162

3.723

4.522

5.491

6.669

8.099

2.538 2.992 3.4033.819

4.4155.104

5.9016.823

15

12

9

6

3

0

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

EUR

bln pe

ople

growth rate of 18.4%. The uptrend was more stable in the region’s leading five markets – Romania, Bulgaria, Slovenia, Serbia, and Croatia rather than in the other countries, where there were some fluctuations.

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Fig. 10 - Operating Revenue and Employees of SEE Sourcing Industry by Sector and Country

120

100

80

60

40

20

0

60

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0

EUR

mln

EUR

mln

EUR

mln

EUR

mln

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mln

EUR

mln

500

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0

2,000

1,500

1,000

500

0

100,000

80,000

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15,000

12,000

9,000

6,000

3,000

0

5,000

4,000

3,000

2,000

1,000

0

peop

lepe

ople

peop

le

peop

lepe

ople

peop

le

Albania

Bosnia and Herzegovina

Bulgaria

Croatia

North Macedonia

Romania

2013

2013

2013

2013

2013

2013

2014

2014

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2015

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2021

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2021

2021

2021

2021

ITO Operating Revenue (EUR bln) ITO Employees

BPO Operating Revenue (EUR bln) BPO Employees

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Fig. 11 - Operating Revenue by SEE Sourcing Sector (EUR mln)

Fig. 12 - Operating Revenue per Employee (EUR) in SEE Sourcing Sector by Country

Fig. 13 - Operating Revenue per Employee (EUR) by SEE Sourcing Sector

1,200

1,000

800

600

400

200

0

1,000

800

600

400

200

0

EUR

mln

EUR

mln

10,000

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peop

lepe

ople

Serbia

Slovenia

2013

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BPOBPO

ITOITOKPO

KPOSSC

SSC

Other BPOOther BPOHRO

HRO

VBPOVBPO

FAOFAO

4.1.4. Average revenue per employee

In 2017, an employee in the sourcing industry in SEE generated an average of EUR 34,000 of operating reve-nue. It was close to the average for the whole five-year period between 2013 and 2017 – EUR 33,800. In 2017, the average operating revenue per employee varied widely among the countries in the region. The peak was registered in Albania where about 300 sourcing employ-ees achieved operating revenue of EUR 41 mln, or EUR 131,000 per employee. Montenegro was on the other end with just EUR 18,000 per employee. The sourcing leaders in the region, Bulgaria and Romania registered an average of EUR 34,400 per employee.

RomaniaAlbania

Bulgaria SloveniaSerbia

North Macedonia

CroatiaMontenegroBosnia and Herzegovina

2013 20152014 2016 2017

200,000

150,000

100,000

50,000

0 2013 20152014 2016 2017

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4.2 Costs

The rising labour costs in the SEE countries in the five-year period up to 2017 were especially notable in the sourcing sector. Employment expenses in the industry jumped by an annual average of 25% in the period under review. Bulgaria and Romania played again a key role in SEE’s sourcing industry by slicing a combined share of 83% in the total employment expenses in the region. The average annual growth in labour expenses is slow-ing down. In 2017, it reached 20%, down from 24% in the previous year.

2013

2013

2014

2014

2015

2015

2016

2016

2017

2017

2018

2018

2019

2019

2020

2020

2021

2021

Fig. 14 - Labour Costs by SEE Sourcing Sector (EUR mln)

Fig. 15 - Total Tax Costs (EUR mln) of SEE Sourcing Companiesby Sourcing Sector

Fig. 16 - Average Monthly Labour Costs per Employee (EUR) inSEE Sourcing Industry by Country

6,000

5,000

4,000

3,000

2,000

1,000

0

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

3,500

3,000

2,500

2,000

1,500

1,000

500

0

3,500

3,000

2,500

2,000

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150

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024.5

37.6 46.246.1 50.8 61.073.2

87.8105.3

19.1

28.737.8 35.6

37.844.8

53.2

63.1

74.8

BPO

BPO

BPO

ITO

ITO

ITO

KPO SSCOther BPO

HROVBPOFAO

2013

2013

2013

2015

2015

2015

2014

2014

2014

2016

2016

2016

2017

2017

2017

1,869

2,001

1,576

1,058

886

893

1,902

2,044

1,623

1,102

1,048

877

1,918

1,906

1,792

1,154

986

1,004

2,114

1,918

1,952

1,251

925

1,091

2,182

1,987

2,079

1,339

940

1,193

Bulgaria

Croatia

Romania

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4.3 Profitability

In 2017, the SEE sourcing industry enjoyed a total net profit of more than EUR 450 mln. For the whole period 2013-2017 the industry’s net profit totalled almost EUR 2.0 bln. Overall, the total net profit of the sourcing in-dustry in the region was on the rise in the 2014-2017 period. The average uptrend was 17%, while it varied widely from country to country. Montenegro posted the highest average jump, of 45%, while profitability fell down by 5.3% in Bosnia and Herzegovina.

Fig. 17 - Net Profit/Loss (EUR mln) of SEE Sourcing Industry by Country

Fig. 18 - Net Profit/Loss (EUR mln) by SEE Sourcing Sector

RomaniaAlbania

Bulgaria SloveniaSerbia

North Macedonia

CroatiaMontenegroBosnia and Herzegovina

2013

2013

2015

2015

2014

2014

2016

2016

2017

2017

250

200

150

100

50

0

300

250

200

150

100

50

0

3,000

2,500

2,000

1,500

1,000

500

0

6,000

5,000

4,000

3,000

2,000

1,000

0

2013

2013

2015

2015

2014

2014

2016

2016

2017

2017

1,455

3,294

765

1,673

1,499

3,329

783

1,588

1,558

3,382

748

1,659

1,780

3,176

922

1,739

1,704

3,739

863

1,737

Serbia

Slovenia

BPO

ITO

KPO SSC

Other BPO

HRO

VBPOFAO

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5. Industrytrends

The key steps to be carried out by SEE policymakers to maintain sourcing globally competitive in the future include:

- Promote modern secondary and tertiary education with strong emphasis on STEM skills and more relevant to technologies majors;

- Support private digital skills education for adults of all ages;

- Invest in improvement of coverage and quality of IT infrastructure;

- Develop the necessary environment for innovations and entrepreneurship.

Demand for sourcing will con-tinue to grow, with clients widening their scope of need-ed services. The reasons that drive the development of the sourcing sector are also chang-ing with companies focusing more on achieving customer centricity and improving their technological capacity, rather than seeking just cost cutting.

Global research of artificial intelligence (AI) shows that currently existing AI solutions can be adapted to replace at least 30% of the activities performed in some economic sectors. Among the most vulnerable to AI automation are finance and insurance, professional services and IT, media and telecommunications, where data collecting or synthesizing accounts for nearly half of the professionals’ time at work. These sectors are heavily outsourced, which means that the growing de-ployment of AI in them will change the amount of work-force needed in the medium and long run.

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SWOT analysis of SEE Sourcing

• Low corporate tax rates are one of the major competitive advantages of SEE against the rest of Europe.• Proficient language skills and education.• Cultural similarity and geographical proximity to Western European clients.• The region has a well-developed telecom infrastructure, with Internet connection speed in some countries being among the fastest worldwide.• The countries in Southeast Europe hold competitive rental rates for prime office premises compared to their main sourcing competitors - Slovakia, Poland and the Czech Republic.

• The key to success for SEE is to move from sourcing to tech innovation.• Concentration on high-value added tech activities performed in smaller teams and companies.• International collaboration between the countries in the region can bring multiple benefits and boost their sourcing power.• Intensive government support.

• Lack of specialized sourcing organizations in more than half of the countries.• Tightening labour force due to the demographic crisis in some SEE countries.

• In order to match the demand for labour force and keep up with the sourcing sector development on European level, the talent pool with suitable skills needs to be expanded.• SEE still lags behind the EU average in terms of STEM (Science, Technology, Engineering, and Mathematics) skills of its human capital.

Strengths Opportunities

Threats Weaknesses

6. MethodologyThe purpose of the SEE Sourcing Industry Report 2019 is to summarize the sector’s de-velopments in Southeast Europe, consisting of Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, North Macedonia, Moldova, Montenegro, Romania, Serbia and Slovenia, in the period 2013-2018 and provide reliable, comparable, comprehensive and independ-ent data about the market stakeholders.The main focus of the report is the analysis of the ITO and BPO segments of the sourcing industry, including voice-based BPO (VBPO), finance and accounting sourcing (FAO), hu-man resource sourcing (HRO) and other ven-dors specialized in providing more than one type of services. KPO is included as a sep-arate sub-category of BPO in the analysis to reflect its growing significance within the in-dustry. For the same reason, we take shared service centres out of the Other BPO and ex-amine it as a separate sub-category of BPO throughout the report. SSCs are included in this report only in cases when they are sep-arate legal entities. We have also listed the global companies active in other sectors that operate own SSCs as part of their trading and manufacturing subsidiaries in SEE and not as separate legal entities.The report was prepared between February and April 2019.The SEE Sourcing Industry Report 2019 en-compasses 1708 companies from all sourc-ing segments. We have included 555 compa-nies from Romania, 501 from Bulgaria, 190 from Serbia, 121 from Croatia, 90 from North Macedonia, 76 from Slovenia, 66 from Moldo-va, 37 from Bosnia and Herzegovina, 36 from Kosovo, 23 from Albania and 13 from Monte-negro. The identification process consists of the following steps:- The initial pool of companies is derived by individual desktop check of all companies in our database with industry classification in one of the following fields (NACE rev. 2.0): 58.29; 62.01; 62.02; 62.09; 63.11; 63.99; 78.10; 78.20; 78.30; 82.11; 82.20. Then, only companies with turnover available and more than five employees for at least one year between 2013 and 2017 are shortlisted. In the process of company identification, com-panies performing at least some amount of sourcing activities are included in the pool.- Sourcing, IT and other relevant associations, clusters and other industry organisations for new players are checked and added to the pool if they meet the criteria.- News and reports in English and local lan-guages are checked to identify additional sourcing companies not identified through the previous steps.- Manual desktop research to classify each

company into one of the previously defined segments. In cases where a company per-forms activities in more than one segment, it is classified only in the segment which can be defined as primary.- Final check of the pool and distribution by segments.- Sending of the final pool of companies to national sourcing and other relevant associa-tions, clusters and organizations for verifica-tion and confirmation.The financial analysis consists of three chap-ters – Market size, Costs and Profitability.We have used the official non-consolidated company records of all vendors to collect information about financial indicators such as labour costs, operating revenue, taxes, net profit and loss for five consecutive years - 2013-2017. Time analysis is based on the aggregated indicators of all companies for 2016 and 2017. Forecasts for the period 2018-2021 are calculated based on the CAGR of the companies in the respective segment in the five-year period 2013-2017. Companies from Kosovo and Moldova have been exclud-ed from the financial analysis in the three chapters Market size, Costs and Profitability, as well as the employment figures due to lack of full financial data in the official sources in these countries. Thus, the financial analysis is based on the results of the 1,606 compa-nies in the remaining nine SEE countries. Forecasts also exclude, besides Kosovo and Moldova, companies from all other countries established after 2017, due to high possibility of abnormal growth rates that could give an incorrect notion of the growth of the overall market.Average annual employment figures are tak-en from the financial indicators pool with all identified companies. Calculations include sum by segment and average by segment. Where differentiation of employees by activ-ity (sourcing or not) or between segments is not possible, we consider the full headcount of the companies in the calculations of their primary segments.In the market size chapter operating revenue is used as an indicator of market size. Calcu-lations include sum by segment; average by segment; revenue/employee ratios. Labour costs and social security costs, total taxes from official financial reports are used in the costs chapter, where calculations are the same as in market size.Net financial result, taken from the individu-al financial reports of the companies in our databases, is used as an indicator of profita-bility. Calculations include sum by segment; average by segment; profit/employee ratios. Net profit margin is calculated as net profit/

loss over operating revenue.All original data is taken in the local currency of the respective country and converted into euro using the official exchange rate by the respective national central bank as of the end of the period to which the data refers. Only macroeconomic indicators reporting average data for the period under consideration are converted into euro using the average annual exchange rate for the respective year.Information for the analysis in the chapters SEE as a sourcing destination, Sourcing fac-tors, Sourcing analysis and Industry trends is derived from official government sources, in-dustry reports by global consultancy compa-nies, international institutions, news articles and expert opinions.Factsheet data about all SEE countries is gathered from official government and statis-tical sources. Economy forecasts are taken from the latest available edition of the IMF World Economic Outlook.Factors, such as labour and electricity costs, taxes and office space developments are ex-amined based on desktop research of official national and EU sources and consultancy re-ports (Eurostat, Colliers International, CBRE).Talent pool analysis is based on data from the national statistical institutes, as well as international rankings. The number of uni-versities preparing potential employees for the sourcing sector is determined by manual checking of the databases of licensed higher education institutions of ministries of ed-ucation in all SEE countries as of 2018. We have defined professional areas suitable for the sourcing industry as follows: Language studies, Administration and Management, Economics, Mathematics, IT and Computer Science and Communication and Computer Technology.The positions of SEE countries in global rank-ings are derived through desktop research of international rankings relevant to sourcing by different consultancy companies and institu-tions.Information concerning internet infrastruc-ture, speed and costs, standard and cost of living, university quality rankings and STEM skills is obtained through desktop research of international rankings and publications of consultancy companies and databases of self-reporting websites. Salaries, education statistics, digital and language skills are ana-lyzed based mostly on official national statis-tics and Eurostat data for the latest consist-ently available for most countries year.In the Vendors landscape chapter, for each company we identify: headquarters (accord-ing to the national trade registers), second-ary offices in the respective SEE country and abroad (through desktop research of corpo-rate websites, news and job sites), ownership structure (latest available official data), cus-tomers by country and languages (through desktop research of corporate websites, news and job sites). Companies from Koso-vo and Albania are taken into account in the analysis of the vendors landscape.Corporate investments are taken from online and printed media, news integrators, compa-ny websites and annual reports. Events are gathered through desktop research and in-clude events relevant to the sourcing sector in SEE and the rest of Europe.

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АUTOmaTION TRIggERS wORKFORCE REORgaNISaTIONtoward knowledge-based tasks, fosters new skills

Southeast Europe’s young and highly-skilled multilingual workforce has been the main driver of the rapid development of the sourcing industry in the region. The companies operating in the sector are perceived as highly appealing to job seekers with the opportunities they offer for the acquisition of managerial skills and a quick climb up the career ladder, coupled with an attractive remuneration package. Yet as the sector thrives, competition for talent has intensified sharply, exacerbated by the ongoing braindrain in most countries in the region. Talent identification and retention has become a vital issue for the sourcing companies, forcing them to be extremely flexible in terms of working conditions they offer and creative

and generous with their social benefits programmes. At the same time, automation opens up opportunities for development of a new skillset in employees and engaging them in more interesting jobs as it prompts companies to reorganise towards knowledge-based tasks.

“During the last several years the outsourcing industry is perceived as one providing very good professional opportunities both for people at the start of their career and for professionals with solid track record in the specific area. The industry offers excellent working conditions, cross-country and cross-cultural collaboration, opportunities for developing leadership, project and process management capabilities,” Darina Peneva,

Managing Director at Stanton Chase, comments. “In many cases the sourcing industry requires intellectual agility to handle complex functions and interaction within matrix structures. The dynamics of the sector seems to be both attractive and challenging for many professionals.”

Competition forces sourcing industry to be highly creative in talent attraction, retention.

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“The industry is fiercely competitive for attracting rare talents and the companies are becoming increasingly creative in identifying and retaining them,” Peneva says.

A recent study by human resources consulting firm Mercer shows that concerns around talent migration and corporate responsibility to address societal issues have increased significantly since last year. Add that to cybersecurity risks and changing business regulations, and companies are facing pressure on multiple fronts. The traditional mantra of “attract and retain” is being replaced with “attract and continually attract”, the firm concludes in its Mercer Talent Trends Study 2018/2019.

Flexible working hours and a cool working place are becoming an indispensable part of the package that sourcing companies offer their staff in a bid to beat their industry rivals.

In the sourcing industry 50% of employees want their company to offer more flexible work options, the Mercer study shows. For 54% of employees managing their work/life balance is one of the top five things their company can do to help them thrive at work. Compared to 40% in 2018 and 26% in 2017, the shift in the employee mindset is significant.

To deal with the shortage of talent, most of the companies in all sub-sectors of the sourcing industry are already targeting young

As many as 80% of people still do not realise that they can have their first job while they are still studying, Milev says, adding that this is a win-win for the employees and the company.

50% of employees in sourcing industry want more flexible work options.

For entry-level roles sourcing companies seek to attract foreigners.

“Some of our colleagues started work with us in their first or second year in university,” he notes. “Even while they are still in university, employees may become team leaders of dozens, even hundreds of people.”

For entry-level roles a trend is observed to attract young foreigners who are mobile and open for new experience outside of their home country, according to Peneva.

At the same time for senior roles still many companies hire expats with strong background in the industry and focus on continued improvement of processes, work efficiency, leadership and development of people competencies.

The most challenging roles to fill are middle management positions where the migration of

Competition for talent, however, is heaping pressure on the companies.

professionals from university and even from high school by hosting open-door events or career fairs as a means of expanding their network.

talents between industry players is higher and hence the demand, according to Peneva. Regardless of the nature of hierarchy in the organisational structure such roles require equally high level of soft skills and people management capabilities as the C-level positions, she notes. The above factors drive salary levels in the sourcing industry upwards at a faster pace than the increase in work efficiency and productivity.

In search for employees, a number of companies are shifting their attention outside the capital to cities with universities, offering a steady flow of multi-lingual young workers. In Bulgaria, cities such as Veliko Tarnovo, Plovdiv, Burgas and Varna are emerging as new industry hubs.

The use of contingent workers too is rising, especially for transferable skills such as project management. According to the Mercer study, 82% of employees say that they would be willing to consider working on a freelance basis.

At the same time, largely as a result of labour arbitrage, the Western Balkans are becoming an increasingly attractive sourcing destination.

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More than 50% of executives expect AI and automation to replace one in five of their organisation’s current jobs, according to the Mercer study. But this is only half of the story, as AI and automation will also create 58 million net new jobs by 2022, according to estimates from the World Economic Forum.

As many as 60% of the companies plan to increase their spending in automation, the Mercer study found out. The executive perspective on technology investments, related to HR

For senior roles many companies hire expats with strong background in the industry.

“Аutomation triggers the reorganisation of the workforce in the industry toward knowledge-based tasks. Smart technologies and AI bring opportunities for offering more complex and value-added services to clients which are expected to fuel further the growth of the outsourcing industry,” she stresses.

“Certainly, AI and automation are taking away part of jobs, mostly end-customer support activities. However, they are definitely putting in place more complex relationships between our clients’ various products and platforms, which too require support,” Milev says. Considering that interconnectivity between various devices is growing exponentially, even if the share of support for the end-user may be smaller, the latest estimates show that the jobs needed to meet customer care needs will not be fewer.”

In his view, emerging disruptive industries such as Uber and Airbnb too prefer to rely on professionals with a proven process management track record and multilingual staff for their customer service.

“Finally, something important that we need to note in connection with the

His optimism is shared by Peneva.

“within the next three to five years we expect that both BPO and ITO segments will continue to grow. We would rather say that due to the world’s digitalisation the ITO sector will be of higher interest for potential professionals.”

Аutomation, smart technologies to fuel further growth

With automation already an integral part of the sourcing industry, companies are now fostering the development of new digital or soft skills in their employees and engaging them in more creative and interesting jobs.

Most outsourcing companies are implementing in some domains automation, robots and chat bots. This is helping them successfully manage some transactional tasks and processes considered as routine and unattractive, Peneva says. With the advancement of AI,

data analytics and data science Stanton Chase expects also significant growth in the KPOs sub-sector. The firm also sees potential for growing business and services and for offering professionals more complex and challenging roles.

processes and employees include chatbots to improve employee self-service; AI to identify employees at risk of leaving; AI to recommend job openings and career paths; AI as part of the performance management process; AI to customize compensation or improve pay benchmarking.

expectations for an economic downturn is that the BPO industry is less vulnerable to recession than other industries. Furthermore, de-pending on the customer mix and the portfolio of services offered, a recession for some may mean more jobs for the BPO industry,” Milev also said.

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IT, OUTSOURCING SECTORS DRIVE OFFICE dEmaNd IN SOUTHEaST EUROPE

The companies active in the IT and outsourcing sector have emerged as the main driver of demand in the largest office markets in Southeast Europe (SEE) – Romania and Bulgaria - over the last years, playing a key role in the introduction of the latest trends in office space utilisation on the local scene.

“The outsourcing sector impacted to a large extent the office markets across SEE,” Stanimira Pashova, Head of Office Space, Cushman&wakefield Forton, comments.

“In Bulgaria the IT and BPO industry was the main driver of market recovery after the financial crisis. Similar process was observed on the Romanian market. This industry has been on rise during the last decade which translates into increasing demand for high-standard office space in the capitals and the big cities,” Pashova adds.

According to Colliers International, another real estate consultancy, the companies from the IT and outsourcing sector accounted for 80% of the transactions on the

Sofia market in the second half of 2018, which is slightly above 97,000 sq m.For the last few years, companies in the IT and Business Process Outsourcing (BPO)/Shared Service Centers (SSC) have been the most important demand generator on the office market with about 70% share of the take-up volume in Sofia and more than 40% in Bucha-rest, according to Pashova.

Oracle is the largest office occupier in Bucharest with total space of about 60,000 sq m, according to Cushman & Wakefield Echinox, For-ton’s Romanian partner. Traditional BPO companies, such as Genpact, Accenture, WNS, Telus Internation-al, and CGS are also present on the Romanian market.

In Sofia, the largest tenants are HP, Telus, VMWare, all of them occupying more than 20,000 sq m office space. Technology compa-nies such as Progress, Visteon and Experian, as well as BPO providers such as 60K and Sutherland are also among the major tenants.

Catering to the needs of their predominantly young, highly skilled

and fastidious staff, the compa-nies in the sector are pushing up for higher standards and workplace flexibility. As competition among the IT/BPO companies intensi-fies, state-of-the-art office space becomes an essential part of the package that employees get.“due to the specific tenant requirements related to two significant property search parameters – 1) workplace flexibility, and 2) short periods between the request for space and the actual delivery, the sector has played a major role in motivating office landlords to start introducing some of the most contemporary office space practices. This has also positively influenced the high quality of the fit-out works carried out by the owners,” Colliers International says.

Looking forward, IT and outsourcing companies seem poised to maintain their leading position in terms of the total take-up volumes in Sofia and Bucharest.

“In 2019 we expect the IT & outsourcing companies to keep the highest share of total take-up volumes for Sofia,” Colliers International says.


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This view is shared by Pashova.“As for the 2019, we expect the sector to keep its leading role on the office market.”

Furthermore, more global industry players are sizing up the local markets. “Companies new to our market plan to set up operations in Bulgaria, assessing the capital and other major cities in the country,” Colliers International said.

According to Pashova, the plan of the World Bank Group to establish a shared service center in Sofia will further strengthen the city’s position as preferred location for outsourcing operations.

In January the World Bank Group said that it will establish a second shared services centre in Sofia, which will provide back office corporate and technology support to the group’s internal business operations. The centre is expected to launch operations by mid-2019, the World Bank Group said. The second centre in Sofia will complement an existing World Bank Group shared services centre in India, which serves the organisation with accounting, HR, IT and other services. Some 300 people are expected to be employed in the new centre in five years, the Bulgarian government has said.

A major player in the BPO sector, Telus International, too has announced ambitious expansion plans. In February it said it plans to hire 500 by the end of June in order to support the expansion of its operations in Romania.

In another interesting development earlier this year international IT solutions provider Softline, a strategic partner of tech giant Microsoft with $1.27 billion in revenue in 2018, entered the Bulgarian market, after successfully launching operations in six Eastern European markets.

The Bulgarian Outsourcing Association too announced plans in the beginning of this year to open at least 13,000 new positions in the outsourcing industry in Bulgaria by 2021. According to Colliers estimates, converting this data into office space, the expected new take-up is at least 140,000 sq m, or about 70,000 per year in 2019 and 2020.

With a close focus on talent development and workplace flexibility, most companies opt for leasing space, rather than acquisitions.“We observe that most of the companies in the outsourcing sector are looking for workspace flexibility and are trying to be in line with the international trends in this respect. Therefore, leasing space is the preferred format of transaction over acquiring,” Colliers International comments. “The main investment, companies are willing to make, is in talent development. When it comes to real estate, employees remain the primary focus – that is providing a workplace that supports productivity and wellbeing is a business priority.”

Looking at the dynamic pace of development of the sector, the outsourcing services landscape seems bound for changes. As competition for employees tight-

ens in the capital cities, more organisations are investigating the opportunities to set foot in smaller cities.“With the capital cities becoming increasingly competitive in terms of skilled workforce and labour cost, increasing number of IT and BPO companies are looking for second and third location in the secondary cities,” Pashova comments.

This trend is evidenced by companies such as Amazon, Oracle, Microsoft, Genpact, and UniCredit in Romania, which are present with offices and operations in Cluj-Napoca, Iasi, Timisoara and Brasov.

In line with this trend, in March US digital services company Globant opened a development centre in the Romanian northwestern city of Cluj-Napoca.

In Bulgaria, the offices of Suther-land in Burgas, Sitel and Concen-trix in Varna, Telus and Bulpros in Plovdiv are among the notable examples. However, in both coun-tries the capital cities represent the industry’s main local office market. “In the short and medium term, we expect this sector to remain the most active occupier in both capitals and main regional cities,” Pashova says.

A detailed research performed by Colliers International on behalf of a potential new entry in the BPO sector reveals that Varna and Cluj-Napoca are cities with good potential for establishing as office locations for outsourcing companies, at the top of a short list of eleven cities in Hungary, Romania or Bulgaria, after an assessment of country and city factors providing a broad scope of consideration across the business, economic and educational spectrum.


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Digital innovations are revolutionising CX

At TTEC we are seeing a number of trends across the CX industry, not just customer care. Trends such as a multitude of self-care channels and options, automation of simple and repetitive functions, increased efficiency and lower workload, reduced failure demand volumes, and greater consistency in customer experience.

The proliferation of channels, data and innovation make it more complicated than ever. Automation is not a silver bullet and companies need a thoughtful approach to managing artificial intelligence/machine learning (AI/ML) as customers still want to talk to a human, and companies still want to talk to their customers.

According to Gartner, by 2020, customers will manage 85% of their relationships with brands without interacting with a human. So it is certain that automation will continue to play a larger role throughout the global CX industry. New technologies and the quest for cost savings have already led industry leaders to rely more heavily on robotics.

Google’s AI Assistant is getting so smart it can place phone calls and humans think they’re talking to real people. It has a convincing voice and can save you time by performing simple tasks such as reserving tables, scheduling hair appointments and more. Google does say there is more work to be done before it is ready.

AI and chatbots however, in our opinion, are still not able to replicate the human element, for example they lack empathy and that will not change any time soon. The human element is still very much essential.

Given the developments we’re already seeing in the AI and machine learning area, we will see robots “mature” and become more useful over time. So how do you blend humans and technology

and ensure you deliver excellence at every touchpoint in the customer journey with a blend of People, Process, and Technology?

Well first you have to have the right people with the right training, tools, knowledge, and mindset. There are many ways to do this. For example, develop an all-star team around a culture of caring and passion, delivering the best possible experiences for your customers and brand, provide training, technology, and facilities to represent your brand to your most important assets – your customers and your employees, and implement solutions such as a digital recruitment engine, an ongoing learning approach, or a web-based business intelligence platform that provide real-time views of employee’s performance.

Channel preferences are shifting by generation.

We have also seen 64% of baby boomers prefer voice versus only 12% of millennials, with ‘doomsday predictions’ that this is the end of contact centres being overly zealous & inaccurate. The work that will remain, however, will be complex and challenging as customers will raise complicated issues that could not be solved by AI or automation. These problems may not have defined solutions. Also some customers will simply prefer not to leverage self-care and will demand human care. There are also customers who we want to contact proactively, with automation shifting contact centre volumes from failure demand to value demand. This will require account relationship management where representatives focus on maximising a customer’s lifetime value.

A symbiotic relationship

Automation, bots, and omnichannel solutions are making it easier for

customers to interact with a brand and this presents an opportunity to deepen and expand customer relationships.

We envisage a hybrid workforce where Bots, or digital Guides, work seamlessly with our human Guides – the digital Guides simplifying and human Guides engaging, allowing us to reduce cost, increase sales, and improve the customer experience.

The IVA (an Intelligent Virtual Agent) is trained with the same materials used for live agents, structured into a format it can “read” within the Training Platform. A symbiotic relationship is formed and only after the IVA is proven during interactions with live agents is it released for direct interaction with customers.

In the digital revolution, a more highly skilled Workforce is even more critical.

Blending Talent & Technology:

EVOLVING CUSTOMER CAREFOR THE mILLENNIaL gENERaTION

How you can blend talent and technology within the evolving customer care space

We are seeing rapid change in the expectations of potential and existing talent. The competition for quality labour is increasing and Millennials and Gen Z are more discerning decision makers.

Gen Y/Z change jobs more than other generations. We are in a job war for talent in most if not all of our markets. It will mean more complex work as agents interactions have a higher likelihood to be emotive and have a higher value, therefore there will be a different skill requirement such as complex problem solving and critical thinking, with a higher expectation for personal and career development.

The challenge for contact centres today is retaining the higher skilled talent needed in the future. Organisations that will be successful will be those that adapt their customer care value proposition.

For more information on how TTEC is driving digital transformation and omnichannel customer experiences in EMEA, visit www.ttec.com/emea.

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Cloud, AI, BIg dATA OPEN UP NEW OPPORTUNITIES FOR OUTSOURCING SECTOR AS DEMAND FOr ADDED VALuE rISES

INTERVIEW

Ivaylo Slavov is the chairman of the Bulgarian Outsourcing Association.

He is actively working to intensify collaboration and communication with foreign associations in the IT and BPO sector in order to position Bulgaria as a preferred outsourcing destination, providing products and services with added value on a global level. The other main focus of his work is building an effective strategy for developing and attracting qualified experts, developing the potential of several Bulgarian cities (besides Sofia, Plovdiv and Varna) such as Blagoevgrad, Veliko Tarnovo, Burgas and Ruse, and turning them into attractive outsourcing destinations.

Ivaylo Slavov has more than 20 years of international experience in the fields of Information Technology, Financial Services, IT-Outsourcing, Business Process Outsourcing and Human Resources.

In 2010 he co-founded BULPROS - a company which currently has over 1,200 employees in 19 offices across North America and Europe.

He is also a member of the Board of Directors of American Chamber of Commerce in Bulgaria (Am-Cham).

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What are the main trends shaping up the development of the outsourcing sector in Bulgaria and the region of Southeast Europe?

The outsourcing sector is going through major changes on a global level, which are driven by new technologies such as Cloud Technologies, Artificial Intelligence and Big Data. All these have a significant impact on the profile of the requested outsourcing services and open up new growth and development opportunities within the sector. The traditional project-based approach is not the preferred one anymore as demand for added value is increasing and companies are now looking for shared services, outsourcing of business processes, human resources,

facility management, etc. In this context, the SEE region and Bulgaria in particular have become attractive outsourcing destinations for several reasons such as the favorable environment regarding finance, business, infrastructure, the competitive labour costs and the large number of well-educated and highly skilled professionals and IT experts.

Another important trend shaping the industry on a national level

is the development of second tier cities such as Plovdiv and Varna into preferred outsourcing destinations. With 90% of the employees in 2017, the capital Sofia remains the center of the Bulgarian industry; however, Plovdiv and Varna have recorded significant growth over the last few years and have become important outsourcing destinations. Cities such as Burgas and Veliko Tarnovo also have great potential and one of BOA’s main priorities is to develop them as outsourcing centres.

The companies in Southeast Europe engaged in information technology outsourcing (ITO) outnumber those active in business process outsourcing (BPO), yet the share of revenues they generate is similar and BPO companies employ a far greater number of people, according to data for 2017. Do you expect any change in the coming years?

Besides the gradual transition towards high value-added knowledge process outsourcing, another industry trend is that boundaries between ITO and BPO are diminishing. According to the statistics, the differentiation between ITO and BPO is gradually fading as the complexity of the companies’ products and services evolves.

The declining workforce in the country, together with

the diminishing number of graduates intensifies competition among companies for qualified personnel. How are the companies in the sector tackling this issue? Do you see room for tighter cooperation with the universities?

The industry is making a transition towards high value-added knowledge process outsourcing.

Second tier cities such as Plovdiv and Varna are developing into preferred outsourcing destinations.

The lack of skilled and qualified workforce is one of the biggest challenges not only for the outsourcing industry, but for all other industries. The Bulgarian outsourcing industry is expected to reach more than 2.5 bln euro and contribute over 4.2% of the country’s GDP by 2020 but this growth depends heavily on the labour force. In order to retain this positive trend, the government, the business and the educational institutions need to collaborate and to focus on relevant measures.

On the one hand, we need to motivate the well-educated and qualified Bulgarians to return to their homeland and work here by creating favorable conditions for professional and personal development. Transforming the education system and providing high schools and universities which are competitive to the educational institutions in Western Europe and the U.S. is one of the key factors that can convince the talented young people to stay in Bulgaria, as well as to attract the qualified professionals and their families to return to their

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hometowns. On the other hand, we could develop a program for attracting experienced professionals from other countries and nationalities to choose Bulgaria as a preferred country to work and live in.

Boundaries between ITO and BPO are diminishing.

Do you see opportunities for closer cross-border cooperation in Southeast Europe to address the challenges facing the sector?

Yes, as I mentioned, we have common goals – to develop the whole SEE region as a preferred outsourcing destination by creating stable and secure business and economic environment, as well as to focus on developing and attracting the qualified young professionals.

How is automation of processes affecting the sector?

Another trend transforming the industry is the implementation of Artificial Intelligence (AI) which allows the automation of some business processes. For example, one of the services which is often offered by the BPO companies is company profiling. Since a person

can make 40 calls per day and an AI based solution – 150 calls per day, the automation of this process will lead to significant time and budget optimisations. The new technologies will change and transform many industries, but they will also offer new opportunities for the employees to acquire new skills. As there is a high demand for IT specialists, the industry can benefit from this trend and attract new professionals.

Brexit could have a positive impact on the outsourcing sector.

The UK-based Global Procurement Association predicts that a possible Brexit will have a positive effect on outsourcing providers in Central and Eastern Europe, including Bulgaria in the long run. The main reason is the expected shortage of skilled labour in the UK due to the limited migration and the strong business motivation of British outsourcing companies, especially in ITO, to maintain their existing relations within the EU.

Do you see any risks for the sector arising from a possible Brexit?

In 2015, Bulgaria won the National Outsourcing Association (NOA) Award of the United Kingdom for an Outsourcing Destination of the Year. The annual industry report from 2017 shows that Western

European and UK clients dominate the foreign customer base of the Bulgarian outsourcing companies. In this context, I believe that the United Kingdom’s withdrawal from the EU could have a positive impact on the outsourcing sector.

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Catalin Iorgulescu has been present in the ABSL Board during the last 5 years and actively supported its development from the start to the present level by initiating and deploying the PR strategy aimed at increasing the Brand awareness and recognition of ABSL as the most prominent voice of the Industry.

During this time, he also acted as an ambassador of ABSL by bringing new members, representing ABSL in various meetings with potential investors and State Authorities, and helping organize major ABSL events.

Over the last 20 years he was General Manager for Samsung SSCE, Managing Director of WNS Romania, CEO for Craft Worldwide Romania and held top management positions within McCann Erickson Group and Deloitte.

Catalin is a Fellow ACCA member and holds an ISACA Certification as Information Systems Auditor since 2002 and respectively 2003.

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What are your expectations regarding the development of the outsourcing sector in Romania and across Southeast Europe and what are the key factors influencing it?

In the past few years, Southeast Europe has strengthened its position as a leader in nearshoring for many global brands. Cultural and geographical proximity, highly-skilled workforce and costs savings bring value to businesses and create opportunities for innovation in outsourcing companies. The growth of the IT

industry and strong technological expertise played an important role as well, and I expect that automation, robotics and artificial intelligence will accelerate the sector’s development in the region.

In Romania, the business services industry is already mature but continues to grow. I expect the companies will accelerate the digital transformation of their business models in order to remain relevant in the next years. We can say that the continuous

and relentless change of the market conditions is the new normal, where technological innovation, blockchain and artificial intelligence are reshaping the nature of the industry.

What are the main challenges that companies in the industry need to address and do they create opportunities for cross-border cooperation?

I think that one of our challenges is uneven talent distribution. We have cities that experience shortage in workforce for a certain

INTERVIEW

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skillset or language and unused talent in other geographical areas. We need to address this issue and see it as an opportunity to grow. Cross-border cooperation can be a solution for attracting more projects in the region – for example Romania excels at Latin languages while Bulgaria has a significant talent pool able to work in Slavic languages.

Cross-border cooperation can help address uneventalent distribution in SEE.

Investor interest in university hubs is rising.

Romania and Bulgaria, their capital cities in particular, have been at the centre of the development of the sourcing sector in the region but new cities have been emerging as hot locations. How do you expect that the sourcing industry landscape in Southeast Europe will change in the coming years?

We are one of the most desired nearshoring destinations for local and multinational companies which are expanding their operations in the region due to skilled workforce and labor arbitrage. For sure, Bucharest, Cluj, Iasi, Timisoara are at the center of our industry but, compared to the last years, we have observed an increased

interest from investors in third tier cities, especially in university hubs like Brasov, Craiova, Galati, Oradea and Sibiu. Around 50% of ABSL members have operations in Bucharest as well as in another Tier 2 or Tier 3 city. Moreover, new delivery solutions (e.g. work from home) will help companies access untapped resource pools.

Do you see any risks or opportunities for the sector arising from a possible Brexit?

Great Britain is one of the biggest outsourcers in the world and a lot of companies from this region provide different services for the UK. We will have to see how future taxation and labour migration changes induced by Brexit will influence the industry – this is uncertain now since Brexit terms are still being negotiated.

How can the governments in the region support the sector?

Fiscal and legislative stability are a must for economic growth because predictability is a

prerequisite for any business case and I think the governments can help a lot in this respect. Another important factor influencing the growth of our industry is our educational systems which need to be adapted to the new requirements of the labour markets.

I know it is not easy, especially when we talk about state administration, but the investment in education drives talent pool development and hence growth. In 2015 ABSL Romania launched, in partnership with the Bucharest University of Economic Studies (ASE), the Business Services Master Program. In 2018, 98% of the first batch of graduates were employed in the sector. This clearly confirms that investing in education is an essential pillar for the future of our industry.

Do you see the development of the sector opening up demand for new skills?

Our industry is at the forefront of innovation. A lot of our services are new or have been transformed significantly in the last five years. Our companies are investing in R&D and talent development in parallel and that is constantly creating new jobs based on new skillsets.

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KOSOVO:

RIdINg THE gLOBaL WAVE OF AGGRESSIVE OUTSOURCING

In Kosovo, the IT sector is less than twenty years old. In spite of its young age, however, it is making fast growth in line global ICT trends, with strong support from the Kosovo ICT Association, STIKK.

Its robust health is evidenced by the fact that ICT is one of the few sectors in the country with a positive trade balance. According to a recent study of the ICT sector commissioned by STIKK, three out of four IT companies in Kosovo (74%) export their products and services. This is up from 58% the previous year. The survey, based on a sample of 36 IT companies, was conducted between September and November 2018. Export-marketing success came on the back of advantages in quality (90%), technical knowledge (83%) and pricing (76%), as well as a Value Added Tax (VAT) rate of 8% and abolishment of taxes on IT equipment imports.

A majority of the stakeholders interviewed agreed that IT is one of the strategic sectors for the country’s development, and that with the establishment of the Ministry of Innovation and Entrepreneurship, progress has improved in supporting existing and start-up IT companies.

At the same time on a global scale, outsourcing is moving aggressively forward. According to a report by the Global Sourcing Association (GSA),

70% of companies surveyed intend to outsource more, with 35% of them planning to do so significantly. Eighty-four percent of service providers expect the outsourcing industry to grow and 37% believe it will increase markedly.

Offshore outsourcing is often perceived as being centred in Asia. However, Southeast Europe is fast taking over as a primary outsourcing destination. Multinationals are getting tired of Indian providers and are turning their eyes toward Southeast Europe, even large Indian companies that have their European HQ in major Eastern European countries.

Against this backdrop, it is hardly surprising that Kosovo, with its thriving ICT sector, has emerged as one of Europe’s top locations for global sourcing of IT services. Kosovo’s appeal as an outsourcing location is heightened by its low production costs and the country’s geographic location in Southeast Europe, with the easy connections it provides, too is a definite advantage.

Several of the world’s multinationals have already moved their delivery centres to Kosovo, including AT&T, Vodafone, Teleperformance, and Cisco. One such company is Kosbit, a full vendor for AT&T and a global provider of managed services and IT solutions, which has been active for the last two years.

Companies in Kosovo do face challenges, including lack of young, educated talent, especially in fields such as in-house engineers.

Among those companies interviewed in the study of the ICT sector commissioned by STIKK, the primary area of concern was the lack of a skilled and qualified workforce (78%) and the negative impact of a brain drain (92%).

Shortage of talent leads to upside pressure on wages and means universities must urgently update their curriculum in response to critical industry shortages.

Furthermore, despite the rosy prospects for their development, to ensure sustained growth outsourcing companies in Kosovo must think and act like trusted advisors and not just as service providers. They should offer their clients strategic tools instead of merely a cost savings model. The days of cost saving alone are over; now they need value-added services.

Fatmir Hyseni is the CMO of Kosbit, a global full vendor for AT&T and a strategic advisor for Critogo, a platform for analysing web performance, user experience, SEO audit, and mobile friendliness. Fatmir is passionate about digital transformation and tech startups and contributes to several digital and technology blogs.

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