Globalization Offshoring in Central and Eastern Europe

A number of countries and regions have emerged and profiled themselves globally as popular destinations for offshoring. Each major developed industrial region, it seems, has its offshoring production or manufacturing base located conveniently nearby. Central and South America for North America; Central and Eastern Europe (CEE) for Western Europe; and China and India not only for Asia Pacific, but - as with the rest - having a global impact, too.


Among these major outsourcing regions, differences exist in terms of their specialization, driven by the specific country conditions and development priorities. China is a major manufacturing base, and India has become synonymous with outsourcing of IT, services and backoffice operations on a global scale. CEE as a whole is becoming the home of outsourcing operations for a large number of European and US companies, with increasing forays of companies from Asia.

What do we mean by CEE here? It would be the cluster of the new (since 2004) European Union (EU) members - the Czech Republic, Hungary, Poland, Slovakia, Slovenia, Estonia, Lithuania and Latvia. This set is complemented by the countries about to join the EU in as early as 2007 or 2008 - Bulgaria and Romania. To which we need to add Russia and also Ukraine. Russia also forms part of what is known as the BRIC economies - the outsourcing economies encompassing Brazil, Russia, India and China. The remaining countries in the region, those in the Balkans and Belarus, have been on the sidelines of this trend so far, but the likely entrance of Croatia to the EU within the next few years may well bring fresh wind here as well.

The Carpathian Tigers

In CEE, it all started with manufacturing - automotive, electronics and high-tech engineering - in the mid-1990s. As a result, the Czech Republic, Hungary, Poland and Slovakia will soon reach some of the highest positions in terms of car production per capita in Europe, all because of the investment from companies such as Volkswagen, Toyota-Peugeot-Citroen, Hyundai, Kia, Audi, Renault, Suzuki, Fiat and others. After manufacturing, higher-value added areas such as R&D and design, business support services including IT, and technology centers followed, and all these are on the increase. It is almost with the same regularity as in China or India that one can hear of yet another multinational company opening a new center in the region.

Overall, the economies of the new EU countries have been experiencing strong growth since their 2004 entry to the EU, even stronger than before their accession, in part thanks to high levels of foreign direct investment (FDI). In 2005, for example, they have grown their gross domestic product (GDP) by between 3.9% and 10.2%, compared with the "old-EU" average of 1.5% or the EU-zone average of 1.3%.

Although receiving less publicity than, for instance, China or India, the scale and dynamics of the development of this region have not gone unnoticed. In its December 2005 International Cover Story, BusinessWeek magazine hailed the CEE as the next outsourcing haven for engineering and software development and talked about the "Rise of a Powerhouse."


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