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CENTRAL AND EASTERN EUROPE
Central and Eastern European (CEE) countries in general offer an educated labor force, talented professionals who are trained in key technologies, reliable IT infrastructure in select locations, a moderate to low cost of labor and a seamless access to the greater European Union. The regions solid secondary educational system and technology-oriented higher education training has made it a target destination for software application development, research, development and engineering services. The regions improved network technologies and Internet penetration, combined with increased cost-pressure in end-user companies, have expanded the service scope that CEE organizations can offer. However, countering these strengths are a number of weaknesses that include a legal structure, which lacks the robustness that customers need in the form of legal support, particularly in resolving customer disputes, weak project management skills and lack of strong brand recognition as a source of IT capabilities and experience in world markets.
If we look at country-specific capabilities in CEE, Russia, Romania and the Czech Republic stand out for having developed key IT expertise. In fact, Russia has built a strong portfolio of services in the areas of application development and maintenance, QA (quality assurance), software product development and R&D, especially in the fields of mathematics and sciences. This expertise has allowed Russian companies to develop a strong skill set in solving large scale, complex technical problems. To help promote these and other capabilities, Russia is developing a stronger national software association.
Romania has built its expertise around artificial intelligence, application software development in areas ranging from desktop and HR to business solutions in ERM, CRM and e-commerce. It is also providing R&D facilities to some customers. In the Czech Republic, companies are supplying software localization services, product testing, custom application development and IT translation services in a wide range of languages for Europe, Asia and the Americas.
Additionally, a number of CEE countries are actively pursuing value-added services such as call centers (Customer Relationship Outsourcing), shared services centers (payroll processing and HR outsourcing) and expert solutions centers (Business Process Outsourcing or BPO).
WESTERN EUROPE
In Western Europe, Ireland has proven to be a major nearshore center with its ability to provide an array of services focused on call centers, claims processing, finance and accounting, transaction processing as well as localization services, particularly those involving European languages. Irelands success can be attributed to a number of factors that include a close cultural and linguistic alignment with the US and Western Europe, a strong educational system and robust infrastructure. However, in recent years, labor costs have been steadily rising, resulting in a reduced potential of lowering the cost of doing business. In addition to Ireland, Spain can offer application development while key North African countries such as Tunisia, Algeria and Morocco are providing development centers.
LATIN AMERICA
Latin America has also developed some key IT and business services capabilities but across a narrower set of competencies and in limited geographic locations. While the region has closer proximity to the US than other offshore and nearshore locations, its potential as an offshore destination varies from country to country. For instance, in Mexico, which is culturally compatible with the US, is easily accessible and has a stable infrastructure with low geopolitical risk, companies are providing call-center, medical transcription and data-processing services. However, its weak English skills and reputation for low-end expertise keeps many prospective customers away.
Argentina offers application development and maintenance and call-center suport services. Though it has a reasonable infrastructure, English skills and a strong cultural compatibility, it suffers from political and economic instability, lack of IP protection and limited access to capital for investment.
Like Argentina, Brazil has developed some core competencies in providing application development and maintenance, and is now building greater expertise in delivering other IT services. While the country has a good infrastructure and strong cultural alignment with the West, it suffers from poor English capabilities and limited exposure to the US.
MIDDLE EAST AND AFRICA
In the Middle East and Africa, Israel has developed a very strong R&D brand for a broad set of state-of-the-art technologies, particularly in the area of security for networks and high-end innovative software. The core of Israeli technology is based on software, data communications, electro-optics, hardware design, and Internet technol ogies. Other Israeli technological strengths include medical, biotechnological, agricultural, and military services. While the country has strong cultural associations with the West, competency in English, a high quality workforce and sound government regulations, the region continues to suffer from political instability.
South Africa is also becoming a regional target for sourcing because of its strong IT market, English language skills, competitive wage structure and a government active in promoting IT industry as a source of economic developmENT.
ASIA PACIFIC
The largest offshore region, APAC (Asia Pacific), has developed a breadth of capabilities across IT and business services as well as R&D. However, a country-wise scrutiny reveals varying ranges of competencies. The key countries currently competing in the offshore space include India, the Philippines and increasingly China, albeit the latter focuses on meeting domestic opportunities, particularly for multinational providers.
INDIA
The country has developed a broad set of services that span IT and business processes. In IT services, Indian firms have built capabilities that include custom application development, packaged implementation, remote infrastructure monitoring, transaction processing, application management and consulting services. However, these are limited and are not seen as its areas of core expertise. Its core competencies lie in BPO in fields such as call centers, which typically include the provisioning of inbound calls and level 1 help-desk type functionality as well as Web chat and e-mail and in areas that have repetitive processes such as HR payroll services and volume transactions.
The degree of capabilities that India has developed has placed it in a leading position as an offshore provider of IT and business services. What works in its favor is its large pool of educated and talented labor, advanced educational system, language competency, supportive government and strong history and brand recognition in software development. However, it too has a number of problematic areas that work as client deterrents. These include potential geopolitical instability (recent developments and dialogue with Pakistan have been very positive), weak globalization skills, no established historical/cultural links to the US, limited infrastructure reliability and an inconsistent legal system.
THE PHILIPPINES
The Philippines has developed core expertise in provisioning BPO call center services and medical transcription services. Given its history, the country has developed strong English capabilities, offers a low cost set of services, boasts of solid infrastructure and cultural compatibility with the US. It is challenged with an inadequate supply of project management skills and political instability. It also lacks the support of a national association and a government that is able to provide good infrastructure.
CHINA
Improving its competitive position as an offshore player, China, while not on the same scale as India, is the second-largest source of offshore service delivery in the APAC region. China offers capabilities more oriented toward embedded technologies such as firmware, localization and development of software. Its strengths include a growing pool of labor that is increasingly well educated, government support, fast-developing infrastructure, non-Latin language skills and political stability. As with all other offshore players, China is faced with serious limitations such as rapidly increasing costs,
need for incentives and governmental relationships to enable development, improvement in the quality of providers, inadequate management skills, a narrow depth of English and Japanese language skills and weak marketing.
CONCLUSION
The offshore market comprises a broad set of countries across the globe, each with its own distinct positive and negative features. However, it appears that some regions, such as Central and Eastern Europe, have developed key competencies around a relatively narrow set of capabilities, in this case software development and engineering services, while other regions, such as APAC, have extended their capabilities across a much broader set of services that include IT, business and product engineering. More specifically, some countries, such as India, have not only built a broad set of service competencies but have established themselves with a strong brand recognition as a leading offshore country from which customers can procure services.
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