CEO Briefing – Corporate Priorities for 2005

The Economist Intelligence Unit has just published the report(here) “CEO Briefing – Corporate Priorities for 2005�. One of the key findings is that competition intensifies for global offshoring in 2005. On respect to offshoring to Romania, we are placed on the 14th position with 7.08 while Czech Rep. is 3rd (the highest among Eastern European countries) with 7.26 and India first with 7.76, all close figures. Since i felt that 14th place is not very good, i decided to have a deeper look into the document and find out the reason for this rather poor ranking.

There are 9 categories that make the final ranking: Proximity, Political environment & Security, Macro-economic stability, Regulatory environment, Tax regime, Labour costs, Labour skills & availability, Labour regulation and Infrastructure. These are ranked on a scale 1 to 10 and each categories weights differently in the final ranking, labour costs and skills being the most important ones (0.3 each in the final score).

Proximity defines the proximity to the major source of investment with 10, the highest being given to US, Netherlands and Japan. Here Romania scores 8.35, lower than its neighbors which are closer to Western Europe (Hungary-9.00, Czech Rep. 9.46) but far better than India 4.37. One of criteria where Romania ranked rather low was the Regulatory Framework with just 5.75 which i think is mainly due to the bureaucracy and the legal system. These were pointed out also European Commission as issues to be solved before Romania's EU accession to 2007, issues as well taped by the current government. The Tax Regime gave to Romania 6.50, better even than Czech Rep 6.00 Japan with 5, etc. This is one category where Romania would have had even a higher ranking with the newly tax changes discussed here. “Labour costs� were calculated just considering the monthly wages and here Romania had 9.49, better than other Eastern European countries (Czech Rep with 8.50, Poland 8.81) and very close to India 9.69.

I think on of the criteria that weighted most in the final ranking was the Labour Skills and availability where Romania had 5.55 above the average for Eastern Europe that i have calculated at 5.41, however lower than India’s 7.78. I tend to believe that India’s higher score is also due its immense population with 1,049 million that offers an immense workforce pool (Romania’s population 22 million). I feel also that the Romanian higher education needs improvements but i will talk about this in another post.

As a conclusion, i think Romania’s 14th place doesn’t give us good perspective, but the improvements in the bureaucracy and legal system as well as the latest changes in the Romanian tax regime and the education system will further improve its global ranking in offshoring. Also, since the report looks at the offshoring as a industry, including more than IT and software development, it might not be the right tool to evaluate the IT offshoring to Romania solely based on its findings.