Outsourcing to Romania, fears over the next five years

Last week there was a conference on outsourcing in Romania. According to an article in Daily News, “The Information Technology and Communications (IT&C) industry could rely on the outsourcing activities for at most five years, stated the representatives of the Romanian Association for the Electronic and Software Industry (ARIES). Alexadru Borce, the president of the association, considers the main advantage of the local outsourcing industry is the low cost labor force, which will hike after Romania integrates in the European Union.” The ARIES official recalled for the audience present at the 6th Outsourcing Conference the ‘Hungarian reality’, which confronted the same issue: once the country became a member of the EU, the prices increased by up to 50 percent.”In Romania the revenues in the IT&C industry are ten times over the medium wage, compared with a 3 to 5 times ration in the member states (of the EU),” said Florin Talpes, the president of the National Association for the Software and Services Industry (ANIS). “We can say there is an overheating phenomenon in that regard,” pointed out Talpes.


Currently the wages of the software developers are excluded from taxes, a measure adopted to support the industry. However, as of next year the fiscal code will annul that provision. The exemption would constitute operational state aid and cannot be accepted.


The complete article is here and definitely a good read!


Some comments… while the wages of programmers are going up, that’s mainly because of a lack of programmers on some technologies and in some cities and not due to a drastic increase of ‘cost of living’. Companies still afford now to pay higher salaries in order to attract top-notch programmers, but that’s going to stabilize soon. Most of the graduates still choose to go abroad to work which puts a pressure on the local job market. While the prices will continue to go slightly up, as we are on an up curve, it will reach a point which i call “the country level hill” where it will stabilize. Maybe it will not be 2-3 times more advantageous to do software development in Romania and just 30-40% advantageous. Probably half of the companies with large overheads will cease to exist or focus on the internal market, but for sure there will be smaller software dev shops for years.


That’s because the internal software market is not at the level where the largest part of the software companies *the tail of the software industry snake* and not the few ‘lucky’ multinational ones such as IBM, Siemens working on multi-millions dollar contracts *the head*, cannot afford yet to pay EUR 40k a year wage.