How Can Outsourcing Drive Economic Growth

Adding date: 18.09.2016 | Kosovo

In today’s global economy, outsourcing as a concept has become one of the main drivers for economic growth, especially in developing countries. The growth of outsourcing has had a significant economic impact in a country like India. It is believed that the first outsourcing contracts were carried out in India in the 1970s, and ever since, India has come to be the birthplace of outsourcing.

For instance, both the ITO (Information Technology Outsourcing) and BPO (Business Process Outsourcing) in India today contribute to around 9.5% of the country’s GDP and employs around 3.5 million people. In his seminal work The Wealth of Nations (1776), Adam Smith described the theory of competitive advantage, which laid out the idea that companies could reduce costs by utilising labour in less developed countries. It is evident that countries like India have benefited from outsourcing for economic development, but the question remains whether other countries can apply the same business development tactic to drive economic growth?

A case in point is the Balkan region includes countries like (Albania, Kosovo, Bosnia and Herzegovina, Croatia, Macedonia, Montenegro and Serbia), which according to some studies has become one of the most attractive locations for outsourcing because of the low cost of IT workers and a high number of highly educated, multilingual and experienced IT people.

Furthermore, the region has the youngest population in Europe and is located strategically in a closer time zone to many main European countries. Besides, the Balkans has EU-compatible laws, and free access to European Union and US markets.

A further advantage is that the Euro is one of the official currencies in Balkan countries, with a low tax burden and straightforward tax system. Thus, it has closer cultural affiliations with the rest of Europe.

Also, studies show that US companies are looking for alternative outsourcing partners in the Balkans. Taking this into account, one wonders if the Balkan can be the next India for the outsourcing market. One could easily argue that the Balkans has the potential to leverage a market worth $110 billion.

The success story of India in attracting foreign investments and improving economic development, clearly indicating that outsourcing can be regarded as one of the main drivers for economic growth of developing nations like the ones in the Balkans.

As a result, the government should  pursue the same agenda  and  come up  with  a national outsourcing strategy to develop a knowledge-based economy and take advantage of this significant yet profitable trend. In the Balkans nowadays, pretty much every government speaks about ICT and the role it could have in improving the country’s economy. Yet, we don't see an integrated national strategy to respond to the quickly growing markets.

The outsourcing sector can be a huge economic driver, especially when it comes to employing the young people who are the highest number of unemployed people in the region. If you hear the debate among politicians in the Balkans, they keep talking about attracting FDI, but few of them are actually doing something about outsourcing as a key growth driver.

If you look at the current demand, especially for ICT outsourcing, it is huge because developed economies lack qualified and experienced IT staff willing to work in the ICT field. A trend also shows that a demand for ICT qualified people is rising more than ever before, which represents a great opportunity for young people from Balkan countries.

Take Germany and UK as two of the most developed economies on earth, where companies are struggling to fill ICT job positions due to a lack of qualified staff. So, this will force German and British companies to look outside the country for ICT qualified people and as such the Balkan region can be a perfectly suited for this huge growth opportunity.

Obviously, being cheaper than German and British companies is one that better qualifies Balkan companies, but that’s not the only reason. Balkan companies are also experienced, professional and in some cases, people working there are multilingual, speaking German also English and Italian.

Given the benefits that outsourcing can provide, such as driving efficiency, having access to qualified ICT staff and reducing costs, many companies are looking to outsource their key process to developing countries, where the Balkan region has a competitive advantage with lower IT costs, cheaper, tech and a qualified, young workforce.

A recent report by Grant Thornton shows that 40% of business executives are planning to outsource their business processes where the economics of scale, meaning outsourcing, have a greater impact. With the advancement in technology, outsourcing has become an attractive and a strategic business option, especially in ICT, cloud-based technologies, accounting and financial service offerings.

Another success story of outsourcing has been the Central and Eastern Europe (CEE) region, which has been one of the greatest achievements for local development in the last decade. The outsourcing has brought many opportunities to the CEE region by providing nearly half a million qualified jobs and has been proven as one of the main job creator sectors in the region. This rapid growth is mainly fuelled by a cheaper and more qualified labour force, the easy process of setting up an ICT service delivery centre and effective EU legal environment.

As mentioned above, outsourcing can be a huge economic driver for the Balkan countries, provided the government officials make outsourcing a part of national economic growth strategy, supporting the ICT community, lowering taxis, customising higher education for industry needs (mainly ICT), and committing themselves to supporting tech start-ups.

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