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The Romanian IT Outsourcing Industry: Stable of Freelancers for the Online Marketplaces

IT freelancers and small businesses from over 130 nations compete for IT jobs at Rent A Coder, an online marketplace for professional services that facilitates over 12,000 IT projects per month. With over a dozen bids per project, buyers at Rent A Coder enjoy a wide selection of low-cost, high-quality suppliers; currently nearly 130,000 freelancers and companies are registered to bid for IT projects. Surprisingly, the largest proportion of these projects ends up not in the hands of Indians or Americans, but rather with IT professionals from Romania, an Eastern European nation.

One such buyer is Athens Development, Inc., a small company from Tennessee that specializes in software applications for marketing. The company uses the marketplace to outsource 100 percent of its software development and support as well as some marketing-related services such as Web design.

“For a small company like ours, it might be difficult to get adequate treatment from a typical Indian outsourcing provider as we do not generate enough work,” says Tracy A. Childers, the Founder of Athens Development. “A marketplace like Rent a Coder that provides access to talent from all over the world, along with value-added services such as escrow accounts, document storage, and arbitration, is an excellent solution for us. My business heavily relies on Rent a Coder. If something happens to Rent a Coder, it would be hard for me to switch to a different outsourcing channel,” he adds.

For years, Romanians have been among the top three most active nations at this lively international bazaar, according to Rent a Coder Founder and CEO Ian Ippolito. In November 2005 Romanians accounted for 18 percent of the marketplace transaction volume, followed by Indians and Americans with 17 percent and 16 percent respectively.

Why Romania?

Athens Development, which has been using Rent a Coder for 18 months and runs several small outsourcing projects on a monthly basis, has developed a special preference for coders from Romania. According to Childers, Romanians always deliver high quality and are very committed to results. This type of attitude is supported by Ippolito. “Some buyers have told me that they prefer Romanian coders because their experience was that Romanians were harder working, more reliable with deadlines, and didn’t pester them with requests for payment before the job was completed.”

However, even if Romanian freelancers are as hard working and cheap as it gets, this alone hardly explains why the country, with a population of just 22 million, is performing so well compared to offshore outsourcing giants such as India or Russia.

Struggling to seize a portion of the offshore IT outsourcing pie, post-communist nations in Central and Eastern Europe (CEE) are trying to capitalize on a variety of strengths. Poland and the Czech Republic put forth their newly-acquired EU membership and attractive business climate; Russia builds on a vast scientific and technological heritage of the Soviet era; the Ukraine tries to exploit its new democratic image. In this race, Romania, the birth-place of the infamous Count Dracula, is primarily relying on its talents.

With over 100 universities, the country annually produces 30,000 engineering graduates; 8,000 earn degrees in IT. Romanian student teams won first place at the International Olympiad of Informatics in 2003 in the US and were third in the world at the International Mathematical Olympiad in Mexico in 2005.

However, mathematical and programming skills are typically strong in all CEE countries. What really makes Romanians stand out is their language skills. The Romanian language belongs to the Romance language group, making it easy for Romanians to pick up French, Italian, or Spanish. In addition, they held first place in the Certificate of Proficiency in English exam at Cambridge University, according to a 2003 Pierre Audoin Consulting report.

Add to this the fact the country’s struggling economy was not offering a great deal of jobs after the collapse of the central planning system, and you will have a good picture of the forces driving skilled and foreign language-savvy Romanians to online marketplaces like Rent a Coder, Elance Online, or eWork.

How Outsourcing is Affecting the Romanian Economy

The shadow of the 1989 revolution that climaxed in the execution of Romania’s communist leader Ceau∫escu and his wife, and a prolonged economic recession through the most of 1990s, did not contribute to immediately turning the country into an investor’s hot spot. Romania still remains one of the least well-off CEE countries. What makes a difference, though, is that today Romania is a NATO member and a candidate to join the European Union in 2007; its economy is showing considerable growth (8.3 percent of GDP in 2004 and 4.1 percent in 2005) and the country’s image is changing.

Big names such as Siemens, Alcatel, and Motorola have set up research and development, software development, or manufacturing facilities here. Siemens is the leading foreign employer with over 2,000 in the local workforce. Oracle maintains its European development and call centers there; its call center in Bucharest provides support in 13 European languages.

IT export became an important part of the economy, currently involving nearly 17,000 people. In 2005 the export of software and IT services reached $250-280 million, estimates Florin Vrejoiu, Executive VP of the Romanian Association for Electronic and Software Industries.

On the export side, Romania is especially strong in three areas: R&D outsourcing, security and embedded software development, and mechanical engineering outsourcing. A good example is Softwin, a 500-person Bucharest-based company known for its anti-virus tool BitDefender. Microsoft acquired intellectual property rights for RAV AntiVirus from GeCad, another successful maker of anti-virus software, in 2003, which reflects the increasing interest of foreigners in local companies and their products. In 2005 the volume of acquisition deals in the IT industry reached 250 million, says John Mennel, a US consultant working for USAID Enterprise Development and Strengthening Program in Romania.

IT outsourcing companies include s Akela, Intrarom, IP Devel, andTotalsoft. Mennel estimates that around one third of approximately. 40,000 IT industry employees work for companies with 15 or less people. This estimation, however, uses official statistics and does not take into account hundreds or even thousands of freelancers who do not report their earnings to tax and statistical authorities.

Even the government, a stakeholder which is usually slow to give a hand to the IT industry in other countries of the region, has contributed to the progress by granting a 100 percent income tax exemption for IT workers. What remains to be seen is whether the thousands of freelancers and small businesses who are successful at IT marketplaces will be seduced by corporations (which will inevitably start exploring this lucrative pool of resources) and eventually give up their independence in exchange for handsome salary packages.

This perspective may seem questionable to some, considering Romanians’ love of being their own masters. “In Romania people like to own themselves. They do not like to be managed,” says Bodgan Castaliu, the 26-year-old executive manager of XcellenceIT, a 15-person Web development company. “As a matter of fact, every Romanian dreams about having a company of his own.” Considering that online IT markets still grow at a high rate (over 60 percent in 2005 in the case of Rent A Coder), it looks like big companies may have a tough time taking Romanian freelancers and small businesses under their wings.

Lessons from the Outsourcing Journal:

  • Romania attracts Western clients due to the high level of technical and language skills of IT workers, its well-developed (albeit fragmented) IT industry, and availability of a vast IT labor pool, largely untapped by IT outsourcing companies.
  • The Romanian IT outsourcing industry is growing ahead of the rest of the economy. IT attracts foreign investors and is experiencing a wave of acquisitions of local companies by foreign investors. Evolutionary transformations, such as further growth and acquisitions as well as a reduction in the level of industry’s fragmentation, can be expected.
  • Online marketplaces are becoming increasingly popular with small and medium businesses that outsource their IT tasks. These marketplaces enable access to a wide range of offshore suppliers, provide mechanisms for competitive supplier selections, safeguard transactions, and provide a number of other value-added services. Small companies and IT freelancers from Romania are very active at these marketplaces.

About the author:
Ulad Radkevitch is currently doing a PhD in Information Management at Rotterdam School of Management (the Netherlands). Prior to that, he served as VP Marketing at ScienceSoft, a leading Belarusian IT outsourcing provider. Reach Ulad at [email protected].

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