5 March 2007 - 17:25A different take on outsourcing in S-E Europe

You are probably familiar with the success outsourcing stories heard from S-E Europe in general and from Romania in particular. A new social class rose pretty much out of nowhere to take advantage of its low cost of living and started competing globally, FDI has gone thru the roof raising the standard of living, etc…
Well, all the above is true but it doesn’t tell the whole story, I consider it to be a face-lift of a pretty dire situation. A first bad sign is the fact that the job the market is pretty fragmented, the operations are pretty small. It is not unheard of some small companies from Western Europe who hire a few people for small contracts and then let them go. The fragmentation of the market, in my opinion, prevents some bigger contracts from being passed onto Romania. Another implication of this fragmented market is that it appears that the Romanian entrepreneurs are letting go the biggest money-making enterprise in the last 50 years. It looks like the Romanian entrepreneurial spirit is locked in disputes over the latest EU subsidies or in real-estate speculation…

Another bad thing, relating to the first, is the fact that most operations in S-E Europe are captive operations (please check out this McKinsey article - requires free membership - for a definition of a captive operation. Skip the laudatory intro and go right to its end). This is another example of the lack of leadership exhibited by the Romanian entrepreneurs. While elsewhere captive operations have been let go and passed onto local entrepreneurs in S-E Europe these operations thrive. This is pathetic, there are 3-4 years that I heard in Romanian papers about making money from outsourcing and so far nobody came up to the plate. Well, let’s have IBM handle all that while we focus on the deforestation of the mountains.

A side-effect of the captive operating status is that there is a backlash happening. Reading the blogs of some middle-management types from Romania is pretty instructive. They usually refer to their workplace as the “WorkCamp” and sometimes a lot worse. The upper-management is eyeing all the profits going to the mother company with a deep source of envy. To a certain extent they feel that they should profit from that money (which is pretty ludicrous) and are ready to apply all sort of tricks in order to get a chunk of it. Lately, even El Presidente has weighted in on the matter. The fact that this political animal has chosen to speak on this matter would probably mean that it has reached a certain threshold at which it is politically profitable to use it.

Anyway, I need to close this post. I would say that the outsourcing experience is, among other things, another facet of the horrific lack of leadership plaguing the Romanian society. It’s pretty pathetic to see some people fluent in English and trained in management manning phones in call-centers rather than designing business processes for Western companies. It is just as pathetic that ALL the success stories from that part of the world are foreign initiatives… So far outsourcing is a just face-lift for the Romanian society and, unfortunately, not a sign of better things to come, it has not risen above the rank of a happy circumstance. It may not be too late to capitalize on it…

P.S. If you have worked in this field, please drop a comment, I’d like to hear from you.