Business Process Outsourcing - a market in evolution

2013 is shaping up to be another year of mediocre growth for Romania, with Foreign Direct Investment at very low levels compared to the growth years of 2003 to 2007


HUGH WATKINS

HUGH WATKINS

MANAGING MANAGER at TRINITY CORPORATE SERVICES ROMANIA S.R.L.

 

Although the figures can change quickly if one big transaction occurs, it seems that 2013 is going to be an even worse year than 2012 as far as foreign investment goes. 
 
 
I feel that there is a huge opportunity for any EU country that really starts to build a business friendly environment: one of the things that has surprised me most about the past five years has been the complete lack of any initiatives in this direction. I am not just talking about Romania, but about my native UK, the Eurozone and the USA as well. 
 
 
It is as if the entire political class is blind to the real needs of business. Whichever country moves first will be in a position to build up an enormous head-start on other countries. 
 
 
In my own company we are seeing continued growth, as we are lucky to be part of the growing outsourcing sector. We expect to see more of the same in 2014. 
 
 
With respect to the challenges for the current period, Romanian companies are starved of equity capital, just as they have been for the last twenty years. As a result Romanian business activity has tended to concentrate on less capital intensive activities: services, light industry, retail. Unless foreign capital is available, there is not enough money for heavy duty manufacturing. That is a shame as Romania has good quality human capital in engineering fields. 
 
 
Over the last five years we have also seen a lack of bank financing, and I do not see this situation changing quickly. Bank financing is available to companies with adequate equity – and there aren’t many of those. Also banks are still trying to mop up the losses they suffered when the real estate bubble burst in 2008. 
 
 
Theoretically, EU funds might make up part of the shortfall, but there seem to be real problems in accessing these funds. In any case, it is hard to consider EU funds as being equivalent to equity due to the number and scope of conditions that need to be met before the funds are disbursed. 
 
 
The main challenges thus remain the same as for the last five years: control costs so as to stay profitable, build up equity through retained earnings and conserve cash. 
 
 
With respect to the BPO market, it is estimated that, narrowly defined, it provides jobs to more than 12,000 people in Romania which now ranks in the top ten destinations for companies looking for BPO solutions. 
 
 
However, the total outsourcing market is far larger than this, as it includes domestic companies that are buying in services that were previously  performed in-house. As an example, when I came to Romania in 1998, the company where I worked had its own cleaning staff. This is becoming rarer as companies contract with specialized cleaning firms to take care of their offices. I have not seen convincing statistics on this phenomenon, as they would be very difficult to capture. Nonetheless, this trend certainly exists, and can only grow over the coming years. 
 
 
The outsourcing market is in an evolutionary, not revolutionary, phase at present. I do not foresee major changes in the next few years. Newly formed companies will buy in as many services as they can, whilst existing companies will be forced to copy the new business models. 
 
 
The regulatory environment continues to get more and more difficult, pushing companies to go outside for services they might have performed in-house only a few years ago. Companies are certainly open to outsourcing, and may even open up new fields to outsourcing by spinning off existing in-house services into standalone companies that then sell services to the mother company on an outsourcing basis. These companies would subsequently sell to other third parties – thus increasing the breadth of the services in outsourcing.

COMMENT ON THIS ARTICLE:




Load new captcha.