sourcing-sector-in-SEE-as-of-2023

The State of Sourcing Sector in SEE as of 2023

Over the past decade outsourcing sector has been one of the fastest growing industries in the majority of Southeast European (SEE) countries. This long-lasting trend does not slow down even today. In 2023’s report AIBEST offer a detailed review how sourcing segment perform by country, type of service, level of attractiveness for foreign investments and so on. You can explore the material by following this link here.

In today’s article we’re reviewing some of the important key findings from AIBEST’s report2023.

HIGHLIGHTS of SEE sourcing sector’s development in 2023:

1) Bulgaria and Romania hold the majority of sourcing business in SEE. Their respective capitals, Sofia and Bucharest, accommodate together over 40% of all SEE operations. Both capitals serve as the primary hubs for sourcing in the region.

2) Skopje, Belgrade, and Zagreb emerge as new sourcing hubs.

3) The growing sourcing sector expands also into other large urban centers like Bulgaria’s Plovdiv and Varna and Cluj-Napoca in Romania.

4) Foreign legal entities or individuals own almost half of the SEE vendors. These investors come from 62 different countries. At the top 5 stand the USA, Germany, the UK, and the Netherlands.

5) Vendors registered in SEE expand their regional presence beyond their home markets and encourage investment activity within the SEE area. Slovenia is at the forefront of outbound investments within SEE, followed by Serbia and Bulgaria.

6) About 60% of the foreign investors in SEE invest in companies operating in the Information Technology Outsourcing (ITO) segment. On the other hand the SEE-based investors express nearly equal interest in both ITO and Business Process Outsourcing (BPO) segments.

7) Proficiency in at least one foreign language is an essential component of company operations in SEE. In this regard over 70% of the sourcing vendors in SEE have such requirement to their employees.

8) English is the predominant foreign language across SEE sourcing vendors. German is the second most commonly used foreign language, surpassing the prevalence of French, Italian, and Spanish.

9) Speaking of office space in the SEE, technology companies (ITO and BPO providers), continue to be the driver for the office market’s development in the region. As of June 2023, Bucharest and Sofia collectively account for more than half of the total supply of Class A and Class B office spaces.

With this said let’s have a look at the short summary profiles of the countries forming the SEE sourcing landscape.

SEE sourcing sector 2023: Country Profiles

Sourcing destination in Southeast Europe: ROMANIA

see-sourcing-sector-state-in-2023-sourcing-destination-romania

Sourcing destination in SEE: BULGARIA

see-sourcing-sector-state-in-2023-sourcing-destination-BULGARIA

SEE Sourcing destination: SERBIA

see-sourcing-sector-state-in-2023-sourcing-destination-serbia

Sourcing destination in SEE: CROATIA

see-sourcing-sector-state-in-2023-sourcing-destination-Croatia

SEE Sourcing destination: SLOVENIA

see-sourcing-destination-Slovenia

Southeast Europe Sourcing destination: NORTH MACEDONIA

see-outsourcing-destination-North-Macedonia

Sourcing destination in SEE: MOLDOVA

see-outsourcing-destination-Moldova

Southeast Europe Sourcing destination: ALBANIA

see-outsourcing-destination-Albania

Sourcing destination in SEE: BOSNIA & HERZEGOVINA

outsourcing-destination-bosnia-i-herzegovina

Southeast Europe Sourcing destination: MONTENEGRO

SEE-outsourcing-destination-montenegro

Sourcing destination in SEE: KOSOVO

see-outsourcing-state-KOSOVO

Mergers &Acquisitions within the SEE sourcing sector in 2022-2023

The period 2022-2023 has been dynamic in the SEE sourcing sector, especially in the ITO. Here are some of  the deals that underscored the region’s growing importance as a sourcing and technology hub.

M&A Deals in the ITO regarding the Bulgarian market:

1) Global digital transformation company Insight Enterprises, headquartered in Arizona, USA, acquired UK-based Amdaris in August 2023. The acquisition includes its SEE units in Bulgaria and Romania. They provide extended delivery teams in the areas of software engineering, data science and product design.

2) Bulgarian tech company, MentorMate, was acquired together with its US-based parent company by Finnish software engineering company Tietoevry. The sum of the deal is undisclosed.

3) Accenture, headquartered in Dublin, broadened its Bulgarian presence. It acquired the local businesses of Netherlands-based managed cloud services provider Sentia in 2022.  NTT DATA Business Solutions also embraced Bulgaria in 2022. The company strengthened its managed services portfolio through the acquisition of Bulgarian SAP service provider Business Services & Technologies.

4)  Aricoma Group, based in the Czech Republic, ventured into Southeast Europe by acquiring Bulgaria-based Musala Soft and its subsidiaries in 2022. The deal included affiliates in North Macedonia, Egypt, and Kosovo.

5) French IT services company Inetum acquired the Bulgarian digital consultancy Do IT Wise.

6) Global digital transformation solutions provider Valtech made Bulgaria the 23rd market it operates on. It acquired and rebranded of local tech company TBG Bulgaria, previously a subsidiary of US-based The Berndt Group.

7)  German software solutions house Valantic turned local e-commerce company AIOpsGroup EOOD in its new regional center of excellence for an undisclosed sum in May 2023.

Other M&A Deals in the ITO segment within the SEE:

1) In Romania, US-based GlobalLogic acquired Fortech, a Romanian software engineering services company in early 2023.

2) Digital Transformation Company Modus Create acquired Romania’s Clarisoft Technologies Rom SRL. The latter specializes in the development of customized products for enterprises.

3) French multinational advertising and public relations company Publicis Groupe expanded its portfolio with the inclusion of Romanian Tremend Software Consulting.

4) Romania’s software engineering services provider Softelligence Engineering SRL signed a definitive agreement to be acquired by US-based Encora Group. Thus it became the first European delivery center in May 2023 for Encora Group.

5) In Croatia the Nets CEE (part of Italian PayTech company Nexi Group), acquired the merchant acquiring business of local payment card company PBZ Card.

M&A Deals in the BPO segment:

As per the AIBEST Rerort2023, the latest deal on the Bulgarian market was announced in September 2023. It involves local trans-border software developer teams provider Questers. This provider is about to be acquired by Estonia-based tech company Nortal from the current owner TPXimpact Holdings PLC, headquartered in the UK, and merged into another of its subsidiaries – pwrteams.

In Romania, Mediapost Hit Mail secured majority stakes in Ideologiq and, in 2023, in Romanian email marketing company White Image. This expansion strategy signified Mediapost’s commitment to growth in the BPO arena.

Croatia-based Infobip Group (a global cloud communications platform company) completed the acquisition of US VoIP provider Peerless Network for approximately EUR 196 mln. This strategic move bolstered Infobip’s capabilities, emphasizing the increasing importance of communication services in the BPO sector.

SEE SOURCING 2023: VENDORS’ Geographical location

In Southeast Europe (SEE), Bulgaria and Romania host the majority of companies in the industry. Over 60% of these businesses have opted to establish their headquarters in either of the two nations. Collectively, they account for slightly over 70% of all sourcing vendors operating within the two EU-member states.

Across the region, capital cities take precedence over smaller urban areas. Skopje, Belgrade, and Zagreb also emerge as hubs for sourcing businesses.

However, the industry gradually expands beyond these capitals. Cluj-Napoca, the second most populous city in Romania, stands out as the largest non-capital sourcing hub in SEE. It is followed by its Bulgarian counterpart, Plovdiv, and coastal Varna.

outsourcing-SEE-VENDORS-LOCATIONS

Distribution of companies by ownership in SEE

As per AIBEST’s report, 49% of the sourcing providers in SEE are under the ownership of individuals or legal entities located outside their respective countries. Foreign ownership is more prevalent in the ITO sector. ITO encompasses 569 companies, while BPO entities of foreign ownership total 492.

Investors from 62 countries hold controlling interests in sourcing companies across SEE. The top four investor countries are the USA, Germany, the UK, and the Netherlands. Collectively they account for around 44% of all foreign-owned sourcing companies in the SEE. Also, nearly 60% of the companies they have invested in are engaged in ITO.

In terms of investment in the region Slovenia, Serbia, Bulgaria, and Croatia stand out as the most active SEE countries. Specifically, 24 sourcing vendors in SEE have a majority owner from Slovenia, 14 have Serbian majority ownership, 12 are Bulgarian-owned, and 11 other are Croatian-owned. Slovenian and Serbian owners tend to focus on BPO. On the other hand Bulgarian and Croatian investors lean towards ITO when investing in sourcing vendors in the region.

outsourcing-SEE-foreign-ownership-distribution

Most used languages in sourcing

The proficiency in foreign languages stands among the essential components of company operations in the sourcing sector. As per the AIBEST report, over 70% of the sourcing vendors in SEE require employees to be proficient in at least one foreign language.

In broader context, these sourcing companies cover a total of 38 distinct foreign languages. English is the predominant foreign language across these sourcing vendors, being utilized in nearly all of these companies. Second comes German which holds with 16% share. The combined coverage of the other languages with substantial presence (French, Italian, and Spanish) constitutes 23%.

Office space in Southeast Europe as of 2023

The capitals of the two most developed sourcing destinations in SEE, Romania and Bulgaria, have solidified their positions as the largest office markets in the region. As of June 2023, Bucharest and Sofia collectively accounted for 52% of the total supply of Class A and Class B office spaces.

Bucharest had 3.38 million square meters of office space, followed by Sofia with 2.44 million square meters. Zagreb ranked third with 1.49 million square meters, while Belgrade was the last location in the region with over 1 million square meters of Class A and Class B office space. Ljubljana, Skopje, as well as secondary cities in Romania and Bulgaria, namely Brasov, Varna and Plovdiv, fell into the category of locations with office space ranging from 250,000 to 500,000 square meters.

Capitals like Sarajevo, Tirana, and Podgorica, along with smaller cities in Bulgaria (Burgas, and Ruse), constituted the group of emerging office markets with less than 150,000 square meters of supply.

In terms of rental rates, the top tier was dominated by larger cities with well-established tech and sourcing sectors. This boasted high-quality projects that met contemporary ESG standards. A notable exception was the Albanian capital, Tirana. Due to its limited availability of top-class office space, Tirana ranked as the most expensive Class A office location in SEE for another consecutive year.

TOP 3 most Expensive rental locations:

1) Tirana, Albania: Monthly rents for prime properties reached EUR 25 per square meter, and EUR 17 per square meter for Class B offices.

2) Bucharest, Romania: Second most expensive location for office space in the region. Prime office monthly rents ranged from EUR 20 to EUR 22 per square meter in the central business district. Class A rents were considerably lower in less attractive areas of the Romanian capital, falling in the range of EUR 15 to EUR 18 per square meter.

3) Belgrade, Serbia: Third highest Class A office rates in SEE during the first half of 2023. Rents ranged from EUR 15.5 to EUR 18 per square meter, driven by a tight supply of prime properties.

sourcing SEE-office-space-rents-monthly-on-average

Trends in SEE sourcing sector in 2023

The SEE region is one of the recognized and preferred locations for sourcing services globally. During the past decade, the sector gained substantial growth thanks to new entries on the market as well as the expansion of already existing companies in the region. SEE sourcing sector capitalizes on its strengths in technology adoption, skilled workforce, and cost-competitive services.

Traditional sourcing activities such as data entry and customer support remain essential. However, there is a growing trend towards providing higher-value services. SEE becomes a knowledge economy hub that offers a very welcoming environment for both IT / software development companies and providers of complex business solutions.

Sourcing companies in the region increasingly integrate AI solutions into their services, offering clients cutting-edge capabilities. Overall, the sourcing providers in SEE recognize the AI as more than an efficiency tool, but also as a key driver of innovation.

With the evolving of the sector, it becomes also increasingly skill-demanding. Educational systems and training programs would play crucial role for the competitive advantage of the countries in the region. With the rapid adoption of AI technologies it is expected to drive demand for highly qualified professionals, as well as reskilling and up-skilling of personnel engaged in standardized tasks.

Outsourcing to Bulgaria

Bulgaria is a preferred, fast-growing outsourcing market due to location, expertise and affordability. Its tech and other outsourcing sectors help entrepreneurs and businesses source high-quality services at a fraction of what they cost in western countries. It is always a good practice for a foreign enterprises entering the Bulgarian market to use the help of local experienced outsourcing partner that will look after their best interest on multiple levels. As such partner we, ACS Bulgaria, know how to help you establish, run or transfer your business operations as smooth as possible and in compliance to the Bulgarian legislation. So if you’re planning to start outsourcing to Bulgaria then let’s get it done together.