FT: Bulgaria is becoming a top outsourcing destination
By Theodor Troev and Angel Petrov
The city of Plovdiv, dating back 6,000 years and rich in archeological treasures, is regaining some of its former cultural and economic prominence.
In 2019, Bulgaria’s second-largest city, studded with Roman theatres and still a powerful economic force in the communist era, will become a European Capital of Culture. Meanwhile, its GDP is growing by 12-13 per cent a year, one of the fastest rates in the country. Much of this can be attributed to an IT and outsourcing boom, supported by local authorities and national government.
Ivan Totev, the city’s mayor, says: “My dream is to see Plovdiv’s renaissance as both the industrial and cultural hub of Bulgaria.” Mr Totev backs initiatives from the private sector to develop the city as a fast-growing outsourcing and IT destination and says that tens of thousands of graduates in the next few years will help attract many new jobs.
Plovdiv is an example of the country’s thriving outsourcing industry, accounting for almost 4 per cent of GDP, according to the Bulgarian Outsourcing Association (BOA). Bulgaria is the world’s ninth “most preferred” outsourcing destination in consultancy A T Kearney’s 2014 Global Services Location Index.
Fluency in languages and traditions in software development and programming are a draw, while macroeconomic stability and a currency pegged to the euro add to the country’s appeal. Outsourcing employees’ wages are low compared with western Europe, but allow a better quality of life than most sectors.
Investors have been attracted to the Plovdiv area in part by the Trakia Economic Zone (TEZ), a public-private partnership comprising six industrial zones clustered in and around the city. Companies are enticed by comprehensive infrastructure and fast-track procedures. TEZ is Bulgaria’s first such area to receive focused state support, which allows even small municipalities to apply for project funding from the national budget or EU programmes.
Investment into TEZ projects has topped €1bn since its zones started to grow in the 1990s, with another €800m expected in the next 10 years.
“We’re conservative in these estimates, the interest is steadily growing,” says Plamen Panchev, TEZ managing director and chairman of construction group Sienit Holding, which played an important role in creating the TEZ.
More than 100 investors, most from Europe, have been drawn by business-friendly legislation, low labour costs and the 10 per cent flat tax that Bulgaria offers foreign companies. Among them are ABB, the Switzerland-headquartered power and automation group, and German supermarket group Kaufland.
A “smart city” project to boost energy efficiency and cut industrial waste in a TEZ zone is being developed with Germany’s Fraunhofer Institute and China’s Huawei. Another Chinese company, Hainan Longquanren Century Invest and Development, is TEZ’s partner in a Euro-Chinese Economic Development Zone aimed at attracting more Chinese investment by establishing a logistics hub linking Asia and Europe.
TEZ has employed 12,000, including jobs for residents in poor rural areas, which initially provided more workers. However, lack of qualified employees is a problem, although there are attempts to remedy this. Ivaylo Staribratov, who chairs the Information and Communication Technologies Cluster, has pushed for curricula at some universities and vocational secondary schools to match better the requirements of the IT sector.
Other cities, such as Veliko Tarnovo in north-central Bulgaria and Varna and Burgas on the Black Sea, are also benefiting from the growth in outsourcing
The foreign presence is expanding. HP, the US technology conglomerate, opened a lab in Sofia, for example. In Sofia alone, some 20,000 people are available to take up junior outsourcing positions — about the same number working in the sector nationwide.
“The potential we have could double the share of outsourcing in GDP in the next three to five years,” says Stefan Bumov, BOA chairman and chief executive of Sofica Group — the largest Bulgarian-owned outsourcing company, bought by US-based TeleTech last year.
Ilia Krastev, chief executive of A Data Pro, a content, data and business intelligence services company, adds falling birth rates and education as challenges “that could put a brake on sustainable growth”. He says Bulgaria must make it easier to hire foreigners, stop a brain drain, attract natives who graduated abroad and improve quality of life.