Regional Romanian IT hubs

Newsroom 18/06/2012 | 10:11

While Bucharest is usually thought to take the cream of the crop of Romanian IT, this is not always the case. Iasi, Cluj, Brasov, Sibiu and Timisoara – and the list could go on – are establishing themselves as independent regional poles for investments in IT products, services and outsourcing, and they have advantages that are hard to ignore, company executives interviewed by BR argue.

While there is no fixed profile of IT players who have operations in these cities, there are certain common traits that have led them to take this path.

First and foremost, they are dynamic companies in expansion mode, and with a business model that sees them establish a footprint in other cities in the region they come from. Most of the time, they open new locations also because they cater for external clients in Eastern Europe, Western Europe or the United States.

Secondly, they seek good access to up-to-date technical backbone. Thirdly, infrastructure matters: the presence of an airport in these cities, which offers direct connections to important European capitals, is a key advantage.

As a rule, they are companies with a healthy headcount, and, quite often, running a continuous employment process. In order to do this, they rely a great deal on universities whose graduates offer them a pool of potential employees with high technical skills.

Last but not least, costs do make a difference: cheaper office space rents, a lower cost of living, and cheaper labor costs give them a competitive edge.

Local authorities are also expected to play their part in improving the business climate and luring investors to these cities. “Local authorities see fit to support IT companies merely by setting up the so-called ‘industrial parks’ in the best of cases, which include certain logistic facilities. However, the overwhelming costs in IT are costs with the salaries and local authorities do not have competencies in this field. This is why there is need for a collaboration between the government and local administration on concrete projects based on concrete results that they expect, Valentin Tomsa, general manager SAP Romania tells BR.

Good signals on the horizon

Romania has been ranked by The Times among the top ten emerging outsourcing destinations in the Outsourcing Business supplement which The Times distributed on June 11 in association with the National Outsourcing Association (NOA).

More precisely, Romania comes sixth in The Times ranking, which argues that although it may not seem an obvious choice, the country has an ever increasing reputation as an attractive outsourcing destination and a leader in IT outsourcing. With more than 100 universities, Romania is renowned for its high quality labor pool with language and mathematics skills in abundance.

Romania was also ranked 25th in the 2011 Global Services Location Index produced by management consultancy A.T. Kearney.

After the capital, Cluj is perhaps the most popular destination for IT investors in Romania. There are discussions to make the Transylvanian city the location of a small Silicon Valley-type of town, an “agglomeration of IT businesses” which could attract large international companies, according to plans voiced by Lucian Isar, minister-delegate for the business environment.

“Our proposal for Cluj, based on the evolution of the city, the potential and the human capital, is to start a Silicon Valley,” said Isar, adding that large international companies will serve as “anchors” around which a small town will be built.

“You have fundamental advantages, and we feel the business environment would want such a level of business in Cluj, which the state can facilitate,” said Isar.

He added that the Ministry of Economy will facilitate “access to European financing, state warranties and foreign investors. The state can talk to the private sector and inquire who wants to go into this business; there will be a transfer of credibility from the state to Cluj, so that external partners can enter such a formula. We will show them the project and tell them we are developing a park here, tell them about the region and its advantages and invite them to Cluj,” said Isar.

But it is not only Cluj that has ambitions to attain Romanian Silicon Valley status. Iasi comes second, after Bucharest, when it comes to the availability of high levels of IT skills, with over 1,000 IT students graduating annually from universities which work in partnership with private companies.

“In Bucharest, there are skilled people in this field who are interested in coming home. The migration of the labor force can solve this problem, especially since investors are currently interested in entering the province. Bucharest and Timisoara are very close to the brink of saturation and this is why we are taking other directions, and Iasi is on the shortlist for many clients who we are representing. There are many companies interested in opening operations in Iasi in the immediate future,” said Lori Collin, head of tenant representation and senior consultant at Jones Lang LaSalle, during the debate HITECH Iasi that took place last year.

Additionally, Iasi has been ranked as the 75th city in the world with the highest internet speeds. It is also well positioned in business space availability, as it provides over 100,000 sqm of class A and B+ office space.

“The threshold of 100,000 sqm of class A and B+ office space has been exceeded, while over the next three years this surface will grow to over 150,000 sqm, which offers Iasi an important advantage in the competition with other cities in Romania. As a trend, we are seeing more and more international companies in IT and outsourcing shortlisting Iasi in Central and Eastern Europe,” said Dan Zaharia, leasing manager of office buildings developed by Iulius Group during the same event.

Sibiu, a former European cultural capital in 2007, is also emerging as a regional IT hub, with one very important card up its sleeve: among the big cities, it leads the way when it comes to affordable rent for office space.

With a monthly average office space cost of EUR 9-11 per sqm , Sibiu is the cheapest, according to a survey carried out by CBRE Romania, which looked at six large Romanian cities. Sibiu is far better placed than Bucharest, where the average rent is EUR 19.5 per sqm.

“Romania is one of the most attractive countries in Central and South-Eastern Europe from the point of view of the office market, and the capital is not the only point of interest for companies who are looking to expand or relocate their activities. Along with Bucharest, the other main cities – Cluj-Napoca, Iasi, Timisoara, Brasov and Sibiu – have become more and more attractive to foreign investors due to the highly competitive labor force they offer and the infrastructure development that will take place over the coming years,” said Razvan Iorgu, general manager of CBRE Romania, in a press release.

Salaries pick up despite the crisis

The phenomenon of domestic migration has gained momentum in Romania over the past few years. Young people are the demographic relocating most frequently, driven away by lack of work or study opportunities (18.4 percent), high housing costs (14.9 percent), bad traffic (13.3 percent), lack of cleanliness (12.4 percent), and unattractive and unsafe buildings (12.1 percent), according to a survey carried out by Siemens Romania.

Nearly 70 percent of Romanian youngsters would like to quit their home towns for other cities that offer a better standard of living, according to a survey carried out by Siemens Romania. After Bucharest, preferred by 21.1 percent of them, a close second is Cluj-Napoca with 18.5 percent and in the third place comes Brasov, with 15.4 percent.

Pay is of course a major factor. According to the AIMS SalaryMap, a survey of  IT companies in Banat and Transylvania, with offices in cities such as Timisoara, Cluj, Sibiu and Brasov, the average monthly salary of a software architect with at least five years’ experience in software development and good programming skills is EUR 2,608 per month, gross.

A software architect’s salary is 30 percent higher than that of a team leader, a position which involves supervising a team of four to five specialists, which commands on average EUR 1,862 per month. A financial manager makes an average gross salary of EUR 2,552 and a human resources manager EUR 1,847.

While technical experts are the best paid in the industry, salaries in administrative support are not much above the market average. A typical financial specialist is paid EUR 1,040 and a HR generalist EUR 890. These differences are due to the degree of specialization – technical experts are harder to find and have specific skills. Moreover, they make a contribution that is directly quantifiable in the profit of a company, unlike support functions.

Salaries also depend on the experience of the worker. An entry-level software developer commands EUR 690 per month while a senior software developer can earn EUR 1,664 gross.

Salaries in R&D continue to be higher than the norm, with the average salary in this area EUR 462 per month, approximately 2.5 times the average at national level. Earnings are poised to continue to grow, as approximately 93 percent of the companies that took part in the survey said they plan to increase pay by an average of 7.5 percent.

Also, over a third of companies that participated in the survey give a month’s salary as a bonus.

Players outline their reasons

“From the IT point of view, Romania is in a comfortable position: for many years, a great many very good brains have been specializing in IT in Romanian universities. Regarding salary costs, we still have cheap costs compared to developed countries and better or similar costs compared to our neighbors. As far as regulations are concerned, the fiscal facilities from the last 15 years have helped the industry a lot and created regional competitiveness. Romania has a good geographical proximity to Europe, especially suitable for nearshoring,” Janos Egly, CEO of Evoline, tells BR.

Evoline, a firm specialized in software development and various IT support services, currently has offices in Cluj-Napoca and Targu Mures. “We opened offices there for historical reasons,” says Egly. “Initially there were two separate companies, one in Cluj and the other in Targu Mures. These units were set up at that time because their owners lived there, but also these cities had the necessary resources at a good price.” Evoline services are oriented at the moment “mainly towards developed European countries, but we have a business plan for Romania, too,” says Egly.

In Cluj, the firm has approximately 250 people while another 100 work in Targu Mures. The CEO says that labor costs in Cluj are 10-15 percent below those in Bucharest, while in Targu Mures costs are 30-40 percent lower than in the capital.

“International studies carried out over the past two-three years place Cluj, for instance, among the top 50 cities in the world for outsourcing opportunities, especially in IT,” says Voicu Oprean, general manager of AROBS Transilvania Software.

AROBS also has its headquarters in Cluj, where it has three spaces for offices and over 200 employees. “The Cluj International Airport, with connections to the most important European capitals, the investments made by foreign companies, the fiber optic backbone and technical infrastructure are other reasons for the good image that this city has when it comes to outsourcing,” says Oprean.

Apart from Cluj, the firm has deployed smaller teams in Bucharest, Oradea, Chisinau (the Republic of Moldova) and San Diego (the United States). Moreover, in May, AROBS also opened an R&D center in Iasi and by the end of the year it hopes its headcount there will reach at least 30 people. In parallel, the number of programmers in the Chisinau office, which was inaugurated last year, is also projected to grow.

“Technical universities in Cluj and Iasi are shaping thousands of students every year who then choose to work for IT companies. This is why software companies, especially foreign ones, have decided to open headquarters in these two cities,” Oprean says.

Between January and May this year, AROBS recruited over 50 people, of whom 35 were developers of software solutions while the rest were employed for business lines dedicated to internal products. At the end of May, AROBS had 291 employees. By the end of the year, plans are to take the headcount to 400. “We are looking for software developers, especially for the technologies PHP, JAVA, C++, Python, BI, web developer, ASP.Net, mobile, UI Engineer, QA Engineer and front end developer,” he says. “Labor costs in Romania are competitive, and the knowledge of English and other foreign languages is excellent.”

AROBS is not the only firm that finds knowledge of foreign languages crucial to its activity.

SAP, with working points in Bucharest, Timisoara and Cluj-Napoca, has sought to open centers in the western part of the country because it needs to find employees with a sound knowledge of German, since most projects are delivered to states such as Austria, Germany and Switzerland.

The company, which provides premium IT consultancy and implementation services, has reached a headcount of 240 in Romania, and counting. Thirty percent of these employees are based in Cluj-Napoca and Timisoara. The nearshore delivery center in Timisoara was officially opened at the beginning of this year while the center in Cluj will be inaugurated in July.

“We are considering the possibility of expanding east, and the city of Iasi is probably on the cards. We are still analyzing this move, but if we want to deliver projects in Moldova, Russia and Ukraine, then Iasi will probably be the first option. We run our business based on the concept of a nearshore delivery center. We need to be close to the clients both geographically and culturally so the clients served from Iasi would be from eastern countries,” Tomsa told BR in a previous interview.

One reason IT investors prefer these cities is that “they are in themselves centers with a positive economic evolution,” Marcel Borodi, CEO and main shareholder in Cluj-based company Brinel, tells BR. “After Bucharest, Cluj and Timisoara are the next preferred locations for IT investors. Unfortunately, the high pressure on a finite number of skilled human resources has led to a shortage of available professionals and a continuous surge in costs.”

Recently, Brinel announced it would invest approximately EUR 1 million in a data center, estimating that it will get 20 new clients who will use the services provided by the site. “Our team of specialists has expertise in designing, implementing and managing data center structures built on multi-vendor global platforms and at the same time we offer clients our own data center, launched this year,” says Borodi, who identifies as a trend “the provision of services in  data centers or building data centers.”

Brinel currently has offices in Cluj-Napoca and also an established presence in Bucharest, Oradea, Sibiu and Brasov. “Occasionally, depending on projects, we have also had a presence in Iasi and Timisoara,” adds the CEO.

The company has 160 employees in the five locations, most of them in the main headquarters in Cluj-Napoca.

As a common denominator, companies featured in this article are dynamic organizations covering several locations in their area of interest, and extensively recruiting in the process, to cover their needs.

For instance, French company Pentalog, a provider of IT consultancy and software development centers, is also in expansion mode, planning to hire 150 people over the next five months in its Cluj-Napoca branch. In Romania, Pentalog currently has offices in Bucharest, Brasov, Sibiu, Iasi and Cluj. The company also has an office in Chisinau, in the Republic of Moldova. It opened its fifth production unit in Romania at the beginning of 2011. At the moment, the 50 employees in Cluj-Napoca are involved in web/e-commerce, ERP, business intelligence and software R&D projects.

iQuest,  with development centers in Cluj, Brasov and Sibiu, announced in March that it was planning to boost its headcount by an additional 100 people this year. The office in Cluj numbers 308 workers. In Brasov, iQuest employs 87 while in Sibiu, the most recent center of the company, the staff has reached 23. Its services focus on several strategic directions: life sciences, financial services, telecom, logistic and mobile services.

Cornelius Brody, CEO and founder of iQuest, tells BR the choice of location was influenced by the European culture available there and the level of training offered by university centers in Cluj, Brasov and Sibiu. Another important factor when choosing these cities was their infrastructure, which allows good international connections to Western European countries.

“Romania’s key strength remains the professional IT services that it offers. IT professionals in Romania are recognized for their technical excellence, as well as for their strong engineering background – which comes from a long-established tradition in technical higher education,” John Cotterell, chief executive of Endava, tells BR.

IT centers in Romania “conveniently provide good flight connections to European capitals, have office space available and an excellent  telecommunications backbone,” he adds.

Endava has three development and support centers in Romania, in Cluj-Napoca, Iasi and Bucharest, and a headcount of approximately 500 employees in Romania, of whom 250 are in Cluj, 210 in Iasi and 30 in Bucharest.

“Our immediate plan is to grow to a total of 750 people in Romania. We will achieve this mainly by upping staff numbers in Iasi and Bucharest.  On the medium term, we plan to increase to 2,000 employees in Romania,” says Cotterell.

The company is in a race to gain more clients in Europe in the following year, mainly on the German market. “At the moment, approximately 90 percent of the group’s revenues are generated by projects delivered to UK and US clients, mainly in the financial services sector. Only 10 percent of revenues are generated by clients in Central and Eastern Europe. Over the coming year, we will focus our efforts to gain more clients on other European markets,” said Cotterell.

The majority of the IT projects outsourced in Romania are the development of applications, software testing, digital media services, services of management of software applications and infrastructure and IT service desk services, according to the Endava official. As budgets are shrinking, companies in every industry, but especially those in the financial services sector, have started to look for ways to cut their operational costs, therefore there is a noticeable trend for outsourcing projects to nearshore destinations. This situation will create new opportunities for IT outsourcing companies in Romania that have a high level of expertise on verticals for which they provide IT services, says Cotterell.

Romania is competing as a nearshore location with other states in the region, such as Bulgaria, the Czech Republic, Slovakia and Ukraine as well as the Baltic states and Russia.

“We see Romania as a unique location. It is easy to reach, a two-three hour flight from major European capitals. Furthermore, it is an EU member and has five major IT clusters to choose from: Bucharest, Cluj, Timisoara, Iasi and Brasov,” he concludes.

Otilia Haraga

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