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Central and Eastern Europe (CEE) is set to become the next great place to invest in as Western European businesses seek new places to nearshore, offshore, or get access to groqing consumer markets. iBanFirst, a leading global provider of foreign exchange and international payments for businesses, which has 13 operational offices in 10 European countries, of which 3 in CEE countries, has conducted a study among business clients, based on which it has identified 5 compelling reasons for businesses to expand their operations in the region.
1. Rapid Economic Growth: In the last years many CEE countries have outpaced Western Europe in economic growth. The IMF forecast for the CEE GDP growth is to grow twice as fast as the eurozone average between 2023-2026. For example, Romania has recorded the highest rate of economic growth among EU member states approx. 800% over the last 20 years (2000-2022). The outlook for CEE economies remains positive, but the war in Ukraine, rising inflation, and a possible global economic slowdown could pose risks.
● iBanFirst, with a staff of only 25 professionals in the CEE, was able to onboard >1,000 SME clients in Bucharest, Sofia, and Budapest in less than two years. iBanFirst has transacted over €2 billion in cross-border payments for Central and Eastern Europe (CEE) based companies within two years of entering the regional market.
● In the CEE region, it is possible to build a sustainably profitable business from the ground up in less than 18 months, depending on the industry.
2. A Skilled and Affordable Labor Force:CEE has a workforce that is young, educated, and highly skilled. This talent pool is available at a c30% lower cost compared to Western Europe (WE).Romania has the highest proportion of young people (aged 15-29) in the EU, with approx. 36%, closely followed by Bulgaria and Hungary. This is significantly higher than the EU average of 23.7%. This young and dynamic population is a key driver of economic growth.
● Employment costs are lower compared to WE, primarily related to a lower personal income tax rate, but the gap is shrinking. However, if you’re thinking about investing in the CEE, don’t make lower labor cost your top reason. Employees who are properly trained, paid, and given promotion opportunities are harder working and more motivated than their counterparts in Western countries.
“Our HR strategy in Romania was to invest in young people, offer them career opportunities and financial motivation. We promoted them early, trusted them, and they became top performers at European level. The trend of emigration from Romania has reversed in recent years, and there is now a net inflow of immigrants. This trend, if managed well, will have a positive effect on the Romanian economy. At iBanFirst, we choose to exclusively work with the best in-market employees, who have advanced through the ranks of our business. The average age is well under 30 years,” said Johan Gabriels, Regional Director for South-East Europe at iBanFirst.
3. Access to Expanding Consumer Markets: The CEE region’s combined population of over 287 million people and approximately 7 million SMEs constitutes a sizable market with rising purchasing power. These economies’ middle classes are growing, creating a demand for Western-branded goods and services.
● In iBanFirst’s opinion, being regionally focused is a winning strategy. Large corporations are prone to regard parts of the CEE as tiny or non-core, whereas small local businesses or start-ups lack scale.
● Even though we live in a digital age, outstanding service, an excellent network, and personal interaction are still essential. When you and your brand are not known in the market, don’t forget to invest in communication and understanding cultural differences.
4. Expanding Trade Relations with Western Europe and a Strategic Location: Trade between CEE and Western Europe is strong. This growing economic relationship and open markets add to the region’s appeal as a manufacturing and sourcing hub for Western enterprises. Romania, for example, has a 45% proportion of exports as a percentage of its GDP.
● In addition, the region has a high level of digitalisation and adoption of fintech services as businesses operate with different local currencies and need faster & cheaper currency support when doing business internationally. The rise of fintechs offering, especially in international payments over the last 7 years, has translated into substantial savings for regional-based SMEs, exceeding €1 billion annually.
“The open banking system and the early adoption of fintech services have contributed to strengthening trade relations in the region. We feel that once the war on Ukraine is over, the CEE in general and Romania, in particular, have the opportunity to continue its growth and reduce the gap. Companies which are already here will benefit from this growth potential,” said Alin Latu, Country Manager iBanFirst România.
5. Sustainable Business Practices (SBP): CEE is progressively implementing SBP, coinciding with
Western corporations’ attention on environmental and social responsibility. As an example: Romania, Hungary, and Bulgaria have all achieved substantial progress in the utilization of renewable energy sources, according to the 2023 Renewable Energy Market Report. Romania
leads the region with a 28% percentage of renewable energy, followed by Bulgaria (22%), and
Hungary (21%). The continued efforts of CEE toward EU integration and political stability
generate a favorable environment for long-term investment and economic growth.
● The region’s young and educated population is conscious of the need for SBP, and we noticed a growing government support in the region.
● Multinational corporations are implementing the same standards in CEE as they do in theirWE operations, which will help CEE narrow the gap with WE.
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