Bulgaria
The outsourcing industry has always favored Asian countries in the past. ALthough India, China, the Philippines, Malaysia, and Singapore still dominate the industry, Eastern European countries are now asserting their presence in the outsourcing market today. One country that is gaining a lot of attention is Bulgaria, the first European country to be included in the top outsourcing countries for 2010.
Bulgaria, located in the Balkans in southeastern Europe, is starting a new trend together with Slovakia, Romania, and the Czech Republic: NEARSHORING. The term refers to neighboring countries that offer less expensive labor and services to the US and Western Europe.
The country was known as the "Soviet Silicon Valley" and its software sector was subsidized by the government throughout its Communist period. For many decades, it was a key supplier of software and hardware to the Soviet Union and Eastern Europe, and it even managed to build its 40 years of experience in hardware, software, and electronic development during its challenging transition to capitalism. Its shift to the free market established its prominence as one of the key suppliers of IT and software development in Eastern Europe.
Bulgaria is attractive to the market due to its stable macroeconomic and political environment, competitive pricing, and highly-educated and qualified work force. It has proven itself in high-end, small-scale projects, contact centers, and information communication technology. Many Bulgarians combine creativity and skill in technology market sectors, particularly in the areas of CAD/CAM/CAE systems, custom software, databases, operation systems, service and support of computer equipment, text processing text editors, telecommunication services, and system integration.
Despite its capitalist environment, the country still has traces of communism in its system. This is the reason why several in the bureaucracy remain detached to the private sector's needs, which could be frustrating to start-up companies. Its judicial system also needs further improvement, particularly in managing the irregularities in its system and shortening it court action processes.
Country overview
The Republic of Bulgaria has a total population of 7.2 million and is the sixteenth largest country in Europe. It controls the key land routes from Europe to Middle East and Asia, sharing its borders with Romania, Turkey, Greece, Serbia, and Macedonia. The main language of the population is Bulgarian, followed by Turkish and Roma. Their religion is primarily Bulgarian Orthodox, with a smaller portion of Muslims and Christians in different areas of the region.
Bulgaria has an open free-market system that is classified as an "upper-middle-income economy" by the World Bank. Although it is ranked as the lowest-income state member of EU, it is one of the fastest-growing European countries in recent years. Its gross domestic product, using the official exchange rate, is $45.3 billion, although its GDP is an estimated $90.51 billion when calculated using the purchasing power parity (PPP).
Bulgaria became a People's Republic in 1946 after entering the Soviet sphere. It gained independence in 1990 after having first multi-party election in the country. Since gaining its independence and emerging as a parliamentary democracy, Bulgaria has combated inflation, unemployment and corruption. The nation joined NATO in 2004, and the European Union in 2007. Upon entering the EU, Bulgaria’s economy was growing at a rate greater than six percent, powered by significant foreign investment and consumption. The government has been instrumental in negotiating economic reform and financial planning. During the global downturn, the once-strong economy contracted nearly five percent in 2009, and remained stagnant in 2010. Modest growth is expected in 2011, which can be attributed to significant exports. Bulgaria’s workforce consists on 3.4 million, which ranks 98 globally in size. It suffers high unemployment however at 9.2%.
Bulgaria is geographically ranked 104 in landmass, akin to the size of Tennessee. The nation has a population of nearly 7.1 million, with seventy percent living in urban areas. Its largest city, and capital, is Sofia has a population of 1.192 million people.
Recent financial setbacks increases the country's unemployment rates, and was further exacerbated by the corruption of its public officials, presence of organized crime, and a weakened judiciary system.
Source: CIA Factbook, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Cost competitiveness
Employee compensation
Employee compensation is generally the greatest cost for any outsourcing operation – whether it is technology administration, human resources or customer services. A typical outsourcing project will include a number of junior resources, some high-skilled senior managers and oversight project management. The greatest cost benefit is usually obtained through junior resources – for example, a software engineer/developer with 1-4 years of experience in Bulgaria is just 15 percent of that in the United States with a median pay scale of 38,528 Bulgarian Levs or USD $8,872.
While still a significant savings over US salaries, those for IT project management do not carry the same ratios. An IT project manager with 10-20 years experience earns on average 37,962 Levs, or USD $27,412, which is 26 percent of the comparable US salary. BPO resources offer similar competitiveness, with junior salaries just 13% and more senior resources closer to 20% of their US counterparts.
Real estate
The cost of office space can consume a large portion of any outsourcing operation expenses. However, these are variable across the cities, with the most expensive ones falling under Class A prime locations in central business districts. An office space in Sofia costs around $35.2 USD per square foot for a year. It has one of the least expensive prices, averaging around 35.2 percent compared to India, which has around 61.9 percent.
Taxes
Bulgaria has the lowest corporate taxes in the world--a mere 10 percent compared to the 40 percent requirement in the US. Indirect taxes are very high, according to the annual KPMG Corporate and Indirect Tax Rate Survey, Bulgaria's 20 percent indirect tax far exceeds Canada and the United States which maintain levels below seven percent.
Source: PayScale, SourcingLine, February 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010
Source: KPMG, October 2009
Source: KPMG, October 2009
Source: Doing Business (World Bank), 2010
Real Estate : Office occupancy costs are for Sofia.
Resources and skills
The years following independence left Bulgaria facing a mass emigration of skilled professionals. Social and economic growth over the last 20 years has lessened this migration, as the nation has seen improved opportunities and professional growth in the workplace.
Today, Bulgaria has a workforce of 3.2 million which is acquiring a reputation for its creativity, entrepreneurial spirit, and innovation. Many of them are very talented developers and programmers as well. The country is known for its intelligence, as it ranks second in the international IQ tests hosted by MENSA International and also second in the world for achieving the highest score in the SAT. It also holds the third place award in Europe and the tenth place with respect to the number of certified IT professionals in the world. These combined strengths make Bulgarian professionals an ideal asset in building IT businesses. For instance, in 2003, the Bulgarian entry in the International Olympiad in Informatics (Seoul) won four awards, while the Brainbench Global IT IQ Report placed Bulgaria on the 8th rank for its certified IT professionals in the world.
Education and skills
The Bulgarian tradition has always emphasized education for its youth. Many of them have been educated to a high level even at a very young age. Most have had intensive training in languages, sciences, and other technical subjects.
With so much emphasis on education, it is not a surprise to find the country well-educated, intelligent, and highly competent in mathematics and sciences. Bulgaria has advanced education with the World Bank and the Economist ranking it fifth for sciences and eleventh in mathematics. Bulgaria has highly-developed engineering and computer science educational programs with an estimated 6,000 students majoring in computer science. Another 5,000 students are concentrating their education in biotechnology, physics, mathematics, and electrical engineering.
Language
English is the primary language used for business transactions, with about 15 percent of the population speaking the language fluently. The primary languages spoken are Bulgarian, Turkish, and Roma.
Technology readiness
Bulgaria has invested heavily in technology throughout the twentieth century, and continues to do so into the twenty-first. In spite of this, Bulgaria has low levels of Internet accessibility – among the lowest among EU countries. In 2010 just thirty-three percent of the population had access (the highest in the EU was 91% in the Netherlands).
Source: CIA Factbook, 2009
Source: IMF, 2008
Source: IMF, 2008
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: UNESCO, 2009
Source: UNESCO, NASSCOM, SourcingLine, 2009
Source: UNESCO, 2009
Source: International Telecommunications Union, 2009
Source: International Telecommunications Union, 2009
Business and economic environment
Economic competitiveness and stability
Economic competitiveness is an important component to the long-term development of an outsourcing business. According to the Global Competitive Index published by the World Economic Forum, Bulgaria belongs at the bottom list with a score of 4.0. However, its macroeconomic stability is above average, placing ninth among the top ten countries with the most stable government surplus or deficit, national savings rate, inflation, interest rate spread, and government debt.
Infrastructure
The quality of roads affects an employee's productivity and a company's costs. A poor state of road infrastructure can discourage employees from commuting to work, and can add up to additional company expenses as companies pay additional transportation costs as an incentive to its employees. A study by the World Economic Forum ranks Bulgaria at the bottom together with other European countries, such as Ukraine, Poland, and Romania. The quality of electric supply is also low. Bulgaria, together with India, Pakistan, Vietnam, South Africa, and Argentina needs to improve its infrastructure to enhance its competitiveness to the outsourcing market.
Legal protection and Intellectual property protection
A country's economic competitiveness is correlated by the simplicity or complexity of enforcing contracts. According to World Bank's survey, Bulgaria takes around 39 steps to complete this process. This places it at the bottom of the list together with Indonesia, Egypt, Brazil, India, and Pakistan. It also takes around 564 days to enforce a contract, with average costs to pay for an attorney or implement a contract.
Bulgaria has a below average score of 2.6 index for intellectual property protection as compared to Canada (5.5), the U.S. (5.4), and South Africa (5.2). Similarly, it also ranks below average for protection against software piracy. The Business Software Alliance rated it 68% against the U.S. (20 percent), Canada (32 percent), and Israel (32 percent)
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: International Telecommunications Union, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Transparency International, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: The Global Competitiveness Report, 2009
Source: BSE-IDC Global Software Piracy Study, 2009