Romania has become a favoured destination for IT and business process outsourcing (BPO), thanks to a diverse set of advantages from the highly skilled, multilingual local workforce to its relatively low costs compared to fellow EU member states, to its proximity to West Europe’s main tech and innovation hubs.
This has brought international tech giants including Microsoft, IBM, Oracle, Dell and many others to Romania, and having tested the location they almost invariably expand. In 2016, real estate firm Cushman & Wakefield ranked Romania top among “mature” locations for business process outsourcing (BPO), noting that “despite annual salary inflation starting to tighten cost margins and erode its cost competitiveness its favourable operating conditions (ranked first place globally) and enhanced connectivity continue to attract investment.”
Cushman & Wakefield’s BPO and Shared Service Location Index — mature locations. Source: Cushman & Wakefield and ANIS
But BPO is only part of the story. As well as expanding their operations in Romania, international firms have increasingly outsourced more high tech operations to the country, not only seeing the country as a source of call centre operatives, but also employees involved in more sophisticated operations like software development. This has led to decisions like Deutsche Bank’s opening of its global technology centre — one of just four worldwide —in Bucharest back in 2014, a resounding endorsement of its confidence in the quality of Romanian tech specialists. More recently, the world’s largest online retailer Amazon is opening its new engineering centre in Bucharest in May, having initially set up its first East European R&D centre in the eastern Romanian city of Iași.
The Bucharest-based Employers’ Association of the Software and Services Industry (ANIS), lists the size of the labour force and strong language skills as the main attraction of Romania for investors, but adds that, “In addition, it is home to very capable programming talent, and many offshore/nearshore investors are using the country for their R&D operations.”
For a long time though, while Romania has been seen as a source of labour and tech expertise for international firms, there has been some handwringing over what has been seen as a lack of innovation — the kind of original thinking and confidence needed to inspire the leap into creating a new business, leading in turn to the emergence of a vibrant local startup scene and home grown tech giants. The hope was that the arrival of international tech firms in Romania would equip Romanians with new skills and encourage the creation of new local high-tech businesses.
There are signs this is beginning to change, however. One name that’s been around for a long time as a Romanian champion turned international player is antivirus company Bitdefender. Romania was also the home country of three companies in the latest CEE Fast 50 from Deloitte, which ranks the fastest growing tech companies in Central and Eastern Europe; systems integration company Trencadis, mobile solutions developer Qualteh and software engineering firm Tremend.
Yet even Bitdefender has been recently eclipsed by a newer company, robotic process automation (RPA) company UiPath. In March, UiPath announced it had raised $153mn from a group of international venture capital investors, a deal that valued the company at $1.1bn, making it Romania’s first “tech unicorn”. Bitdefender was valued at over $600mn after receiving a private equity investment in 2017.
But can UiPath still be considered a Romanian company? The company was founded by two Romanians, Daniel Dines and Marius Tirca, and still has offices in Bucharest, but it is now an international company, headquartered in New York. Romania’s relatively small market (the population is around 20mn), and status as one of the poorest countries in the EU, mean that the potential for local expansion is limited; to become truly successful, local startups at some point need to make the leap abroad.
Sometimes seen as a limiting factor, however, this was highlighted by investors from Accel, one of the backers of UiPath in its latest round of financing, as a potential advantage. Indeed, its birth away from one of the world’s main tech hotspots where companies are courted by capital seemed to be attractive to some of its backers, with one venture capital firm, Accel, talking of the “refreshing scrappiness” of startups from other parts of the world where founders “are required to think beyond their local (often smaller) market to plan for a global business from day one.” In addition to the advantages that has brought international firms to Romania, the country’s disadvantages may paradoxically have helped local firms to expand.
Clare Nuttall is a Bucharest-based journalist specialising in Eastern Europe. Currently news editor at bne IntelliNews, she has been with the magazine since 2008, initially in Kazakhstan and more recently in Romania. Clare has also written for the Financial Times and the Economist Intelligence Unit.