Fred Boulanger, Macadamian Technologies. (Darren Brown, OBJ)

Former Soviet Bloc countries growing option for tech firms looking to outsource

Frederic Boulanger's interest in eastern Europe was first piqued years ago, when he was looking for skilled workers while employed by a different software company.

"When I was working way-back-when at Corel, I was looking for talent all over the place," he recalled. "Russia, India, Egypt, all over the place. Over time, I kept my mind open to the fact that there was some talent available in those places."

It wasn't something he forgot years later as CEO of Ottawa software outsourcer Macadamian. More than just potato dumplings and polka, there was high-tech talent behind the old Iron Curtain, and it's led to some profitable ventures for Macadamian in that part of the world.

Three years ago, the firm opened a lab in Cluj Napoca, Romania's "tech hub" and third-largest city. And just last year, it started a second eastern facility, this time in Yerevan, the capital of Armenia. The labs replicate facilities in Ottawa, and each employ about 20 locals, said Mr. Boulanger. About 30 per cent of Macadamian's total production comes from the two labs.

"We're in the process of building those guys to be able to do the same things that we have here, but for their local market," he said.

For American Mark Halaway, it's all about taking advantage of an educated work force providing good value. He has owned and managed Running Code, a software company in Ukraine's capital of Kyiv, since 2002. With a staff of 40, the firm does custom software development, website design and search engine optimization services for U.S., U.K. and local firms.

While local demand for his business is increasing "gangbusters" recently, four-fifths of Mr. Halaway's business is still from the West.

"Our business model was built on providing services to western clients," he said. "I am American and bring western sensibilities to the table."

Governments have, to varying degrees, encouraged the fledgling sectors: tech parks and tax incentives were attempted, with little success.

What really got business going? Good quality, but cheap, labour, and visa-free travel, said both men.

Macadamian is in a unique position that it can compare the outsourcing facilities it has in both east Europe and traditional locations like India.

India still has the lion's share of the world's outsourcing, and will for a long time. After all, its economy is vibrant and it has more than a billion people," said Mr. Boulanger.

"It's synonymous with outsourcing . . . but it has its limits."

Promotions are seeing many skilled engineers become bosses.

"They go from developers to senior developers to managers very quickly," Mr. Boulanger said. If an engineer hasn't been promoted to a managerial position shortly after starting, their peers perceive that there must be something wrong with the person, he said.

So short is India in skilled engineers, work outsourced to India is being outsourced a second time to China, said Mr. Boulanger.

"They are good managers, but are they as good as eastern Europe in terms of problem solvers?" he asked, suggesting managers in eastern Europe have had more life experience, and a better knack for managing.

"My theory is, if you take a slice of the population . . . the likelihood of finding engineers still doing engineering work is much higher in eastern Europe (whereas) in India, a lot are managers."

Different strokes for different folks

Firms go to different parts of the world to get different projects done, Mr. Boulanger suggested.

"System programming – we believe eastern Europe has this, hands down.(But) when it's time to look at high-level information management, then India has a lot of volume to offer there."

Western Europe, said Mr. Boulanger, figured out its eastern cousin was "hot" a long time ago. "They're going to India too, don't get me wrong. But eastern Europe is a really hot destination for them."

Proponents of India as an outsourcing destination have long boasted of India's English skills. While multilingual, English is the official language – a fact no east European country can brag about.

That's true, said Mr. Halaway. "We make it a point, as I'm sure our competitors do as well, to put only English speaking personnel facing our clients," he said, thereby "neutralizing" the problem.

Often, he said, culture is the larger problem, be it the differing business practices, work cultures, ethics or sensibilities. "These types of issues I personally work on balancing between our staff and our clients."

Mr. Boulanger said he hasn't experienced a language barrier in Romania.

"Their English is very good. I'm more likely to find a language barrier when I go to Germany than in Romania," he said.

Those in their 30s and younger have all been exposed to western culture, he said. "They've been watching the same shows you and I have been – we're talking about the classic skits on SNL . . . Obviously, they have an accent, but at the end of the day, it's English."

Overheating?

If the economies in eastern Europe continue to produce as they have been, they may get too hot, and even replicate the current problems with India.

Romania, now part of the European Union, will soon see its salaries on par with Europe's. "It's not going to be a cost advantage to be there," said Mr. Boulanger.

And while it's not a member of the EU, Ukraine's economy is growing just as quickly.

"Inflation is on the move," said Mr. Halaway. "Personally, I've never seen anything like it. And I know that my western clients haven't either. If it continues, we won't be able to compete on price alone."

With annual growth at 20 to 25 per cent, he said he had few options: consolidate, diversify, or "focus on quality."

"Like in any field, in any country, the nimble, the smart, the strong will survive," he said.