What could outsourcing bring to Bulgaria in an enlarged Europe?

Diplomarbeit von Plamen Alexandroff

Abstract:

Today there are numerous examples for the power of globalization. It brings together people living thousands of miles away from each other through the technology of Internet; allows them to taste fruits from the other side of the Earth; makes them feel the consequences from events that do not have a direct impact on their lives. The signs demonstrating the spread of economic globalization are more and more with each day and they could be noticed on wider and wider areas on the planet.

Global trade has proliferated, driven by individuals, huge multinational companies and countries. But so has done also the flow of capital and humans across the world, both in search of attractive places. The ever more complex system of international relations in each sphere is more and more controlled by international organizations, encompassing most of the countries in the world. Among these, the leading role has the World Bank, the World Trade Organization and the International Monetary Fund.

But in these international bodies the leading role is played by trade groupings such as the EU or super-powers such as the USA. The least developed countries are isolated and suppressed by these super-blocs or –powers. Another major actor in the globalization process – the multinational company – has spurred the anger of ordinary people with its blunt behavior and no respect for the environment. For these reasons has emerged the antiglobalization movement, which is growing more and more.

The process of globalization has brought wealth to some and even deeper poverty to others, showing that it could offer many dangers but also many opportunities for the economic development of the countries. One of these opportunities is the offshore outsourcing. It could be defined as the process of entrusting a partner in a foreign with a complex long-term mission, defined in terms of results. Outsourcing in the manufacturing sector is nothing new and it has existed ever since the appearance of the first big companies in the beginning of the 20th century.

But in the last decade or so offshore outsourcing operations in the services sector have started to proliferate more and more, boosted by the emergence of the Internet, the modern means of communication and computer technology.

There could be defined several major types of outsourcing according to various criteria. A first group could be distinguished in accordance with the subject of the outsourced activities. Another one could be according to the level of commitment of the provider. The last group could be defined in terms of level of complexity.

With the growth of the offshore outsourcing industry there could be heard more and more protectionist voices in the client countries pleading for putting some limits to the unrestricted outsourcing trend in the services sector, which can affect negatively the life of an individual in a span of just 5-10 years. There is a big debate in the developed countries concerning the potential gains and losses from offshore outsourcing. But the empirical evidence demonstrates clearly that the fears are overestimated and actually offshore outsourcing is a powerful source for improving the efficiency of the economy and increasing the consumer welfare. The gains from offshore outsourcing are shared between the client and the supplier countries, so it is not a zero-sum but rather a win-win game. It brings higher productivity, better-paid jobs, increased consumer welfare and enhanced exports for the client countries and bigger employment, wages, exports, government revenues, etc. for the supplying country.

However, in order to get the fruits of outsourcing there should be available some preconditions. For the home (client) country these are flexible labor markets with a shortage of specific types of professionals; wage differences from the supplier country; liberal regulations and proper activities that could allow offshore outsourcing. The factors in the potential location for outsourcing are advantageous cost structure; sufficient labor pool; availability of skills and languages proficiency; proper infrastructure; protection of intellectual property and data security; government support activities, etc.

The examined empirical evidence from the major outsourcing suppliers suggests that this trend could also help Bulgaria in solving some of its main economic problems, connected to its coming accession to the European Union. Generally these problems could be summed up with the term „catching up” and they cover all areas of life. Some of the sharpest economic problems of the country are the very low living standard and wages; inadequate capacity to resist strong competition; high unemployment; and the lagging behind in technology, environmental protection; general efficiency of the economy, etc.

However, in order to understand how Bulgaria is positioned in relation to other outsourcing suppliers, an analysis of its main strengths, weaknesses, opportunities and threats, as well as such of the major trends in social, technological, economic and political area is needed. Such analyses reveal that the country is relatively well-suited to develop successfully as an outsourcing supplier, especially in comparison to most of the current European suppliers. A further analysis of the possible impact of the European policies in the relevant areas tells that given the current trends and situation of the economy, Bulgaria should orient towards developing outsourcing capability in the services sector, since it is much more competitive than the other sectors of the economy.

A demonstration of the potential benefits from developing as an outsourcing destination could be found in the software and related services sector, which is working mainly on sub-contracting/outsourcing basis and with very high export intensity of about 80%. The developed three scenarios for the next five years show that the gains only from this small sector of the Bulgarian economy could be relatively big, given the present development and much bigger in case the government adopts a more proactive and supportive approach. Here are some examples:

Between $150 – 600 million worth of exports in 2008.

Between 180,000 – 260,000 of total employment generated.

Between $810 – 4,150 million of total contribution to the GDP of the country.

Some other sectors that are relatively well-suited to develop offshore outsourcing capabilities could be found in the industry. The emergence of Bulgaria as a European supplier in at least two or three of these sectors would generate immense benefits for the economic development of the country and would allow it to catch up with the average level in the EU in relatively short period, when compared to the present-day pace. The benefits that outsourcing could bring to Bulgaria are the same as those that it has already brought to other supplier countries – bigger GDP, wages, exports, government revenues; enhanced infrastructure, human resources competitiveness, stability in the country, etc.

On the micro-level it would encourage the participating companies to invest more in training and education of their staff; increase the motivation of employees; bring improvement in the quality of the delivered products or services. However, the most profound change on the micro-level would be the spread of outsourcing on the local level among indigenous companies. So, developing as an outsourcing destination could have the potential to make Bulgaria a more efficient and finally more competitive economy, able to find its own place under the sun of the European Union.

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