Romania and Bulgaria remain dominant players in the outsourcing industry across Southeast Europe, with Bucharest and Sofia accounting for 43% of the region's service providers. This is according to the Southeast Europe Outsourced Services Industry Report 2023, which analyzes 2,293 companies across 11 countries, spanning various high-tech sectors. Additionally, emerging provincial cities such as Cluj-Napoca in Romania and Novi Sad in Serbia are gaining traction as alternative outsourcing hubs, signaling a shift from the traditional capitals.

The report highlights the significant role of foreign ownership, with nearly half of the outsourcing companies in the region being owned by investors from 63 different countries. The largest contributors to foreign investments are Germany, the USA, the UK, and the Netherlands, which together own 42% of the outsourcing providers, primarily in Information Technology Outsourcing (ITO). Slovenia stands out for having the most active cross-border investment presence.

The outsourcing sector generated 17.1 billion euros in revenue in 2023, continuing its growth from previous years. Romania leads with 7.9 billion euros in revenue, followed by Bulgaria at 5.4 billion euros. Croatia showed the highest growth, with a 28% increase. ITO remains the largest revenue driver, ahead of Business Process Outsourcing (BPO), even though the latter employs a larger workforce.

Despite the overall growth in the outsourcing industry, employment figures have seen a slight decline, with over 2,100 fewer employees in 2023 compared to the previous year. This reduction may be attributed to rising labor costs, which have increased by an average of 15% annually over the last five years. However, labor costs are expected to rise more modestly in 2023, potentially indicating a recalibration of the economic landscape.

Bulgaria, in particular, surpassed Romania in terms of profits generated by outsourcing companies, which reported a combined net profit of 1.4 billion euros for 2023. The sector's contribution to taxes also increased, reaching 214 million euros, reflecting the growing fiscal importance of the outsourcing industry in the region.

Iliya Krastev, chairman of AIBEST, highlighted the challenges and opportunities faced by the industry in his opening speech at the SEE ITS Summit 2024. He emphasized the importance of adapting to political, economic, and regional changes, particularly in the context of artificial intelligence, innovation, and adaptability. Krastev urged decision-makers to realize the urgency of these issues, stressing that the future of the economy is at stake in the near term, not just the long-term.

Krastev also expressed concern about Bulgaria’s current image as a “cheap destination” with an unstable political climate, pointing out that while the country boasts skilled professionals and quality products, it lacks the global recognition needed to attract investors. He called for a more proactive approach to building a positive international brand.

During a panel discussion, Viktor Mitev, partner at EY in Bulgaria and other Balkan countries, emphasized the need for Bulgaria to adjust its tax policy to better retain and attract investors, particularly those in high-value sectors. He noted that while Romania and Greece offer tax incentives for companies investing in training and development, Bulgaria has missed this opportunity.

Dobroslav Dimitrov, chairman of BRAIT, stressed that skills development and digitization are crucial for the region’s future. He argued that while countries like Germany and Sweden are in a different economic situation, Southeast Europe should focus on policies that suit its unique conditions. He also warned that without competitive policies, the region will miss out on the benefits of new technologies like AI, urging collaboration between governments, businesses, and people to foster the necessary skills.

Dimitrov also highlighted the importance of improving quality of life, not just salaries, to attract and retain talent in Bulgaria. He believes that while AI will affect intellectual professions, it also presents new opportunities. The future success of the region, he argued, depends on the ability to adapt and invest in talent.

The SEE ITS Summit, which was organized by AIBEST and partnered with Darik Business Review, serves as a platform for discussing the future of the industry and the steps needed to ensure the region’s continued success in the global outsourcing market.