Emerging Europe: A region on the rise

The stakes are high today, as we continue to live in a period of intense global economic volatility. Here in the US, with the US-Mexico-Canada Agreement (USMCA), we’re finally starting to see the light at the end of our trade dispute tunnel with Mexico and Canada. However, the dispute continues with China and the European Union. It’s inevitable that going forward we will witness an ongoing major restructuring of global supply chains. This affects everyone.

For sourcing industry investors, increasing their exposure to foreign markets—specifically the emerging Europe region—is good business. From Digital Transformation, Cloud Computing, Big Data and the Internet of Things, to Data Analytics, Cognitive and Intelligent Automation, Blockchain and the Future of Work, emerging Europe countries are on the rise.

Emerging Europe’s value proposition

I recently spoke with Marko Kovacevic, chairman of IAOP’s European Outsourcing Council and member of IAOP’s Strategic Advisory Board, regarding the value proposition for sourcing in emerging Europe.

According to Kovacevic, “The new trend is emerging and that trend is the ‘added value sourcing’ rather than the ‘cost arbitrage sourcing.’ The European market is maturing with more skilled human capital, innovation, process excellence and new technology integration now happening together in the sourcing industry.”

Kovacevic feels that “digital transformation is happening in all industries and as well for sourcing. We can see it in the startup community growth and its synereses with traditional business for next level sourcing. In particular, agile outsourcing companies are pivoting now toward a Digital Sourcing Platform approach.”

The future looks bright. Kovacevic believes “the future looks promising if we are not afraid of automation and AI, and if we see it as an opportunity to develop new business models for outsourcing – with focus on sustainable education programs for people working in the industry to take the next level of creative work and services delivery. Human touch will always remain important since that’s the essence of who we are.”

The growth of emerging European economies

In 2017, Emerging European countries were up more than 20 per cent as measured by the MSCI EM Europe 10/40 Index. To date this year, they’re returning close to 1.2 percent.

In recent years, most of the emerging European economies’ PMIs (Purchasing Managers’ Index) are above that crucial 50 mark, which separates growth from contraction. Based on five significant indicators—new orders, inventory levels, production, supplier deliveries and the employment environment—PMIs are an excellent indicator of growth in the emerging Europe region.

From everything I’ve seen, this economic rise has no plans on slowing down. Earlier this year, the Vienna Institute for International Economic Studies stated that “political noise notwithstanding, the region’s economies are in a sweet spot, and should continue to ride the booming eurozone wave” throughout the foreseeable future.

Nearshore advantage

Global organisations tend to operate multifaceted infrastructures internationally, most often with several locations throughout multiple countries. When one of these organisations decides to transfer activity from one site to another, everyone is affected: suppliers, distributors, service providers and consumers.

Trends have always shown that proximity, cost and language skills are the most significant determining factors for many businesses seeking services outside their native country. Culturally speaking, this is important for emerging Europe as it gives these countries a nearshore advantage. When it comes to emerging European countries, at the end of the day, another advantage they have over other global markets is their friendliness toward neighboring countries, which allows for business ease in gaining nearshore cost advantages.

With Brexit expected to play an essential role in the business services sector, it’s sure to have an impact on job growth throughout emerging Europe. And with the business services sector continuing its rapid growth, the number of jobs in many emerging European countries will also see substantial growth. As an added bonus, the UK government plans to have a workable relationship with European countries, with the possibility of a free trade agreement. Add in their plans for a strong economic relationship and it looks like an optimistic future post Brexit.

A significant impact on day-to-day business – GDPR regulations. Now in place, GDPR requires companies to put proper security protocols in place, ensuring their operational processes are up to the latest standards. While it affects businesses globally, as a European regulation, it impacts all companies that collect and manage data on European citizens. This new legislation directly impacts all companies based in or doing business with, companies and individuals in the emerging Europe region – added nearshore incentive.

Final thought

While the global economy remains threatened by market volatility and overall uncertainty, these positive developments in the emerging Europe markets are quite significant. Regarding the year ahead, I’m confident these emerging economies may just carry the day.

The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy.