Will Lviv Become a Regional Outsourcing Focus?

Issue 11, March 2009.

Will Lviv Become a Regional Outsourcing Focus?

A recent report produced by leading global professional services firm KPMG identified 31 cities world-wide which look set to become the “destinations to watch” for the next outsourcing wave, and Lviv was the only Ukrainian city to make it onto the list.
KPMG specialists have indicated that the rush for new outsourcing centres is the result of two major factors: the credit crisis seems to have encouraged companies to consider outsourcing, while the traditional locations have approached their saturation point. This means that there is a sizeable opportunity for these new locations to absorb a large proportion of the new outsourcing work created by the credit crunch. As corporations are looking to find new locations which can reduce their cost base, Lviv has an opportunity to come into its own as a city which has its own niche specialism and eclectic mix of unique characteristics.

Outsourcing appeal

Outsourcing can be defined as the shifting or delegating of a company’s day-to-day operations or business processes to an external services provider. This allows companies to focus on what they do best and reduce costs. The advantages include cost savings (by outsourcing functions that were previously performed in-house, companies are often able to reduce their employee levels and related costs, such as recruitment, supervision, salary and benefits); higher quality of services (outsourcing companies pride themselves on their “customer knows best” attitude); freeing up capital funds (by outsourcing certain ancillary functions, corporations have more capital to invest in other profit-making aspects of their business); state-of-the-art technology (outsourcing providers spend a great deal of their time and money on employee training and current equipment to remain competitive); and lower rates (outsourcing service providers are able to achieve economies of scale unavailable to individual companies when they combine the volumes of multiple companies thereby offering a very competitive value for money service).
The outsourcing process can be divided into two broad categories: technology services outsourcing (includes infrastructure and software development, website development and hosting, etc.) and business process outsourcing (including customer relations management, financial/accounting, human resources, etc.), with software outsourcing and human resources outsourcing becoming highly sought after areas.

A European business culture

Why has Lviv been identified as a new outsourcing hot spot? The answer is elegant and quite simple. Companies looking to outsource parts of their functions are concerned about “soft” and “hard” factors. Soft factors include intangible parameters such as cultural compatibility, shared values and common views. It is vitally important to match the cultural and organisational values of partnering companies so that there is synergy from the human resources perspective. So-called hard elements include infrastructure and resources, geography and proximity to the client, language skills, a highly skilled labour pool and government incentives.

In light of these two principles, it is not surprising that Lviv looks attractive. Lviv has the right blend of “soft” factors and “hard” factors that create a win-win situation for both partners. In terms of hard skills, Lviv has a large pool of highly educated people, houses several leading educational institutions and a high literacy rate of about 99.6%. English competency for niche specialisations is high, while Lviv has a lower cost of living than elsewhere in Ukraine, and the salaries in Lviv are significantly lower than in Western Europe. Lviv is also well-connected to the rest of the world logistically and only a two-hour flight from most European capitals. Brain drain in Lviv at the specialist level is low as Ukraine is not part of the EU, and labour is not highly mobile, while immigration policies to other countries and hemispheres are long and cumbersome. No less important is government support, and in this regard the Lviv City Administration has proved supportive of outsourcing initiatives.

Speaking the same language

When it comes to soft elements it is worth noting that Lviv, more than any city in Ukraine, is culturally closer to the West. It shares a common history with the West and aspires to become fully integrated into the EU and to join the common security framework offered through NATO. Such regional aspirations show that Lviv and its inhabitants are willing to operate based on the rule of law , democracy and the principles of free trade. Lviv also shares a similar work ethic and European view on life. It goes without saying that the farther east one goes in Ukraine, the more one begins to see aspects of a patriarchal heritage inherited from Russia.

The outsourcing market in Lviv has been showing steady growth since 2002. This means that partners in Ukraine are maturing and delivering good products and more and more clients are becoming inclined on taking a chance on Lviv. While Ukraine remains a risky destination in many people’s eyes, the key now is to take advantage of the opportunities presented by the credit crisis and turn Lviv into an regional outsourcing powerhouse.