Bulgaria: Outsourced Heaven Blogs.FT
Bulgarian Capital Sofia

Bulgaria is the only European country ranked among the top 10 most attractive locations for offshore outsourcing by ATKearney. Whilst these type of foreign investments do provide some fresh air for the economy, they are not creating enough momentum to bring back the real economic engine of the country, the numerous young and high skilled expatriates working and living abroad.

Outsourcing parts of big businesses to another country is the ultimate cost saving practice of 21st century business. For better or for worse, this practice has been gradually changing the face of Europe and the developed world. Formerly regions like Lorraine in France or West Scotland in the UK, had been power houses of industry, though they now stand as shadows of their former selves having fallen victim to the ever increasing trend to move production abroad. The reason for this is simple – it is much more profitable to build a factory in China, for instance, and pay the workers 10 yuan/hour (around £1 pound), than the much higher minimum wage of £6.5 in the UK.

In the last decade it has become apparent that this type of offshore outsourcing can be applied not only to areas like manufacturing, but also to more tertiary based sectors such as customer services and information technology. Countries like Bulgaria have benefited from this as they are able to provide a very good platform to deliver the needed work, combining a significant amount of skilled workers that speak two or more languages with low wages and overhead costs. The minimum wage in Bulgaria is 173€ per month and the median wage in Sofia is around 450€ per month. In comparison, the minimum wages in countries like the UK, France, Belgium, Germany, etc. are way above a 1200€ per month according to Eurostat. In addition, Bulgaria also has the lowest corporate and personal income tax rate of 10%.

Thus, outsourcing businesses have experienced a boom in the last couple of years. The people working in this sector have grown from 0 in 2003 to 20 000 in 2014, with numbers continuing to expand. Just in 2014 alone there was a growth of 25% due to the ever increasing number of companies that are looking to establish parts of their production and service facilities within the country.

At first glance this seems like great news. It means more tax income for the government, more jobs for the people and higher salaries than local wage levels, but being in the company of countries like India, Indonesia and Thailand as a “low-cost” destination is certainly not something that is invoking feelings of pride and satisfaction in the Bulgarian people. Bulgaria can and should do much better than becoming a low wage hub in order to solve its long-term economic problems.

Paradoxically, one of the very reasons that attracted foreign investors – the skilled workforce, may now cause stagnation in the outsource growth. Managers and HR specialists confess that the biggest challenge facing them in recent years has been to find enough people to fill the newly created jobs, even despite the attractive salaries. It seems that there are more jobs being created than there are the recruits to fill them, which has forced companies to lower their hiring standards.

But why is this?

There are two main reasons. The first one is the continuous brain drain to other Western countries. Highly skilled professionals, especially in the fields of medicine and IT, decide to emigrate to other countries attracted by higher pay and better living conditions. The best and brightest high school graduates choose to pursue their degrees abroad, having been pushed away by the poor quality of higher education in Bulgaria and the lack of opportunities. Many of them have the sincere desire to come back after finishing their studies, but that turns out to be rather complicated in practice. Spending 3 or 4 years abroad is a significant financial investment, which makes it difficult to return to Bulgaria to work on a far lower wage.

However, given the cost of living in Sofia averages about €800/month whilst living in London is approximately about £2000/month according to numbeo.com, the cost of living should provide some level of advantage to people to looking to return to Bulgaria. What keeps young people from coming back is not only the pay, but also the lack of opportunities for a meaningful career progress. If you open an average jobs site, you would find that the majority of the decent paying jobs are all call-centre and customer service positions – a rather meagre prospect for a young graduate. The only exception is the IT sector, which does indeed provide well-paid jobs with more career prospects, but these are only a minority of the opportunities in the jobs market.

What Bulgaria needs is Capital and the entrepreneurs who can create the real added value to provide it, thus this will create the attractive environment for the diaspora to return. Employers will always complain they don't have enough cheap qualified labour, but what really drives the economy is an abundance of employers and the products and services they create. Right now, with the outsourcing industry, the country does not produce anything and accordingly generates little profit.

The outsourcing boom undoubtedly has many positive sides, but at the end of the day the only thing the newly created jobs offer to the people is for them to become customer service assistants in another language or some other meagre lower income opportunity. There are other positive sides that cannot be denied – the above-average salaries in BPO companies provide financial security and normal standard of living for the disproportionate amount of graduates in Business, Economics, Law and PR that are leaving Bulgarian universities, and until they find other options for development, it is important that there is some sort of employment in the country to provide them with a living.

Though the Bulgarian economy can’t rely too heavily on these outsourced companies or it will inevitably become dependant on the successes or failures of other countries and their corporations, making it far more vulnerable in any future financial crises.