IT Outsourcing - Prospects in Albania

In 1992, Edward Yourdon had written in his book Decline and Fall of the American Programmer [1], which predicted that U.S.-based computer programmers would suffer the fate of the dodo bird by the end of the decade. This prediction seems to be true to a certain extent.

In this age of globalization, off shore IT (Information Technology) outsourcing is playing an important role in the growth of economy of developing countries like Albania and India. In offshore IT outsourcing, the core competencies are handled by the host company itself, while it outsources the non-core competency activities to other countries especially developing countries that enjoy a labor costs comparative advantage, without compromising the quality of labor.

Offshore IT Outsourcing is basically concerned with two categories:
IT Enabled Services (ITES),and
Software Development Outsourcing Services (SDES).

The IT Enabled Services sector is further broadly classified into different divisions including Medical Transcription (MT), Online Education & Training (OET), Call Centers, Data Processing and Digitization. The Software Development Outsourcing services sector comprises of Application Development, System Integration, Database Management and IT Consultancy Services.

As seen above, there is a huge potential for establishment of all these different sectors. As an example I would like to state the success story of India with respect to offshore IT outsourcing. The offshore ITES sector itself accounted for $6.3 billion in 2006. This includes revenue from all the divisions under the ITES sector. The revenue from SDES sector accounted for $13.3 billion in 2006.

According to the statistics provided by International Data Corporation (IDC), the global IT enabled services market accounted for revenue of $1.2 trillion in 2006. This indicates that although India has taken a considerable chunk of the revenue, there is still a large scope open for other developing countries. Other counties such as Philippines and China are also joining the bandwagon.

Before considering the prospects of IT Outsourcing in Albania, I would like to mention a few statistics regarding the current state of Albanian economy. Albania is an emerging market economy with a lot of potential for growth. According to statistics provided by World Bank [2], Albania has a population of approximately 3 million, a GDP of around 5%, nearly 99% literacy, 15% unemployment and a median age of 30 years. Although all these are not exactly good indicators for offshore IT investors, there is a string possibility of inviting these companies if Albania followed the Indian model for development of this sector.

The IT outsourcing model in India succeeded due to three factors;
affordable infrastructure,
low-cost highly-skilled labor and
High IT literacy.

The offshore IT outsourcing boom had started in India in the late nineties. India had the advantage of having skilled manpower with good understanding of English .The cost of employing an American worker in comparison to employing an Indian worker was at a ratio of 1:8. This sparked off a surge of offshore IT outsourcing with most of the Fortune 500 companies having their IT back offices in India.

There is a scope for Albania to make inroads into Offshore IT Outsourcing. In order to invite the ITES sector, the Albanian Government would have to first develop the infrastructure required for this sector. The Albanian government would have to first recognize IT as well as IT-enabled services as thrust areas for the economy and initiate policies which favor foreign investors in these sectors. For example India is planning to offer 100% foreign equity and exemption from corporate income tax for a time period for companies setting up their off shore development centers in India.

Needless to mention that as the worlds biggest democracy, India has ensured a very stable political environment, a major factor behind the decision by foreign firms to invest in the domestic market. And above all, there exists a free and predictable foreign exchange regime, as well as easy repatriation of profits and dividends out of India.

For Albania to emulate the Indian model, the primary need is to have skilled and trained IT manpower. The current level of IT education in Albania is quite below par, with a few educational institutions offering the latest IT technologies such as University of New York Tirana, which offers latest IT courses including Advanced Java, Embedded Systems, .Net technologies and Data warehousing. It may still take a long time for Albania to actually make significant in roads into IT outsourcing. But the market is huge, and China is the best example of how things can be turned, it is now quite likely that China will overtake India as the leader in IT outsourcing.

IT Outsourcing industry has a lot to offer, but the Government needs to take steps to grab this opportunity. This would involve first; educational reforms, primarily focusing on IT education at school level. There are very few companies actively involved in development of software, the reason being the lack of skilled manpower. Hence to make a start, the educational system needs reforms.

IT outsourcing is no longer a cost cutting operation, it has become a tactical management concept. The demands of IT outsourcing include professional manpower, cost savings and infrastructure. Of these three demands, Albania has been making considerable progress in terms of infrastructure with a new airport terminal and telecommunication giants like Vodafone already having a presence. As mentioned in the in IDC [3] report, the service providers would have to graduate from low value long-term services such as basic maintenance and support to high value one-time services such as system integration.

This would also help solve the unemployment problem gripping Albania at the moment. In India the direct employment from IT Outsourcing has crossed 1.6 million, which is about half the Albanian population. The employment generated by IT Outsourcing would also solve the problems associated with a huge emigrant workforce. IT Outsourcing can change the face of development in Albania. As mentioned earlier cost advantage is no longer the only reason for IT outsourcing. The salaries of people employed in IT outsourcing, for example in India, are rising and are more or less the same as the salaries offered in Albania.

I would like to conclude with an optimistic view about the scope and prospects of Albania contributing significantly to IT outsourcing provided the Government takes steps in the direction. The foremost requirement is for the Albanian youth to be educated on the importance of IT education, and the impact of this on their career prospects. As the saying goes, Better late than never.

Narasimha Rao V
Lecturer
Computer Science
University of New York at Tirana
Albania

References

[1] http://www.phptr.com/articles/article.asp?p=340871&rl=1
[2] http://devdata.worldbank.org/ict/alb_ict.pdf
[3] http://www.idc.com/research

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