Over the last two decades, India and China have become popular and even turned into standard destinations for offshoring. Yet, the Central and Eastern Europe (CEE) presents a great opportunity for the high-wage EU countries to “nearshore” their IT and back-office jobs rather than offshore them all the way to India or China. By CEE I am referring to EU members like Czech Republic, Hungary, Poland, Slovakia, Slovenia, Estonia, Lithuania, Latvia, and lately Bulgaria and Romania. It may sound surprising at first to many people that a region that used to be communist not very long time ago, whose labor force predominantly lacked business and entrepreneurial skills, and a region that has undergone economic shock-therapies and fought wars just in the last 2 decades, is becoming an attractive destination for “nearshoring.” But as many recent studies indicate, such as “Offshoring to New Shores: Nearshoring to Central and Eastern Europe,” by Deutsche Bank Research, for instance, in April 2006, various companies, like DHL, Skype, even Indian IT service provider Infosys have been offshoring to Prague and Tallinn (Estonia).

What makes CEE attractive for IT and back-office offshoring for the EU high-wage countries, are the following main characteristics:

1. Communications: One of the major problems that have limited the size of offshoring from the West to India and China was the weakness of personal contact caused by distance. Long distances make it a lot harder for face-to-face communication with clients, and between the management officials and their operational staff. Different means of technology have been used to allow for long distance communication, but overall, it has been a major issue that limits the nature of tasks and operations that a company offshores otherwise the quality and security of services may be risked. CEE is very close and within the same EU Common Market, and while having lower wages than the rest of the Western Europe, it has become very advantageous for nearshoring. In this case, monitoring and communication can be guaranteed due to the close distance within the region.
2. Language. CEE countries speak English just as much (on average) as many other non-English speaking countries. In addition, what sets this region apart is knowledge of German and French languages. The big EU-3 economies: UK, England, and Germany, have a great nearshoring environment in CEE- better personal contact, language skills, and similar time zone compared to China and India.
3. Cultural understanding. CEE countries have a much better understanding of the culture, tradition, business ethics and mentality of the Europeans. Plus, given they are all part of the EU framework, there are common laws and economic policies shared among these countries, making it easier to start-up offshoring operations.

Overall, in terms of comparative advantage and specialization, it seems like given CEE wages are higher while IT education and training is somewhat lower compared to India and China, CEE countries would have to strengthen the specialties that set them apart- communications and language skills. In this way, CEE can attract companies from outside the EU as well, in particular those companies that value the role of communications in their business. As indicated above, Infosys has been serving its Western European clients through operation centers in Prague, meaning that CEE may also become an intermediary or linking mechanism between the highly IT specialized Eastern suppliers and Western clients.