SIGNIFICANCE: Though the tech industry in Central and Eastern Europe is still dominated by outsourcing, business-to-business, business-to-business-to-consumer, and security services are increasingly showing promise.

ON THE GROUND
"We may not see a Facebook or a Twitter emerge from CEE but stay tuned for leaders in fintech [financial technology] and predictive analytics.”
Pavel Ezekiev, NEVEQ

IMPACTS
SOCIAL: Tech companies are an important source of employment for skilled workers and youth.
POLITICAL: Governments are keen to encourage the ICT industry but must continue to support education to promote development.
BUSINESS: Opportunities exist for local entrepreneurs, local and international VC funds, and international tech companies.

FULL BRIEFING
British technology startup fund Oxygen Accelerator is looking for startups in Bulgaria and elsewhere in Central and Eastern Europe (CEE) to finance, Bulgarian newspaper Capital reported Feb. 5.

The announcement is the latest sign that product development and entrepreneurship are becoming increasingly important in the region's tech sector, until now dominated by outsourcing.

“Tech products and services development are becoming vertical, which is a sign of maturity and sophistication of region's talent base,” Pavel Ezekiev, co-founder of tech venture-capital fund NEVEQ and a former outsourcing entrepreneur, tells Monitor Global Outlook. “The advantages are in quantitative versus scientific skills, and in security and networking versus media-driven verticals. We may not see a Facebook or a Twitter emerge from CEE [Central and Eastern Europe], but stay tuned for leaders in fintech [financial technology] and predictive analytics.”

Mr. Ezekiev says tech startups in CEE are particularly strong in the business-to-business (B2B) and business-to-business-to-consumer (B2B2C, for example e-commerce), due to the diversity of languages spoken in the region, as well as the relatively moderate market sizes. He cites examples including Vayant, (a travel technology company), Flipps Media Inc. (which has developed a mobile media app that connects to televisions), and Telerik (a software and app developer), all of which have main operations in Bulgaria.

“No single country in the region can produce 20 million unique visitors, driving high volumes in consumer markets, but there are excellent references in enterprise software category leaders, such as AVG and Ontotext,” says Ezekiev, citing two more examples, an anti-virus developer and the semantic technology arm of Sirma Group Holding JSC, a large Bulgarian technology company.

CEE countries have a range of advantages for information and communication technologies development (ICT) including a technically skilled and multilingual workforce, low overhead costs, near-shore proximity to major markets (particularly in Europe) and often favorable business environments (Bulgaria’s personal income and corporate tax rates, for example, are just 10 percent). Office space in Sofia can be found for $10 per square meter or less. As of 2011, there were 30,000 graduates with skills suited to the business process outsourcing industry alone, according to Quikfox Ltd., an ICT company with operations in the country.

Outsourcing remains the biggest magnet for foreign investment – attracting players such as Hewlett Packard Co., Microsoft Corp., Sitel, and Sutherland Global Services – and the major employer in the sector (with upwards of 20,000 employees), but product development and entrepreneurship are on the rise, says Ezekiev.

In 2014, NASDAQ-listed TeleTech Holdings Inc. acquired Sofia-based outsourcing company Sofica, which Ezekiev co-founded, to expand its “footprint and language capabilities.” Other international tech companies that have acquired Bulgarian startups (thus providing exits for their private-equity and venture capital funders) include TelecityGroup and US-based VMware, Inc. International VC funds have included Intel Capital, Summit Partners, and BlueRun Ventures. Microsoft and Hewlett Packard are among the companies running major outsourcing and service centers in Southeastern Europe.

*(Source - Capital newspaper)