Intro

I have more than 20 years in the tech industry. I’ve been fortunate enough to work for product companies (even open source), consultancy (even the Big 4), captive software delivery centers and the old milking cow of the IT industry – the OUTSOURCING.  In my working experience, I have spent more than 2,000 days in hotels across the world (including 6 months in Athens during the 2004 Olympics) supporting my clients. Experimenting different cultures and different client organizations helped me a lot. And I am grateful for every experience I lived, no matter how harsh it was at that time.

My first payslip in a Romanian software company was 400 EUR in the early 2000’s. Paid in cash. I had already 2 years’ experience at the time. Nowadays, you cannot hire a junior software engineer with similar experience with less than 1,200 – 1,500 EUR. Which is a nice progress. It’s a different economy, a different ecosystem, plenty of IT companies in the market and, of course, Romania evolved a lot since the gray early 2000’s.

My parents worked their entire life in a textile factory. In the early 90’s the textile industry was like the nowadays IT industry – an El Dorado. Until it wasn’t anymore as it became too expensive and too low value add. And it refused to change and adapt to the reality. Lots of factories shut down and many people became unemployed. Including my parents…

Current landscape

In recent years, the Romanian IT market has experienced significant growth, establishing itself as a key player in the global tech industry. With more than 200,000 skilled workforce, competitive costs, and a favorable business environment, Romania has become a hub for outsourcing services. The IT industry contributes 8% of the Romanian GDP as of 2024.

However, as the industry matures, there is a growing recognition of the need to shift from a focus solely on outsourcing to more value-driven approaches such as consultancy and product development.

Outsourcing has long been the cornerstone of the Romanian IT sector. Companies from around the world have been drawn to Romania’s abundance of talented software developers, engineers, and IT specialists who offer high-quality services at relatively low costs. This has led to the proliferation of outsourcing companies across the country, servicing clients around the world in various industries.

The challenge

While outsourcing has undoubtedly been an advantage for the Romanian economy, there are concerns about its long-term sustainability. One of the primary issues is the perceived lack of value in purely outsourcing services. Many companies view outsourcing as a cost-saving measure rather than an opportunity to drive innovation or create unique solutions. This resulted in the IT services becoming a commodity, where companies compete primarily on price rather than quality or innovation.

Moreover, the cost of labor in Romania, while still competitive compared to Western Europe or the United States, has been steadily increasing. As the demand for skilled IT professionals continued to rise, so too did the cost of hiring and retaining talent. This posed a challenge for outsourcing companies that relied heavily on cost arbitrage to remain competitive in the global market. With recent fiscal changes (removing the tax exemption for IT engineers), the cost of Romanian talent became even higher, competing with countries like Spain, Italy, Portugal or Poland.

Since tail of 2023 and continuing in 2024, we see quite a lot of companies laying off capable engineering teams. It’s the first year I see more “Open To Work” people than new jobs in Romania. And this is a tipping point.

Embracing the change

A shift to more value added is needed. A shift towards consultancy and product development is necessary. Consultancy firms offer specialized expertise and strategic guidance to clients, helping them navigate complex technological challenges and maximize the value of their investments in IT. By focusing on consultancy services, Romanian IT companies can differentiate themselves from competitors and deliver more tailored and value-added solutions to clients.

Similarly, product development presents a significant opportunity for the Romanian IT market. Rather than simply providing labor for hire, companies can leverage their technical expertise to develop proprietary software products and solutions.

However, transitioning from a reliance on outsourcing to a more consultancy or product-focused model is not without its challenges. It requires a shift in mindset, culture, and business strategy. Companies must invest in building domain expertise, fostering innovation, and developing long-term relationships with clients. Additionally, they must adapt their organizational structures and processes to support consultancy and product development activities effectively.

Despite these challenges, the move towards consultancy and product development represents a natural evolution for the Romanian IT market. By focusing on delivering value rather than simply providing labor, companies can create more sustainable business models, attract higher-value clients, and drive innovation in the industry. Moreover, by embracing consultancy and product development, the Romanian IT market can position itself as a global leader in technology solutions, further solidifying its place on the world stage.

The role of education in driving change

The transformation of the Romanian IT market requires complementary changes in the educational system to align with the industry’s evolving needs.

Educational institutions must prioritize the development of practical skills, critical thinking, and creativity among students, preparing them for roles in consultancy, product development, and innovation.

There is a need to foster closer collaboration between academia and industry, ensuring that educational programs remain relevant and responsive to the demands of the IT market.

Outro

While this article is about the ecosystem, economy and evolution of the Romanian IT market, I do believe a sequel needs to be written about the mindset shift we need in the engineering teams which are settling for less. In the comfort zone of risk-free well-paid jobs, seldom challenging the clients and rarely going the extra mile.