Who Moved My Labor Arbitrage to Lithuania?

494314745For the past five years, companies in finance, data analytics and technology have been hiring thousands of Lithuanians. Why? Stable wage costs and skilled talent are driving more and more companies to near-shore or outsource teams throughout Eastern Europe. And, companies are finding good resources there in a wide range of skills, from IT to finance and other G&A roles (and often multi-lingual), at a time when labor costs and attrition rates soar out of control in India and elsewhere in Asia.

Europe is beginning to embrace offshoring as much as North America, to help combat years of tepid economic growth and high unemployment. This has fueled industry experts to predict spending increases in all types of talent recruitment, including near-shoring, outsourcing, and contingent workforce programs. For example, a recent Staffing Industry Analysts survey forecasts that ways and places firms are investing in talent recruitment are changing fundamentally. The SIA data reveals some surprising conclusions:

  • Asia/Pacific is expected to expand by 8 percent in 2014, and another 13 percent by 2018.
  • Eastern Europe should expand by a total of 16 percent by 2018, and by 16 percent in Western Europe.
  • When current-year spending is included fully, 93 percent of programs will be investing in Western and Eastern Europe, while the total in Asia/Pacific will be 56 percent.

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S3 International was an early adopter in setting up near-shore centers, including “build, operate and transfer” programs. We’ve been operating in the Baltic States for over 15 years and have helped customers hire thousands of professional resources – in IT, finance and administration, and other roles – inside Lithuania alone. Here is what we have learned as the top reasons our clients are hiring:

  1. Well-educated and highly skilled talent. Regional universities, like Kaunas Technical University, produce graduates with excellent math and computer science skills.
  2. Cultural and educational proximity to home markets in Europe. Nordic & Eastern markets are attractive for sales, and teams in Eastern Europe understand and can effectively translate an international organization’s aims into local/regional operations.
  3. Work ethic. Lithuanian resources are highly motivated by the opportunity to have a career working in an international corporate culture. S3 has seen productivity statistics, in certain roles, where a Lithuanian resource will complete 15 percent or more work than a comparable resource in the same organization but located in Latin America or North America. This has a remarkable effect on the benefits of wage arbitrage.
  4. Geographic proximity. Most locations in Eastern Europe are only a few hours (time zone) difference – providing an overlap with a majority of the work-day in Western Europe and short flight for managers to meet teams on a regular basis.
  5. Data privacy. The standards for data protection in EU members in Eastern Europe are among the highest in the world. The standards continue to be strengthened and coordinated throughout Europe, and with the U.S. (especially in the area of financial data); compliance programs managed from South Asia will struggle to keep up with the pace.

It is clear that the ability to find qualified talent is the main driver for hiring in Eastern Europe. But the stable cost of labor, and relatively low attrition, provide powerful incentives for management to invest with confidence about their costs. The wage arbitrage is there too, but that factor is increasingly on par with formerly low-cost locations in Asia.

MORE: How the recruitment industry can meet the demands for globalization

Jeff Nelson

Jeff Nelson
Jeff Nelson is vice president of Strategic Staffing Solutions.

Jeff Nelson

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