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Historical Perspective of the IT Phenomenon in Cluj-Napoca

28 October 2015 Outsourcing

The article presents the evolution of the IT phenomenon in Cluj-Napoca and the competitive advantages of the local players and discusses future directions of the local IT market. It was published in the current issue of The Journal of Science Policy and Scientometrics.

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The Evolution of the IT Phenomenon in Cluj-Napoca

With a history started dozens of years ago, the IT field in Cluj-Napoca is an already well settled phenomenon. While pointing out the main stages of the evolution is difficult, we can illustrate several defining moments.

The general affinity for sciences during the communist and pre-communist eras represents the trigger of the intense activities in technological areas in Cluj-Napoca. History marks 1872 as the year when all started with the establishment of the first college of mathematics in Cluj-Napoca, which later became the main pillar of the Babeş-Bolyai University, founded in 1959 [1]. The Technical University Cluj-Napoca (UTCN) can also be tracked back in time to the beginning of the XIXth century, when the first technical school was founded [2].

Informatics at a university level in Romania and in Cluj-Napoca reached the venerable age of 60 years. The first author of Mathematical Informatics is Academician Solomon Marcus and the first signs of the impending boom in this field were given by researchers from “computational centers” soon after 1989. As a business practice, IT started in the Cluj area about 20 years ago, the first entrepreneurial activities taking shape in mid 90s. With a virtually non-existent demand from the Romanian market for a long time, Romanian companies looked towards the international market. The timing was perfect, as the technological advance has just started in the Western markets, bringing with it a need to rethink business strategies. For business reasons and to remain focused on their key activities, players from those markets started to outsource some services to the local markets first and then to developing countries. This is how personal rental took off as a business. Technical prowess and cost savings placed Cluj-Napoca on the outsourcing map. As the market matured, developers from Cluj started to diversify their activities, adding specification definition and architecture and design to code development based on client specifications. Demand for outsourcing services in Cluj witnessed a significant increase starting with 2010, when Western markets were already facing significant shortages of specialists.

The Software and IT Services in Romania – Present and Perspectives in the Local and Global Environment in 2015 study initiated by ANIS (The Romanian Association of the Software and Services Industry, mentions that “the Software as a Service (SaaS) industry is one of the most performant that Romania has at the time, with a growth rate that is 4 times higher than the forecasted average rate for the entire economy. The IT industry reached 6% of the PIB in 2014, the highest so far, of which 2.5% is generated by SaaS.”[3]

Cluj-Napoca plays an important role in this equation. Each IT company in Cluj-Napoca has been growing in time in almost total isolation from other local players, trying to expand its client base and its teams of engineers, the two inter-dependent factors in an outsourcing relationship. The increasing labor costs and raising competition for qualified labor threatens to weaken the main competitive advantages of Cluj-Napoca against providers of similar services located elsewhere. To maintain its sustainability, the IT market in Cluj-Napoca has to: (1) increase the value of the services offered; modern competition means turning from providers of support in cost optimization through the outsourcing of inexpensive services into strategic business partners; (2) switch to developing own products in niche areas; (3) establish collaboration structures and clusters.

Competitive Advantages of the Local IT Companies

The main competitive advantages of Cluj-Napoca as a destination of IT services derive from a sum of factors. Specialized labor and the relatively low labor costs represent the main pillars for the growth of the local IT sector. They are followed by location, linguistic abilities, the boom in entrepreneurship, the maturity of the business environment and the European culture.

When analyzing the skills of the labor force in Romania, one can easily notice that Cluj-Napoca enjoys the highest proportion of IT specialists in the working population. According to the latest data provided by the Department of Statistics in the Cluj County in 2011, 10333 were working in Information and Communication in the North-Western part of Romania, of which 7315 in the Cluj county [4]. These numbers are on an accelerated rise since the date of this report. The benefit of the strong workforce is sustained by the technical universities and colleges from Cluj-Napoca, which ensure a constant flow of skilled graduates. According to a report issued by the National Council for the Funding of the Academic Education (Annual public report – 2014: The State of funding in Romanian academic sector and the optimization measures required, June 2015), the academic environment from Cluj-Napoca prepares on average 70000 students per year, of which about 20000 in colleges and universities with technical profiles [5].

An aspect worth mentioning is the relatively low average age of the qualified labor force in Cluj-Napoca. The data published by the Cluj Department of Statistics reveal a structure dominated by young specialists in the 24-35 years age group (50%), followed by 30% in the 35-44 group [6]. This young labor force promotes a culture of learning and has adjusted rapidly and willingly to the quality standards of the international markets they have been working for.
Labor costs for IT specialists remained competitive with those in countries like Ukraine, Belarus and Russia, some of Romania’s main competitors for nearshore software outsourcing.

To sum it up, the privileged position enjoyed today by the IT field in Cluj is explained by the combination of factors mentioned before and the strong tradition in engineering Cluj-Napoca enjoys.

Perspectives and Future Directions

The evolution of the IT field in Cluj-Napoca will be influenced by advances in technology and science and the dynamics of the global economy. The ideas mentioned so far indicate the following future directions:
(1)Investment in education: Cluj-based companies are already present in the school and academic environment with investments in specific programs. While such investments can lead to centers of excellence, they will not solve the real issue. An ecosystem in which the business and academic environment work hand in hand with the local authorities on a scalable, long term program is required to ensure the long term sustainability of the local IT field;
(2)A qualitative approach for services outsourcing: this means the constant improvement of processes, providing better services in more effective ways, risk management and the repositioning as strategic partners for the clients;
(3)Developing niche product with own license for the global market;
(4)Providing a mix of outsourcing services and own, licensed products: the outsourcing sector is expected to remain the best niche for development for Romanian companies in the near future, but a successful long term strategy can only be sustained with own product development. In this context, international companies that provide mixes of outsourcing services and own products can be used as role models.

[3] ANIS – The Romanian Association of the Software and Services Industry, Software and IT Services in Romania – Current Situation and Outlook in a Local and Global Environment, developed by PAC – Pierre Audoin Consultants, 2015.
[5] The National Council for the Funding of the Academic Education, Annual public report – 2014: The State of funding in Romanian academic sector and the optimization measures required; p. 14, 26, 27, 2015.

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