It's perhaps fair to say that, for many outside the region, the central and eastern European market (CEE) is often seen as a place to offshore support services and save a bit of cash.
But the market itself is quietly thriving, with many of its countries set to outpace the growth of western European economies over the next few years, according to IDC.
Indeed, Vladimir Kroa, an IDC analyst focusing on the CEE market, has told CPI that its success has been "underreported", claiming its size may be larger than people think.
Based in Prague, Kroa has been analysing CEE IT Services spend in the region for more than 15 years.
"This region has experienced an unprecedented macroeconomic bonanza over the last two to three years," he said.
"But the total size of spending in CEE may be somewhat underestimated due to the central procurement...Sometimes, the information you get is that SAP sold some applications to a customer, but you don't see that part of those applications were actually utilised in Hungary, in Slovakia, and the Czech Republic…
"Then it's also the case that many of the companies that are here in Prague, like Société Générale Bank, are headquartered in France, and the biggest bank here Commerzbank is just a subsidiary.
"These companies use datacentres that are back in their home nation, such as France, because it's a labour and union regulations issue. So, while much of their procurement happens in those headquarter countries, then there might be some internal transfers, so that the utilisation, either of the servers of licensing, is actually happening in the individual subsidiaries in the CEE countries."
Bearing that in mind, the figures that have made it to paper show a rapidly expanding market.
The big guns of the market - the Czech Republic, Poland and Hungary - have seen their economies grow by around five per cent for the past three years. And while there is slower growth now forecast, it is still on course to far outpace the speed of growth of economies in western Europe.
For MSPs, there is even more good news.
IDC analyst Dmitry Kroa has told CPI that last year, IT spend on services in the Czech Republic grew by 12 per cent. Hungary posted slightly lower, but still double-digit services growth, last year as well.
"And it's safe to say ICT, especially services, are growing 1.5 per cent faster than GDP growth in those countries," Kroa added.
The region also offers a large playing field. There are more than 200 million people - 40 million-plus in Poland alone - and is made up of 12 separate markets: Poland, the Czech Republic, Hungary, Albania, Bulgaria, Croatia, Romania, the Slovak Republic, Slovenia, and the three Baltic States: Estonia, Latvia and Lithuania.
CPI has spoken to two pan-CEE partner giants to get their on-the-ground view of what the local challenges are, and what exactly CEE customers demand of their channel.
‘We jump on the shoulders of giants'
The elephant in the room is that the CEE has traditionally been seen as a cost-saving region of EMEA; a place to increase margins due to taking advantage of lower labour costs.
However, over the last three years, that perception has shifted.
Milos Sochor is the managing partner at Y Soft Ventures, the corporate investment arm of enterprise solutions partner Y Soft Corporation.
Based in Brno, the Czech Republic's IT hub, it operates across 17 countries, primarily in the CEE, but also in the US, Germany and as of this year, China.
It recently posted 1bn Czech koruna in revenues (€38.72m).
Sochor said that local partners have to have more collaborative relationship with vendors in order to grow quickly together.
"I don't think a company out of central Europe can really scale in b2b business without a strong partner. We basically jump on the shoulders of giants and we go for the ride, which has been key to the success story of Y Soft," he said.
He suggested that vendors can endear themselves to local players by helping them to convince customers in other EMEA regions that CEE players "are of quality".
"Once we step into the Western market, the biggest hurdle you have to overcome is that you are providing software or hardware from that, quote, unquote, "Eastern European country", and you have to convince them that you have the quality and the value proposition that is needed…
"It took us about eight years to crack the German market…As I said partnerships are really important in helping with that."
"I remember I was personally responsible for bringing NetSuite here to Brno. I met with the CEO when they were considering this location seven years ago when I was working for a regional development agency and ran a tech incubator…They were looking for quality programmers that were cheaper than in California…but those conversations were respectful."
One example of a vendor taking note is Alibaba.
Over the last 12 months, the Chinese hyperscaler giant has made multiple inroads into the CEE. At the time of its arrival in August last year, the CEO of one of Poland's largest distributors, ABC Data (now Roseville powered by ALSO), told CPI that Alibaba had demonstrated "real support" and "a sensitivity on pricing" towards CEE customers.
Its general manager of Alibaba Cloud Germany and CEE, Toni Cheng, told CPI that by collaborating closely with local partners, it intends to unseat its US rivals.
"We aim to become the preferred cloud service provider for all sizes of businesses in the CEE region," he said.
Part of that collaborating means offering consulting expertise for CEE partners who want to expand into Alibaba's home turf - like Y Soft has.
"We provide a full range of cloud solutions and are helping them to extend their footprint in China and Asia," Cheng said.
How do you compete with local CEE price pressures?
But what about international partners who want to expand in the CEE?
"It's true that channel firms will have a labour challenge here," IDC's Kroa said.
"If they are, for instance, coming from the UK to Romania, they will be facing severe pricing competition. Interestingly, it means channel partners here are actually looking the other way. They are looking to try and expand in Germany and the UK…
"But for those looking to expand here, look: technology is changing so quickly, right? With the digital accelerators, and with lots of things happening in IoT, big data and robotics, there are so many niche offerings that may not yet be covered by the local markets.
"So, I think if a channel firm has a really niche, very specific angle, they can succeed in Eastern Europe. Even though they might be coming with a price premium, the local market might be might be willing to pay for that."
Where to specialise?
One market that is doing particularly well in the CEE is cybersecurity, according to Y Soft's Sochor.
"It's huge here. Obviously we have Avast in Prague…And there are a lot of success stories here in the cybersecurity market."
However, hardware focused fields are also growing well, due to the region's manufacturing expertise.
"Maybe not many people know this but electron microscopy (used in chip production) is very big here. We have GreyCortex and Safetica that are based in Brno," he said.
"And it is the hardware companies that do well. We are sort of the hardware specialists, because we manufacture our own hardware, are able to certify and ship it and support it globally. And that's something we have in our company.
"It is difficult to enter into hardware by that is where we have chosen to focus."
However, IDC's Vladimir Kroa sees the trend moving towards services, in a similar fashion to many other markets.
"I would say in the Czech Republic and Hungary, spend on services makes up pretty close to 40 per cent of total ICT spend in this region…Compared to the UK, which is a very mature market, that looks like around 50 per cent…Of course in other areas, like the countries in south eastern CEE countries, the levels will be lower at round 30 per cent.
"It used to be that deploy and support, fixing when things broke down, used to make up 40 per cent of the spend here 15-20 years ago…But that has really changed. Managed services and outsourcing have grown at the expense of basic break and fix. However over the last couple of years, cloud has come along and started the erosion on managed and traditional outsourcing.
"So now by far the largest chunk of services spending remains on project services that include various complex integration projects, custom application development and IT consulting while hosting and managed services are growing."
Rapid growth, but cautious procurement decision
More broadly, are there any cultural considerations international firms should consider before attempting to land and expand in the CEE?
ELKO is a $1.5bn-turnover pan-European distributor, based in Latvia. It's an aggressively acquisitive firm that claimed it generated revenue growth of 60 per cent from its Polish subsidiary a mere six months after expanding into that market.
Last year it also spent $300m to expand via acquisition into neighbouring Russia.
CPI spoke to Martins Ozolins, its acting chief commercial officer.
"We are experiencing good growth, but consumer society in the CEE is a more cautious culture," he said.
"We are seeing our solution business growing well but that there is a relatively long lead time…In comparison we see that in Russia, it's all about big deals happening fast…
"And then if we look at the example of the smartphone market, you can see the Nordics is growing very fast, which says something about the consumer society and the level of life there. In the CEE, people are still looking at the actual value the smartphone is bringing into their homes and how much it costs…But that is changing and we obviously see this being a very big thing in the future."
Ozolins added that this slow procurement decision process means that there are parts of the market that are still unsaturated, unlike in Western Europe.
"It's true that the CEE is still very fragmented, and going through a lot of change an I see that there are a lot of opportunities because of that," he said.
"We see a certain competitive advantage in being a regional partner for suppliers who are interested in this region…We can help them with the relationships that are necessary to do well here."
An underestimated market
According to local partners and IDC analysts, the CEE could perhaps best be characterised as an underestimated and underreported market.
There are, however, plenty of signs that this is changing.
IDC recently forecast that overall spending on public cloud services and infrastructure in the CEE will hit $2.3bn this year alone, representing an annual increase of 21.7 per cent.
For partners who do turn their eye to the region, they could win big from a market that is both unsaturated with channel firms, and forecast to grow at significantly faster rates that western European markets.
"When it comes to channel companies looking to the CEE, if not now, when?" IDC's Vlad Kroes said.
"There is such a willingness to spend on ICT services here. Now is the time to try it."
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