Deutsche Joins Trend to Romania Back Office

Emerging Markets, EBRD Editions, May 14 2014

Deutsche Bank is to become the latest global blue chip to launch an IT or back office centre in Romania. A new technology centre for Central and Eastern Europe will hire up to 500 IT&C staff by the end of 2016, 200 of them by the end of this year.

Romania is attracting multinationals for a combination of reasons: a strong domestic market for information technology, a tradition of excellence in engineering and mathematics, and a relatively low cost of labour. It is also understood that India, which in recent years has attracted much of the off-shoring for multinational services, is becoming relatively expensive compared to competitors.

Marian Popa, manager of DB Global Technology, the formal name of the new centre, said that choosing Bucharest “represents the recognition of the significant talent resources our country has.” Germany in particular has noticed the cost-effective opportunities it can find in Romania, with Daimler also having built a significant back-office presence there.

The combination of cost and education is proving potent. “Romania’s human capital is one of the most educated in the CEE & SEE region due to the country’s long university tradition,” says Gijs Klomp, managing director of Jones Lang LaSalle Romania. The real estate group says that in the 2011-12 academic year Romania had a student population of 540,000 enrolled in 108 universities with 614 faculties; according to Romania’s National Institute of Statistics, the most popular field of education is technical, accounting for 28.3% of all graduates.

A 2013 report by Jones Lang LaSalle globally ranked Romania ninth among offshoring locations worldwide measured by the number of jobs created, with 11,438 jobs from 40 projects between 2008 and 2012. Terminology varies on outsourcing, but under JLL’s methodology, KPO centres – knowledge process outsourcing – exist in Romania for Genpact and Evaluserve, R&D centres for Adobe, Freescale, EA Games and Intel, and BPO centres for IBM, Oracle, Wipro and Accenture, among others.

Deutsche may also have been attracted by its long-standing connections with the country at an issuance level: it was a lead manager on Romania’s Eurobond issues in September and October 2013, and has advised on strategically important financing roles in energy, transportation and social housing.

Deutsche was not on a more recent sovereign deal that clearly illustrated positive sentiment towards the country. In April Romania raised Eu1.25 billion in 10-year notes, priced inside its secondary curve with the lowest coupon the country has ever paid, at just 3.7%, compared to a 2021 bond that paid 4.15% in October. Citi, ING, Societe Generale and UniCredit led the April deal.

That followed a $2 billion dual-tranche trade earlier in the year that included a 30-year raising.

Last week the European Commission improved its economic forecast for Romania to 2.5% this year and 2.6% in 2015, up from 2.3% and 2.5% respectively. Romania beat expectations by growing 3.5% in 2013. “Economic growth was driven by a robust industrial output and an abundant harvest feeding strong exports,” the EC said. “Growth is set to slow, but to remain robust… thanks to improved confidence and more supportive international conditions, thereby reducing the still negative output gap.

“Structural reforms, such as the liberalization of energy markets and the new labour code, are starting to bear fruit,” the EC said.