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Cloud Computing in
Eastern Europe
Practical market insights into your product
The cloud adoption rate in Eastern Europe is not yet very high,
but it is growing quickly. Poland is the most developed market
when it comes to outsourcing and cloud adoption. The Baltic
countries show an average of 20% growth in the IT sector,
and a shortage of staff. This factsheet shows that each region
or country within Eastern Europe offers good opportunities for
cloud computing providers from developing countries, but each
in its own way. There are two ways to approach this market
that offer good opportunities for DC providers: to develop your
own cloud solutions (SaaS) and offer them in Western Europe,
or to develop cloud solutions for an EU partner (classic
outsourcing). In general, companies have a better chance on
the market if they specialise in either one of them.
Introduction
This product factsheet (PFS) focusses on Eastern Europe
which in this PFS includes Estonia, Latvia, Lithuania,
Poland, the Czech Republic, Hungary, Romania and
Bulgaria. These countries were recently seen mainly as
outsourcing destinations, but within the last few years,
they have increasingly become important outsourcers
themselves. Industry experts identified SaaS as the
most suitable service for DC cloud service providers.
IaaS and PaaS need very high investments, which can
generally only be made by large providers, and trust in
the infrastructure/ platform/provider is very important.
Product Definition
Cloud computing is the provision of infrastructure, platform or software as a
web-based service (see Figure 1).
Infrastructure as a Service (IaaS): the delivery of computer infrastructure as
a web-based service. Instead of purchasing servers, storage, data centre
space or network equipment, clients subscribe to those resources as a
variable-cost service. The service provider owns the equipment and is
responsible for housing, running and maintaining it.
Platform as a Service (PaaS): the delivery of a computing platform as a webbased service. This typically includes an operating system, a programming
language, an execution environment, a database and a web server.
Software as a Service (SaaS): the delivery of software applications/solutions
as a web-based service, for example horizontal business applications like
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SaaS
Application
Middle ware
PaaS
Operating system
IaaS
Hardware
(services, storage, network, virtualization)
Benefits
Important benefits of cloud computing that distinguish it from traditional
outsourcing are self-service (clients can order/create new services online),
scalability (the infrastructure should be virtually infinitely scalable) and pay per
use. Furthermore, the cloud model delivers the tools and possibilities to work
from any place at any time and therefore facilitates working from
nearshore/offshore locations (Figure 2).
Fig 2 Benefits of cloud computing
Self service
Scalability
Flexibility
Cloud computing
benefits
Low cost of
ownership
24/7
support
Location
independent
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Product Specifications
Price: for companies in Eastern Europe the main reason to adopt cloud
computing is to save costs. Improvement in cost level or reduction (price) is
also the main reason to outsource cloud services, according to various
research studies in the individual Eastern European countries. However,
costs are also one of the major concerns for Eastern European companies
when it comes to the use of cloud services. This means that cloud service
providers have to be very clear and transparent about their pricing.
CFA1: Focus on competitive pricing while maintaining high quality services. And
do not only compete on price, but also on other areas such as flexibility, knowhow or skills.
CFA: Be transparent in cost benefits: avoid hidden costs.
CFA: Give examples of how your cloud services/solutions can improve the
quality of the processes within the outsourcing company.
Data security and privacy: data security and privacy are of utmost
importance to companies in Eastern Europe. Especially companies that are
new to the cloud, are very concerned with safety issues. These concerns
form a threat to offshore cloud service providers as they make the barrier
for entrance higher. This is because offshore data security and privacy are
perceived as being of an inferior quality compared to onshore or even
nearshore. If you offer SaaS solutions directly to the market (so when it is
not software development outsourcing), a reputable IaaS/PaaS provider
should be selected, which has all the necessary security credentials, in order
to take away security and privacy concerns from potential customers.
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CFA: Provide information about your companys data security and privacy
measures.
CFA: Apply for security standards to support your commitment on data security
and privacy. If you decide to offer SaaS solutions directly to the market, team
up with a reputable IaaS/PaaS provider that has all the necessary security
credentials.
CFA: Explore your companys possibilities to provide services on cloud
infrastructure in your target country. By doing so, you comply with EU
legislation as the infrastructure service provider has to take care of many
compliance issues related to the EU/your target countrys market, including data
security and privacy. Furthermore, you eliminate potential doubts companies
might have regarding data security.
CFA: Avoid data security and privacy sensitive markets. These are generally
regulated industries and industries where personal/corporate data is used in
large quantities, for example finance and banking, healthcare, aviation or
telecommunication.
CFA: Have clear satisfied customer testimonials about the quality of your
services, the ease of the transition or the benefits your services realised as this
will prove your expertise and enhance your reputation.
CFA: Weather you decided to offer your own SaaS solutions, or offer cloud
solution software developments services to Eastern European companies, you
have better chances on the market if you specialise in either one of the business
models.
CFA: Offer cloud services that can easily be integrated with other
tools/solutions, for example, by selecting technologies that are based on open
standards (a standard that is publically available and of which the specifications
can generally be implemented on a royalty-free basis).
CFA: Offer potential buyers a pilot project in order to demonstrate the
integration capability of your cloud service.
CFA: Offer assistance in the implementation and integration of your cloud
services.
CFA: Be flexible in the customisation of your service: adapt your services to the
specific needs of your customer.
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CFA: Be flexible in your contracting and SLAs, be for example flexible in the
length of the contract and be flexible in the additional services that can be
included in the contract.
Buyer requirements
Buyer requirements can be divided into:
1. Must: requirements you must meet to enter the market, for example legal
requirements.
2. Common: requirements you need to comply with to keep up with the market.
3. Niche: requirements for specific segments.
Figure 3 gives an overview of EU buyer requirements for cloud services.
Fig 3: EU buyer requirements for cloud services
Niche
Industry specific
requirements
ISO 9001
CMMI
ISO 27002
Common
Must
Must
Copyright computer programmes: the EU established specific rules to
protect computer programs by means of copyright (Directive 2009/24/EC
and Directive 2001/29/EC). The legislation aims to ensure certain security
against unauthorised reproduction of computer programs and applies to all
computer programmes marketed within the EU, including imported
programmes. The legislation therefore also affects businesses in non-EU
countries that supply EU companies.
CFA: Refer to EU legislation: Copyright of computer programmes for more
information.
CFA: Although the EU legislation applies in all Member States, the quality of
enforcement differs per country. For specific information about the copyright
computer programmes legislation in your target country, refer to the relevant
competent authority in that country.
CFA: Providers outside the EU can be held responsible for violations of EU data
protection requirements. It is therefore important that you comply with the EU
legislation on personal data protection. Refer to EU legislation: Personal data
protection in electronic communications for more information.
Common
ISO 27017 and 27018: ISO is currently developing standards for
information security controls for cloud computing services (27017) and
privacy aspects of cloud computing (27018). These standards supplement
the ISO 27002 standard and are expected to be published in 2014 or 2015.
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CFA: Follow the developments on the ISO 27017 and 27018 standards as they
are expected to become important for cloud service providers. Refer to
http://www.iso27001security.com for more information.
ISO 27002: ISO 27002 is the standard governing information security and
management. It provides the industry approved model for an Information
Security Management System (ISMS) and addresses the confidentiality,
integrity and availability of information within an organisation.
ISO 9001: ISO 9001 is an important standard for service providers. The
ISO 9001 standard represents requirements for the development and
implementation of quality management systems in an organisation.
CFA: ISO 9001 is one of the best known quality standards among Eastern EU
companies. Applying for ISO 9001 is therefore recommended. Refer to the
website of ISO for more information.
CFA: CMMI is less well-known than ISO 9001. However, it might help in gaining
trust and proving your capabilities. Refer to the website of CMMI Institute for
more information about the CMMI certification process.
Niche
Industry specific requirements: there are also industry specific
certifications or best practises that can be even more important than the
above-mentioned general standards/certifications, depending on the
industry the cloud solution will be used in. Examples are Basel II and III for
the finance and banking industry, HL7 and HIPAA for the healthcare industry
or PCI DSS for the payment card industry.
CFA: If you cloud services for a specific industry, research the availability of
industry specific certifications/standards and consider applying for them.
However, this has to be researched by industry. Industry associations can be a
good starting point to look for them.
For information on ITO buyer requirements in the EU market in general, refer to
CBIs EU Buyer Requirements for ITO.
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Fig 4: Percentage of companies that are planning to move (more) parts of their IT
into the cloud within the next 3 years.
Romania
30%
Poland
30%
Hungary
Czech Republic
23%
22%
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Market Trends
Technological drivers
Convergence of social, mobile, information (big data) and cloud:
social, mobile, big data and cloud are four market forces that currently drive
the IT market. The convergence of these forces drives real business value.
The forces converge in several ways: cloud, mobile and social solutions
enable the distribution of information, social media usage and behaviour
drive mobile and information solutions and cloud can be a foundation for
information, social and mobile solutions. The convergence of social, mobile,
information and cloud is unleashing large opportunities and unlocks new
potential for innovations in the application space.
CFA: Focus on innovative cloud applications in the field of social, mobile or big
data as demand for such applications is rising rapidly and is expected to
continue to do so in the coming years.
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CFA: Make an analysis of your company and target market to choose the most
suitable entry channel.
CFA: Target ITO providers of which the size is in line with your own capacity.
Focus on companies that serve the same industries as your company to increase
your chances to find a potential match.
CFA: Attend relevant industry events in your target country to meet potential
partners. Furthermore, you also learn more about their business culture.
CFA: Have good promotion material available, such as a professional company
website and a company leaflet. Also invest in Search Engine Marketing so that
potential customers are able to find your company online.
Direct sales to end users: in the cloud, service providers are able to sell
their own applications and solutions without anyone in between. It is
therefore an interesting market channel for DC cloud service providers.
Moreover, the transaction costs for searching, evaluating, integrating and
monitoring cloud services are expected to fall due to new SaaS electronic
market places. This will open up a new distribution channel for cloud
software developers in the long term. However, Eastern European
companies are less open towards international partnerships than Western
European companies which makes it more difficult to sell your products or
services directly. It can offer opportunities, but you need to have profound
end market knowledge.
CFA: Research the end market segment that you want to focus on in order to
know how to effectively market your company.
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CFA: Look for potential leads in the field of cloud solutions/services in online
outsourcing market places such as Odesk and Elance (freelancers) and Ariba
and Hubwoo (corporate). Although they generally involve smaller projects for
freelancers and individuals, they could lead to potential pilot projects for
companies as well. Furthermore, they are a cheap marketing tool.
CFA: Target end users of which the company size is in line with your companys
capacity.
CFA: If you choose to work with an intermediary, look at the following selection
criteria: expertise (it should be in line with your services or vertical market
expertise), value and size of the network and references.
Trade associations, trade events and databases can be good sources to help you
find potential customers in Eastern Europe. Examples of such sources are:
Basscom - http://www.basscom.org - industry association of leading
Bulgarian software development companies.
CeBIT - http://www.cebit.de - largest IT trade event in Europe, held
annually, in March, in Hannover, Germany.
Central and Eastern European Outsourcing Association (CEEOA) http://ceeoa.org - outsourcing organisation for Central and Eastern Europe.
On their website you can find members, ITO events, analytics and more.
Czech ICT Alliance - http://www.czechict.cz - trade association for the Czech
ICT sector. In the English version, go to Members for a member overview.
Czech Invest sector database - http://suppliers.czechinvest.org - register for
free and go to ICT for a database of companies in the Czech ICT sector.
Czech Society for Systems Integration (CSSI) - http://www.cssi.cz - Czech
association that associates companies, institutions and universities and
individuals who are delivering or employing information and communication
technologies and information services. Go to Adres len for an overview
of members. They also organise several events in the field of IT, where you
can meet potential partners face-to-face. They also publish research,
studies, presentations and news articles about the Czech IT market.
EuroCloud - http://eurocloud.org - largest European Cloud event. Held
annually in a different country in Europe.
ICT Unie - http://www.ictu.cz - trade association for the Czech ICT sector.
Go to Clenov and select Seznam clenu ICTU for a list of members.
Infobalt - http://www.infobalt.lt - Lithuanian ICT association.
ITL - http://www.itl.ee - Estonian association of information technology and
telecommunications. You can find a list of members, they hold several
conferences and they give other information about the Estonian IT sector.
IVSZ - http://ivsz.hu - ICT association of Hungary. Go to their website for an
overview of their members and news and events in and from Hungary.
LIKTA - http://www.likta.lv - Latvian ICT association.
Mobile IT - http://mobile-it.com.pl/en - mobile solutions and technologies
trade event, held annually, in May, in Krakow, Poland. Also about cloud
services and IT outsourcing.
PIIT - http://www.piit.org.pl - Polish ICT association. Go to Catalogue for a
list of members. They also provide a newsletter.
Riga Comm - http://rigacomm.com - IT trade event, held annually, in
November, in Riga, Latvia.
TOP IQ CIO - http://www.topiqcio.com - conference for IT managers in the
Czech Republic, held annually, in November, in Prague.
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You can also look for Eastern EU ITO and cloud application services/solutions
providers by searching on search engines like Google. In advanced search,
narrow your domain to your target countrys extension: .ee for Estonia, .lv for
Latvia, .lt for Lithuania, .pl for Poland, .cz for Czech Republic, '.hu' for
Hungary, .bg for Bulgaria or .ro for Romania.
For information on ITO market channels and segments in the EU market in
general, refer to CBIs Trade Channels and Segments for ITO.
Price
Price is the main reason for companies in Eastern Europe to consider
outsourcing cloud computing services/solutions to companies in DCs. As salaries
form a large share of the costs of IT services, large savings can be achieved by
outsourcing cloud computing services/solutions to countries with a lower wage.
The average annual salary of a software developer in Eastern Europe is rising
quickly. Software developers salary levels in nearshore/offshore destinations
are usually lower and it is expected that the salary difference between Eastern
EU countries and DCs will grow substantially in the next few years.
Field of competition
Refer to CBIs Field of Competition for ITO as competition in the Eastern EU
market is based on the same aspects as competition in the ITO market in
general.
Main sources
For all CBIs ITO related market intelligence documents, go to CBIs Market
Intelligence Platform for ITO.
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