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	TABLE OF CONTENTS Software Development In Eastern Europe A Region In Transition Outsourcing, Offshoring, Nearshoring Partnerships and Incubators Becoming a Player

Why, the Christian Science Monitor asks, did Google recently open a research lab in Krakow? Answer: So Microsoft and Intel don't grab all the good programmers. The same thinking has brought other big companies to Prague, Budapest, Bratislava, and other Eastern European cities in search of programming talent.

Eastern Europe is definitely attracting attention as a software development hot spot. In fact, for sheer intensity of attention to software development, Eastern Europe outshines the U.S. and Western Europe. "The software industry in Eastern Europe," says Bulgaria-based Ivanka Panayotova of MindFusion Ltd., "as a portion of the entire business sector, is larger than in most other countries worldwide...definitely bigger than one would find in a developed country."

But it would be a mistake to see Eastern Europe as simply the next outsourcing target, or as the next India. What's happening now in software development in Eastern Europe is unique and important—and complex.

Why Prague Is Hot

Put it down to the fall of the Soviet Union—and, paradoxically, to the legacy of the Soviet Union.

Since the end of the Cold War, countries formerly part of the Soviet bloc have been restructuring their economies and evolving their political climates for business, reaching out to Western markets and companies. Plans for expansion of the EU have accelerated these changes. This shift has played out across most business sectors, but has been especially significant in software development.

Partly, this is because of the talent pool. Arkadly Dobkin, CEO of outsourcing powerhouse EPAM, credits what he calls the "Soviet heritage" of traditionally strong engineering education for the region's large pool of trained professionals. As Accelerance consultant Clay Bullwinkel has pointed out, the Nazi Enigma codes were first broken by Polish professors in 1939, before Alan Turing and the British code-crackers at Bletchley Park made any progress. Today, Eastern European programmers do impressively well in competitions like Google's Code Jam.

But there are other factors that make the region of particular interest, in particular, Western European countries' past experience with offshoring. Software projects combine tight deadlines with complex communication demands, making it challenging to work with programmers in far-off time zones and with cultural and language differences. "Nearshoring" software operations to geographically close and culturally similar programming teams in Eastern Europe solves a lot of problems for Western European companies. This is particularly true if Eastern European salaries are comparable to those in other offshore locations like India—which, initially, was the case.

But it's all getting more complicated now.

1 Software Development In Eastern Europe | 2 A Region In Transition | 3 Outsourcing, Offshoring, Nearshoring | 4 Partnerships and Incubators | 5 Becoming a Player Next Page

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