Eastern Europe: Outsourcing hot spot?

Eastern Europe could soon become a favorite location for offshore outsourcing, with activity in the region estimated to triple between 2005 and 2008.

That's according to consulting firm McKinsey, which predicts that the business process outsourcing (BPO) industry will support 130,000 jobs in the region by 2008.

Although only 1 percent of the world's total BPO spending--worth $30 billion--is currently located in Eastern Europe, the region emerged as one of the favorite locations for Western European companies to invest in between 2004 and 2006.

McKinsey identifies three main advantages for companies locating BPO operations in Eastern Europe in the winter issue of McKinsey on IT.

The region offers low wage levels, comparable to India's, with slow wage inflation looking likely to keep the region economically competitive for at least 15 years.

Also, compared with competing regions around the world, Eastern Europe is a relatively low-risk location for investing, due to the reliable infrastructure already in place.

The other benefit is the region's geographical and cultural proximity to Western Europe, making the process of setting up offices much easier. There are also fewer language barriers compared with elsewhere, with German and French both being widely spoken.

Countries such as India, Ireland, Malaysia and the Philippines have until recently been the favored locations for offshore BPO investing.

Tim Ferguson of Silicon.com reported from London.