Global Index of Outsourcing Destinations for 2006

Last week, the official results of the annual index of the consulting company A.T.Kearney, determining the most attractive destinations for conducting certain activities, also known as outsourcing (outsourcing – Outside Resource Using) was released. Conceptually defined, outsourcing is an instrument for the export of a certain activity specific to a company and its transfer for completion by another company. Briefly its purpose is to: 1) save some financial resources to the company; 2) increase the effectiveness of the work; 3) free company resources for the development of other activities.

The index is comprised of 50 countries, and it is compiled on the basis of 3 different indicators:

• – financial attractiveness – includes sub-indicators such as average salary, prices of rents, electricity, telephony, tax burden, corruption, stability of the currency, etc.
• – qualification and availability of workers
• – business environment – reviews the macroeconomic and political situation of the country

The most desirable destinations for outsourcing for 2006 have been India and China – first and second in line respectively. Bulgaria is 9^th and it is the only European country in the Top 10.

Table 1. 2006 Index of Outsourcing

Source: Report of the consulting company "A.T.Kearney" ( the table shows the first 10 countries of  all 50 included in the index).

One of the main reasons that certain countries are desirable outsourcing partners is that the costs for production of one unit of the good are lower compared to the rest of the alternative destinations for the transfer of such activities. But we must not review this indicator as an isolated determinant of the attractiveness of a country. As we already mentioned, the Index is comprised of many different sub-indicators, all of which are no less important then the cost of labor.

In the past few years, Bulgaria has been included in different studies of various global organizations, which follow and analyze the environment for business in many different regions of the word. In its methodology, the Index of Outsourcing is not much different than all other such studies. Viewing it on the level of numerous differentiated indicators, it is clear that the greatest weight is put on the so-called financial attractiveness indicator, followed by the qualification and availability of the workers, and lastly by the business environment indicator.

What may be improved so that we become even more attractive to foreign business initiatives?

Following the chronology of the comprising elements of the index, we may distinguish a few main directions, in which Bulgaria has to introduce improvements urgently:

• Tax burden – lowering taxes will stimulate investments
• Corruption – this issue, inevitably, has to do with the transparency of the work of state institutions on one hand, and on the other – with the effectiveness of the judicial system
• Employees' qualification – a thorough reform of the higher education system. We need competitive universities, introduction of a voucher system, development of programs and teaching, orientated to the needs of the business
• Respect for the right to property and the freedom of contracting