When expanding into new markets, large multinationals often rely on the recommendations of consultants and in-house researchers. Not having the luxury of time to investigate all the possibilities – nor the deep pockets to pay someone else to do it for them – small and medium-sized enterprises with hopes of global expansion must rely on networks and their own instincts. London-based IT consulting and services firm Xoomworks’ first major foray overseas, with an investment in Romania, is illustrative.

In response to client demand to provide a lower cost service, says chief operating officer Steve Jackson, Xoomworks began considering offshoring as an option two years ago. After investigating the obvious locations of India, China and elsewhere in Asia, Mr Jackson and his colleagues decided that the types of clients Xoomworks serves would be uncomfortable outsourcing sensitive IT projects to those countries.

Romania’s appeal

Near-shoring to eastern Europe emerged as the most viable option. An acquaintance of Mr Jackson’s – a Romanian and fellow graduate of INSEAD business school – urged him to consider Romania.

“He was right,” Mr Jackson says. “Romania had a number of things going for it: it was not yet in the EU but was about to join, its educational standards are high, and the costs of employing developers are higher than in India but still considerably lower than in the UK.”

The cost differentiation with India was a premium worth paying because of the intellectual property security, shorter travel time and smaller time difference, and better language skills offered by Romania, he says.

Xoomworks was particularly keen to explore locations “that had not been done before” and therefore offered the best cost-quality ratios and the least competition for workers. This led the company to look beyond the capital city to a small town in Transylvania.

In the site selection process, business networks and personal recommendations were crucial. “I talked to people who had done it before, used my business school network, and spoke to the British embassy in Bucharest, which put me in touch with other British companies in the area,” Mr Jackson says. The British business community was helpful in recommending local intermediaries.

Networking

In Romania, recruitment is rarely done through standard Western methods, such as advertisements and online postings, Xoomworks soon learned; it is done through networks. “We have talked to friends and friends of friends, and built up a network of people who recommend good candidates to us and recommend the company to them as an exciting place to work,” he says. “We have a good pipeline of staff coming in.”

Mr Jackson’s Romanian contact from INSEAD is now managing director of the operation, which is up and running and doing work for its first client. The team consists of five developers and two other staff members; the projection is to have about 50 employees within the year.

“The biggest challenge is always going to be talent,” Mr Jackson says. But if the supply should run short in its current location, the company will move to other towns in Romania or other countries. However, fears of a brain drain in Romania are overblown, he says, especially with regard to the IT market: “There has always been a very fluid job market for IT skills in all parts of the world. The new brain drain that people speak of is occurring mainly outside of IT.”

And the sort of high-value, well paid jobs that Xoomworks is providing are a powerful inducement for talented young Romanians to stay in their home country. Mr Jackson believes that, ultimately, “many Romanians would prefer to live in Romania if given the chance”.