Outsourcing to Eastern Europe

Today's NZZ features an interview with Stefan Arn, the founder of AdNovum, a medium-size company. As far as I know, they mainly make software for Swiss banks.

Unlike US custom software shops, they outsource projects to Budapest, Hungary, and not Bangalore, India. The article goes on saying that a good Java programmer costs 1800 to 2400 CHF / month in Budapest, which is less than you pay for cleaning staff in Zurich. Overall, cost savings are 14% over developing things solely in Zurich.

Is this the future of custom software development? Rigidly specify customer requirements and software architecture in high-wage countries, and then ship the documentation and some volunteers to low-wage countries?

I'm not convinced: I certainly believe that outsourcing to Eastern Europe rather than India makes sense, due to several reasons (also mentioned by Stefan Arn):

• It's just physically closer, They're in the same time zone, so you can call them. Also, when problems appear, you can simply fly out there in the morning and fly back in the evening.


• It's culturally closer. Eastern Europeans are probably easier to understand than India or China. Both have about the same understanding of business and its processes.

But 14% cost savings? Is that it? After all, there is a risk that the cost advantage will be wiped out quickly by the rising cost of doing business in the new EU countries.