On The Success Of The Romanian IT Industry
Tags: itindustry, opinion, post
Published: 2019-01-20 15:22:53

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title: On The Success Of The Romanian IT Industry
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tags: it_industry,opinion,post
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I’ve recently read [The phenomena of the IT industry - too big of a success for an unprepared country](https://recorder.ro/fenomenul-industriei-un-succes-prea-mare-pentru-o-tara-atat-de-nepregatita/) . The article is in Romanian, but Google Translate should do a decent enough job of it.

There’s two main ideas. The first is that the IT industry in Romania is big and getting bigger. This is a good thing for a bunch of reasons, some generic (it’s a high margin and high value add industry, it pays good salaries, it employs a lot of people etc.), some specific to Romania (it creates a large urban middle and upper-middle class which can afford to want things like the rule of law or decent hospitals, or which can provide _alternative_ political parties such as [USR](https://www.usr.ro/) or [Romania 100](https://www.ro100.ro/)). In fact, by 2020, about 10% of the GDP will be generated by the IT sector.

The second idea is that there’s a failure on the state’s part to support this industry. This comes first in the form of a lack of large state digital infrastructure projects which could boost the local IT sector. Much like the large scale military spending by the US during the 40s and 50s planted the seeds for [Silicon Valley](https://steveblank.com/secret-history/). The second comes from a lack of investment in education, which is causing massive employee shortfalls. By their own reports, the industry would need 12000 new employees in a year, but the school system can provide only 7000 graduates. A bunch of them won’t really cut it in IT, and another group will emigrate. So that leaves about just about 50% of the system’s needs being fulfilled.

Now the article takes an employer centric view of the situation. There’s another side of the story, which isn’t really covered in the article. Indeed, things are rough for employers. But for employees things have never been better. Salaries are large and getting larger. The median net salary in an IT company is about 1500 EUR, while the across industry one is a bit north of 500 EUR. For senior roles one can expect salaries on par with some Western European countries [1] The perks and working conditions are also much better than a typical office job[2]. Similarly, the barrier to entry is extremely low. Both in picking up things, because there’s a lot of business software work to be done, and not so much specialized hardware or ML etc, and because companies are willing to give a chance to non-traditional candidates. So the shortfall has been a boom for employees.

There isn’t really a conclusion to the article. Which is a shame. So I’m going to try to provide one. And it doesn’t look good. Based on the numbers they expose by 2020, there’ll be a 15% increase in the workforce (basically two year’s worth of 7k people joining the workforce), and an increase to 55k EUR/employee. There’s been a large increase in the number of people, but not such a large increase in the profitability of each employee. Indeed, compared to 2010, the number of IT sector workers has doubled but the productivity has increased by just 20%. At some point, that productivity is going to flatline, and that’ll determine an upper limit for the average salary. Already, with the current salary we’d be looking at an average of 30000 EUR per person per year spent on salary. Offices and extra costs don’t leave very big profit margins. Since 90% of the work is in outsourcing, there’s a hard limit to how much the salaries can increase. At some point, it might not make sense to outsource, cause the remote talent is as expensive as the local one. That might be an equilibrium point for the industry, when the _boom times_ are over, and a more gradual increase comes about. Or it might be a disaster, with companies pulling out till economic conditions are more favorable (ie there’s a shortage of positions, hence employees will get lower salaries). Something like a worldwide economic downturn might hurry up such a process.

But in any case, it’s a given that it’ll happen when so much of the industry is outsourcing based. There’s no real solution to the problem apart from focusing on product work and shifting that 90% to a more decent amount. I’ve specifically left out any positive government influence because it’s not likely to occur.

Anywho, these are just some random thoughts. I wanted to make a conclusion, but it’s more like a prediction. One can only hope I’m wrong.

* * *

[1] Granted, not London. And definitely not NY/Silicon Valley like. But not _uncomparable_ either.

[2] With the exception of the commute. For one reason or another IT companies tend to cluster together. Traffic to and from Pipera IT hub and the north of Bucharest can only be described as _hellish_.