In The Advent Of The Global Technological War, A Region With Over One Million Of The Top Notch Software Developers Can Make Either A Substantial Player Or A Divided And Easy Target. The Engineering Excellence Of Eastern Europe Emerges Right In Time To Help The Region Face The Global Challenges Of The New Twenties.
Once Borat’s Land Where Civilised People Allegedly End Up In Coffins
Eastern Europe was once considered the source of cheap labour at best and a homeland of primitive and clumsy white lowlife tribes at worst, the latter famously depicted by movies like Borat. Moreover, it was believed to be part of Europe only by name, while in fact the region drew about the worst characteristics allowed in contemporary public debate: antisemitic, xenophobic, uneducated, unfit to take care of itself. The English footballer Sole Campbel epitomised this view when he warned his fellow soccer fans not to come to Poland and Ukraine for the Euro 2012 as otherwise, they would return “in a coffin”. While most of these denigrating epithets fell a little short of absurd and more than anything else, suggested a rather suspicious state of mental health of their authors, the Eastern Europe of the 2020s certainly emerges as a different place than 20 years ago.
Diverse Picture Of A Successful Economic Transformation
After a half of a century of trailing their Western cousins, the leading countries of Eastern Europe showcased a stunningly effective catch-up run in the economic race. In terms of GDP per capita adjusted for purchasing power, Czech Republic recently overtook Spain, whereas Poland and Lithuania moved ahead of Portugal. At the same time, Slovakia and Hungary surpassed Greece.
Contrary to the early days of the painful transformation of the 1990s, in the 2010s the Eastern European economies grew because they managed to advance their manufacturing faster than their Western counterparts. Among the representatives of the West, such as Germany, France and the UK and the three representatives on the Eastern side, say: Poland, Czech Republic and Hungary, the slowest contender from the East still performed better than the fastest contender from the West. This observation holds true about the GDP growth and the manufacturing growth alike: Europe’s East developed faster than Europe’s West either way.
In the export landscape, this surge of Eastern Europe is even more remarkable: just in the last decade, Poland not only jumped over the other emerging economies with nations more than 4 times its size like Indonesia or Brazil but also outperformed the export-oriented high technology contenders like Sweden in the total value of exports. At the same time, Czech Republic overtook Norway. The growth rate of the Eastern European exporters expectedly outpaced Western Europe or the US but also – less expectedly – outperformed almost all the Asian Tigers. The recently emerging Eastern Europe’s South represented by Serbia, Romania or Moldova noted about 90 percent of export growth in the 2010’s – more than anyone in Southeast Asia except for the world’s champion – Vietnam.
In common wisdom, most of the export growth in the recent history of the world came from China. In reality, all the above mentioned Eastern European countries, as well as Poland, Bulgaria, Lithuania and Latvia, grew their exports in the 2010s faster than China. Even the relatively slowest growing exporter from Eastern Europe, such as Hungary increased its exports faster than the key Western powers like Germany or France.
Software Engineering Emerging As A Regional Specialisation
While in terms of GDP per capita, Eastern Europe successfully catches up with parts of the West, while in exports, the East grows faster than the West; there is a field in which the region literally explodes: the information technology, in particular – software engineering. The example of the two largest countries of the region shown in the chart below is quite striking as Poland’s exports of the Information and Communication Technology (ITC) services sector more than tripled in the last 10 years markedly outperforming much larger economies such as Japan. During the same period, Romania’s respective performance nearly tripled, which was enough to top South Korea.
By: Marek Bańczyk
Yet, it is neither Poland nor Romania specifically who shines in this aspect. The signs of Eastern Europe’s engineering industry’s excellence and the growing momentum are prevalent in the entire region. Moreover – what is mind-boggling – there seems to be a legit regional pattern in Eastern Europe’s ascension to the coding top of the world, which can potentially form a coincidentally conceived, informal regional brand of a kind.
Judged by its size, the supply pool of software engineers available in Eastern Europe (defined as the Three Seas Initiative excluding Austria but inclusive of Ukraine, Serbia, Bosnia and Herzegovina, Montenegro and North Macedonia), exceeds the landmark of one million developers, which is notably more than the UK or Germany and locates the region on par with Japan. Unlike Japan, however, Eastern Europe is increasing rapidly their already high number of information technology experts at an estimated annual growth rate of about 9%, way above Western Europe, North America or Southeast Asia.
Notably, it is not only the headcount that stands out. The composition of skills among the Eastern European IT staff is surprisingly well aligned with the global demand trends. Eastern Europe differs from its Western cousins by higher adoption ofrelatively new technologies like Spark and higher demand for iOS, both features being similar to the North American profile. This supports the observation that the Eastern European IT service sector is strongly connected to the US market and therefore evolves more rapidly than elsewhere.
The IT sector of Eastern Europe was traditionally perpetuated by the cost-driven external demand either in the form of the foreign shared services centres or via purely remote team management. However, the importance of the cost advantage, long time considered the main strength of the region, is in fact gradually diminishing. While the salary gap between the world’s rich North and the poor South is maintained, there is a visible convergence in the axis East-West. Some Eastern European countries (Poland, Czech Republic, Hungary, Estonia) price their IT talents already higher than some Western European countries (Portugal or Greece). A Data Scientist in Madrid or Barcelona still makes more than in Prague, but if we take less global cities, like Valencia or Sevilla, the expert in Prague is more expensive.
The rising rates of the Eastern European developers did not make foreign companies switch for cheaper options like India or the Philippines. The opposite seems to be happening – over the last six months, the demand for Java Developers in Bucharest, Budapest, Prague and Warsaw grew on average by staggering a 82 percent compared to about 13 percent in Bangalore and 6 percent in Manila, respectively.
One of the explanations of the competitive advantage of Eastern Europe’s developers in the global markets is a closer connection to Western Europe and a more favourable time zone setting for the U.S. clients. However, high quality of work, while difficult to measure and sensitive to judge, is often quoted to be a significant factor here. And this is where Eastern Europe’s software engineering specialisation shines at its brightest. The two most commented international rankings show it with no shade of doubt.
In 2016, HackerRank, a prominent technology platform specialised in programming challenges, analysed the results of all its coding contests of over 1.5 million developers from all around the world and ranked the 50 nations by coding skills. As a US-based company founded by Indian engineers and turned international, HackerRank is void of any bias, save alone a pro-Eastern European bias. The conclusions from their extensive report are therefore even more striking: whether in general programming abilities or in particular skill sets, Eastern Europe tops the charts. In the overall ranking, four countries make it to the Top 10: Russia (2), Poland (3), Hungary (5) and Czech Republic (9), while Ukraine (11), Bulgaria (12) and Romania (20) join the Top 20. This is by far the best result of all regions of the world. The 2019 edition of the ranking showed.
In the subsections of skills, the global ranking in Algorithms is topped by Russia (1) and Poland (2), Java ranking is topped by Poland (1), Bulgaria (2), and Hungary (3), Czech Republic teams win Shell programming ranking, followed by Hungary (3) and Poland (4) while Ukraine wins Security applications, followed by Czech Republic (4). On top of it, Poland comes the world’s second in Python while Russia also comes second in C++.
A French company named SkillValue (parented by Pentalog) that also specialises in software developer evaluation and has more than half million tested candidates, has prepared in 2019 another robust ranking of nations based on the measured coding proficiency. While the selection of countries in SkillValue is a bit different from that in HackerRank, the general message is the same. Eastern Europe outperforms all other regions with five nations making it to the World’s Top 10: Slovakia (1), Poland (3), Ukraine (4), Hungary (5) and Czech Republic (6). These are followed by Bulgaria (12) and Serbia (16) which once again lands 7 Eastern European countries among the world’s best 20. Ah, yeah – Moldova is almost there, too (21).
SkillValue also carried a “Top Elite” ranking determined by additional testing of the best performers from each country. The countries of the former Eastern Bloc dominate this list too, namely: Poland (1), Slovakia (2), Hungary (4), Serbia (6) and Czech Republic (7) smash the World’s Top 10, followed by Ukraine (12), Bulgaria (14) and Moldova (20). This translates into the total score of the region at 8 out of 20 of the world’s elite programming nations based on the top scorers’ results.
This altogether brings us to a rather uncompromised conclusion that when it comes to digital skills, Eastern Europe rocks.
Only in part is this phenomenon widely recognised or expected. Everybody knows that Google was co-founded by a Russian immigrant (Sergiey Brin). Some people may know that Skype was created by Estonians (Ahti Heinla, Priit Kasesalu, Jaan Tallinn and Toivo Annus). Much fewer people know that Elon Musk-backed OpenAI, the company that revolutionised language processing, was co-founded by a Pole (Wojciech Zaremba) while UiPath, the world’s leader in Robotic Process Automation, was set up by Romanians (Daniel Dines and Marius Tîrcă). The list can be freely extended by the well-known names like Avast (Czechia) or Prezi (Hungary) or less known yet globally influential ones, like the manufacturer of the world’s fastest electric hypercars Rimac (Croatia), the most popular global cost site Numbeo (Serbia) or Brainly (Poland) – the world’s largest education app with over 350 million users.
There are hundreds of similar examples of the region’s superb software development that do not make the global headlines. The abundance of talents and the building momentum of entrepreneurship in the region make some, like the Silicon Valley billionaire Tim Draper, speak of the upcoming “golden age of Eastern Europe” heralded by the emergence of over 10,000 Eastern European startups in the last five years only.
Decades Of Winging It And Thinking Outside The Box Capitalizing In The Digital Age
Two major observations can be extracted from the analysis of the emerging excellence of Eastern European software engineering.
First, the phenomenon is not limited to nor even concentrated in any particular area, like Silicon Valley in the USA or Pearl River Delta in China from which it would radiate elsewhere. While at different stages of market development, countries of Eastern Europe show a consistent pattern of exceptional IT capabilities from the Czech Republic in the West through Ukraine in the East and from Estonia in the North to Bulgaria in the South. It has not started in one country and diffused to another; the phenomenon seems to be nested across the entire former Eastern Bloc.
Second, there is no plausible ethnolinguistic explanation of this phenomenon, a factor often explored in the analyses of the computer proficiency of certain ethnicities, like the Chinese. While the majority of Eastern Europe speaks Slavic languages and, to certain extent, shares common cultural and even genetic ancestry, many prominent nations of this region do not. Romania and Moldova are linguistically closer to Italy than to, say, Poland; Estonia is deeply rooted in the Nordic culture as its language is very close to Finnish, and then come the Hungarians with a language unrelated to any other in Eastern Europe or even Europe because their closest cousins are Khanty (Ostyak) and Mansi (Vogul) – isolated minorities in Western Siberia.
Coming from that point, one might ask if there is a regional pattern of software engineering skills and it’s not the ethnolinguistic proximity that helps explain it; what does?
The first direction of searching for common determinants of coding skills development would be the education system. The former Eastern Bloc certainly shared some similarities in the organisation of state-run education. However, over the last 30 years since the fall of communism, the countries went their own paths and the similarities, not very pronounced to start with, most likely disappeared. The weight of teaching math, the balance between general and specialised knowledge transfer, the role of vocational training – it all differs across the region.
One of the most robust and acknowledged measurements of the national educational system proficiency is the Program of International Students Assessment managed by the Organisation for Economic Co-operation and Development (OECD), commonly referred to as PISA. The test of reading, mathematical and scientific skills of the 15-year-olds may not approximate the coding abilities, but it certainly speaks about the quality of the education as such. This could explain further differences in the labour market and their regional Eastern European pattern in IT.
However, there is no Eastern European pattern in PISA results. In the latest edition (2018), the region is a mixed bag: Estonia in science (4) and Poland in reading (10) and math (10) are the only countries to make it to the global top 10. In science, Poland and Slovenia locate in the world’s top 20, while the Czech Republic and Latvia mostly make it to the world’s top 30 in all categories. The other Eastern European countries are scattered across the ranking in the fourth and fifth ten. Hence, it is not the school system that makes Eastern European developers excel.
Among the possible hypotheses on the sources, determinants or contributing factors explaining the IT engineering surge of the region, one could venture a line of arguments that I will call for the sake of this article a systemic bypass theory.
One of the few things the Post-Soviet Bloc countries have in common is clearly their post-sovietness, meaning that in all countries of the region, the societies had to deal with the system of repression and institutionalised irrationality. The communist regimes soon evolved into bureaucratic behemoths deliberately parametrised to block, subdue and immobilise the free entrepreneurship, any non-standard visions and uniqueness as we know it.
This, in a counter-reaction, created a mindset constantly looking for non-standard solutions simply because no standard solutions were allowed by the system and the system was evil. The best chance of survival one had was to bypass the system in all its tentacles smartly. Therefore, it could be argued that in Eastern Europe, the value of disruption and thinking out of the box was, in fact, revered en masse a long time before the West discovered startups simply because in Eastern Europe, it was the only way to make it. Living in Poland of the 1980s for instance, was one big systemic bypass – a constant attempt of finding loopholes and induce disruptions just to make a living.
While in typical, stable socio-political systems of the West going against those systems was reserved for the subcultures and flamboyant stars, in the Eastern Bloc, the entire societies were constantly “winging it”, playing by ear and living mostly out of their comfort zone, bypassing the system and finding tricky ways of outsmarting the state was not seen as a bizarre eccentric of societal outcasts but was indeed embraced and considered a major human virtue. In other words, the Eastern Europeans had to think outside the box because the box was empty at best and harmful at worst.
One should not get too far with this line of argument as most of the current pool of software developers were born after the Iron Curtain had fallen, and those who weren’t, barely remember that period. Also, some propensity for the engineering ingenuity must have marked the region for quite long as one of the greatest inventors of all time – Serbia’s Nikola Tesla – was also quintessentially Eastern European. Yet it seems sensible to point out that the decades of a constant systemic bypass in Eastern Europe conditioned the ability to develop non-standard solutions as an indispensable survival skill. This, in turn, could have further predisposed the Eastern Europeans to the digital age and help them overachieve in software engineering, which is what we observe now.
Intermarium Of Tech Talents In The Post-Covid World: Right In Time
Regardless of the root cause, the accelerating digital transformation of Eastern Europe arrives in a very peculiar moment. There are three coinciding changes that make it exceptional: the upcoming new wave of globalisation, technological shift and the clash of the hegemons.
The early analyses of the impact of the COVID-19 pandemic were eager to proclaim the world’s retreat from globalisation to the primordial local setting. Yet the root causes of the global distribution of work, namely – specialisation, scale and complexity – did not cease to exist. On the contrary, the global revision of supply chains means new global investments, often manifesting in manufacturing diverted from China to someplace else. Now, this “someplace else” can be Eastern Europe but can also be (and very often is) Southeast Asia or Latin America reemerging now as the prime beneficiary of the new regionalisation. If this is the case, some cost savings of the Chinese supply variant are lost, so the company must look for savings in the other department of functional area.
Business services, especially IT are perfect candidates for such a shift which explains why we observed an increased number of requests for shared services locations already in late 2020. In short, whether the production is moved from China to Colombia or to Vietnam or even back to the US, it can still benefit Eastern Europe because this move will increase pressure on the relocation of IT and other business services to countries of established quality position in the field. Eastern Europe is a significant global power in this aspect and continues to rise. Moreover, software developers will be increasingly important beyond their native department as the other business services such as accounting, HR, or procurement are undergoing their own digital transformations. Hence, the global revision of supply chains will increase demand for Eastern Europe’s essential human asset either way.
The notion of the technological revolution we are going through, often referred to as the Fourth Industrial Revolution (4IR), requires a brief comment. Since the Industrial Revolution of the early 19th Century, nearly every epoch claimed its technological ‘breakthroughism’ while in fact, many decades demonstrated an overinflated sense of their progress. It was true of the 1920s, and it is also true of the beginning of the 2020s or The New Twenties. After all, we are still travelling by means developed good sixty years ago, and personal spacecraft are nowhere near. Nevertheless, there are at least three meaningful developments in technology that change the game: the acceleration in robotics, the transformer models in NLP and the global adoption of blockchain.
Shipments of industrial robots have been growing steadily before the pandemic but sharply increased after 2020. The Association for Automation in America noted in 2021 the biggest growth robot installations in the documented history of USA. Also, which is very significant, the non-automotive, mainly medical and logistics-related robots installations exceeded the automotive, long time the main power behind the robotics in America. China has nearly tripled its robot density in just three years between 2016 and 2019 and reduced its distance to the US New installations of industrial robots in China exceeded those of the US, Japan, South Korea, and Germany combined. In 2020, the global giants on both sides made major acquisitions in robotics: Amazon bought Zoox (autonomous vehicles) while Alibaba bought Cainiao (robotic delivery). The increasingly robotised environment requires a fresh influx of programmers capable of integrating of the embedded software with the outside world. Eastern Europe will be on target in the quest for such talents.
2019, OpenAI, or the company supported by Elon Musk focused on Natural Language Processing (NLP) created a model named GPT-2 based on the so-called transformer approach. Its capacity to produce human-level text shocked even the creators. It was so powerful that OpenAI initially refrained from publishing it, fearing the misuse by wicked forces such as troll farms of certain countries. In 2020, a new version of this model called GPT-3 was launched and quickly became one of the most influential works in information technology. One can compare GPT-3 to a tool through which an all-reading and all-knowing narrator can constantly monitor, make sense and respond to practically anything published anywhere. China has recently announced the development of a competitive transformer model called WuDao 2.0 set to outshine GPT-3, but no details are available yet. Altogether, the GPT-3 class solutions change the situation in all knowledge-intensive fields and open a new age of the global information wars, which magnifies the demand for software engineers.
The third major development marking the technological shift of our times is blockchain. Designed as an escape from the influence of central institution like a central bank, the system of distributed ledgers found it major application in the financial industry, but its influence goes well beyond cryptocurrencies into healthcare, law enforcement, voting, Internet of Things, international trade and all kinds of record-keeping. This time is special for blockchain technology not only because bitcoin became mainstream and decentralised finance (DeFi) platforms like Ethereum rose to record highs but also because China, as the first major economy created a blockchain-based national currency – digital yuan. It is a question of time when the US will do the same, which will fuel a further explosion of the blockchain solutions.
There are many more examples of the technological acceleration that herald the increased need for software engineers: the increased application of AI in the military, AI-driven drug discovery, the rise of telemedicine or quest for autonomous vehicles. However, the triad of robotics, NLP and blockchain are particularly significant in the light of the upcoming clash of hegemons or the aggravating confrontation between the US and China. It is because all three fields will be critical in the Sino-American rivalry: robots are critical for manufacturing and logistical competition; NLP can stir up a domestic or global culture war while blockchain can be the leverage of any national currency and potentially endanger the global reign of the US dollar.
On top of it, the Digital Silk Road Project (DSR), a cyber parallel to the Belt and Road Initiative through which to dominate the global digital trade, appears to have resurfaced as one of the priorities of the Chinese government and is pursued by the Chinese tech companies which often sparks inflammatory reactions in the West. Hence, one can see the 2020s as a more turbulent, risky and confrontational decade. Even if Eastern Europe was only remotely witnessing the clash of hegemons, its consequences, including fierce competition for IT talents, would be felt in the region, too.
The problem is that the region will not be outside of the Sino-American rivalry. On the contrary – it will likely be one of the four critical battlegrounds, along with Southeast Asia, Latin America and the Middle East, in which the major powers will exercise their strategies. Hence, an army of over one million skilled software engineers experienced in remote work for the Western partners and backed by solid infrastructure and the business environment becomes a very pivotal asset for Eastern Europe regardless of what side of the geopolitical polarisation one looks from. In other words, it appears that this time around, the countries of the former Eastern Bloc gain momentum at the right time, right place and due to the right resources.
Establishing The Eastern European Engineering Enterprise (E4)
The above is just a part of the full picture – this is what happens when things go right. When they go wrong, global headlines can quickly fill with the words such as “ransom”, “attack”, “fraud”, or “cyberwar”. In the world marked by sharpening international rivalry executed in the cyberspace or at least heavily depending on IT skills, such a digital mastery may be easily abused or weaponised. Especially when we bear in mind Eastern Europe’s turbulent past, sizzling temper and long subdued or hurt national pride, often marred by unprovoked external bias, herefore, in the best-case scenario, the emergence of engineering excellence across the region can be seen as a factor potentially stabilising the geopolitical landscape and cross-border business flow while redefining the regional identity at the same time.
The natural question arises what makes the best-case scenario, and therefore – what could the crucial stakeholders such as companies, industry associations, and national governments do to secure it? Several courses of action are possible here.
The first option is to do nothing. After all, the trends seem favourable for the countries rich in technology talents which is also beneficial for the client markets, so one could conclude the present setting is optimal. The present setting of the Eastern European technology talent market is a loose bag of freelancers, software houses, intermediate companies, local industry associations, and mutually competing national agencies for trade and investment promotion.
The resulting myriad of uncoordinated settings with varied degrees of regulations, experience curves, quality assurance, or arbitration paths is not necessarily to help fully utilise the potential of the region. Apart from the nearest neighbors and – possibly – the EU as such, in the rest of the world, Eastern Europe is still hostage to its Hollywood-painted terra brava image, which holds off many business opportunities. The rising threat of data breaches, hacking attacks, and hostile intelligence operations fed by data from dodgy applications bring up new requirements for data integrity and ownership transparency. Otherwise, no US enterprise will want to risk their cloud architecture to be developed by Eastern European service providers without prior due diligence and rigid legal setting resulting from lingering suspicion that the Chinese intelligence infiltrates everything east of Queens, NYC. The cost and effort of such processes may be prohibitive for many enterprises on both ends. Therefore, the option of doing nothing, even if good enough for today, may not be best for today and may be not good at all for tomorrow.
The second scenario for the Eastern European engineering environment is a supranational industry association, say Eastern European Engineering Enterprise Network or 4EN, capable of consolidating the regional interests and address the issues described above. There are successful stories of that kind in the Eastern European business services sector, such as the Association of Business Service Leaders (ABSL), an entity made of the leading companies in the field, setting standards, invigorating the sector and consolidating industry research and knowledge transfer. Such a path could unite in one platform or federation the existing organisations scattered throughout the region, provide research, training and a regional strategy especially important in the face of new global competition between regions. Such an entity could act as a pan-regional association of providers and industry leaders while serving the function of the high-level centre of excellence at the same time.
The third and most advanced path for optimal leveraging of the Eastern European tech talent assets in the international economic rivalry would entail some co-operation also on the inter-governmental level and possibly involve a formal international agreement. In this setting, apart from the quality- and transparency-related benefits for the client parties because of a consolidated resources database and enhanced knowledge transfer, one could also secure a very high level of stability backed by some form of government guarantees.
It is also imaginable, at least to a certain extent, that the standard pan-regional set of rules and procedures would decrease the entry barrier for foreign partners discouraged by the complexity and variability of Eastern Europe’s mosaic. The well-established mechanics of grant-based pan-regional R&D that several countries of the region have practised for over a decade under EU could be incorporated into this setting, too. This would solidify and safeguard Eastern Europe’s cutting edge in the field.
Some pan-regional settings of the regional tech sector could also have significant non-economic implications. Marked by a mosaic of political interests and ethnic sympathies, Eastern Europe may once again be torn by the international power play erupting from the wrestling hegemons – the US and China – as well as the leveraging position of the key EU actors. Depending on a scenario, this rivalry can have brutal consequences for nearly any Eastern European states.
However, in a world standing up to a major geopolitical clash depending largely on technological prowess, engineers are no less important than the troops. Having over one million of the superb developers can make Eastern Europe a solid regional actor instead of a battleground or a target.
At the same time, for the foreign business partners, the cohesion of rules, quality of services and integrity of business ethics unified and guaranteed across Eastern Europe and backed byinstitutional support also be a big gain. It would save them millions of dollars of unnecessary costs in insurance, diligence or possible litigations while facilitating the processes and speeding up the delivery.
Altogether all the above is a strong voice for establishing the Eastern European Engineering Enterprise Network or 4EN as both a concept and the mechanism of leveraging the region’s digital talent assets for the common goal of a stronger strategic position of the region.
While it would well make a desirable goal in any epoch, such a consolidated position of Eastern Europe seems extremely important, if not critical, at the dawn of the explosive decade of the New Twenties.
Marek Banczyk, Ph.D. is a Visiting Scholar at Columbia University and the CEO of Cityglobe Inc.