The new business hub taking shape in Europe

Visa is planning a new global technology and product hub in Poland and Microsoft just launched a new data center in Poland. In 2021, Central and Eastern Europe (CEE) were producing startups that would be the envy of any ecosystem, and increasingly attracting the world's attention, according to Dealroom.

London, Paris and Berlin are too expensive for startups and small and fledgling businesses have had to look elsewhere to plant their roots. Central and Eastern European countries provide the perfect solution as they bring their digital infrastructure up to par. Long crumbling since WWII, many of these countries fell into disrepair after years of communism or neglect or corruption, or all three.

Today, countries like Bulgaria, Romania, Albania, Moldova and Croatia, for example, have become terrific locations for businesses to establish offices due to cheap rent, cheap labour and growing talent. Even Kyiv, before Russia launched its war on Ukraine, was a central location for many businesses and call centres. The idea that a company could establish operations in a cheaper country with cheaper labour is extraordinarily appealing at a time when belts are being tightened and spending is on the decline.

Evidence of this move is beginning to show in the numbers and statistics. As of 2022, Europe has generated a total of 179 unicorns, and 44 of them originate from the CEE region. According to an article in Vestbee: "In business, a unicorn is broadly defined as a privately held and VC-backed company valued at $1 billion. The number of unicorns originating from a specific country or region is often a good indicator of the development and maturation stage of the local startup ecosystem."

An article in Sifted notes that the success of companies like UiPath in Romania, InPost in Poland and GitLab in Ukraine, not to mention Baltic-founded unicorns like Wise, Skype, Bolt and now Vinted, have raised the global awareness of central and eastern Europe as a startup hub.

However, at the same time, The Recursive has pointed out that many regional founders decide to continue writing their success stories outside CEE since they are enticed by the opportunity to gain access to more capital, larger ticket sizes and international talent in order to successfully enter new markets. This means that around $50 billion in enterprise value has flown out of the region.

Regardless, there is a reason why a number of unicorns were created in CEE countries. A study carried out by Globsec notes: "One of the reasons why the tech boom in the CEE came about lies in its cost-effective, highly skilled tech talent. The labour costs of workers who excel at in-demand software development and IT skills are much lower in CEE countries than in Western Europe, turning the region into an attractive investment destination. With regards to the quality of CEE developers, 6 CEE countries ranked among the top 20 out of 50 countries across the globe. The best developers from the region come from Poland, Hungary, Czechia, Ukraine, Bulgaria, [and] Romania."

Of course, CEE countries lag in some areas as they catch up with the Western world, but there are several areas where these countries have indeed managed to level off with the big players.

The same Globsec study also notes: "Although most industries in the CEE lag behind their respective counterparts in more advanced Western economies, some of the sectors are almost on par - namely financial services and information and communication technology (ICT). More specifically, the leading industry verticals on the CEE tech scene are transportation, fintech and enterprise software."

Interestingly, a massive office-to-residential conversion project is taking place across the pond in New York City as numerous empty and unused office buildings are being turned into living spaces to contend with the shortage of affordable housing. This should serve as a warning to cities around the world. Businesses are leaving the big, expensive cities to settle in cheaper areas. This may suggest the big cities will become a vast concrete shells of what they once were.

As long as CEE countries remain cheap and their population grows more educated, especially in computer software, there will be no incentive for companies to establish themselves in more expensive cities. Coupled with the comfortable idea today that employees can work remotely, even large companies need smaller office space than they once required.

Change is on the way. It is already taking place, albeit slowly. The mayors of London, Paris, Berlin and even New York, should take heed and realize that the popular model that saw office buildings full to capacity not too long ago, is no longer today's reality. And the idea that companies felt required to maintain a presence in a major city for the purpose of projecting "success" or "prestige" is also no longer the case. The EEC countries are on the rise. How the mighty have fallen.

By Daniel Elliot

Daniel is a business consultant and analyst, with experience working for government organisations in the UK and US. On his free time, he regularly contributes to International Business Times UK.