CEE economics and the language industry

Central and Eastern Europe (CEE) should include all countries of Central Europe, plus these belonging to Eastern Europe. Several definitions of both regions exist today, but they often lack precision or are extremely general. These definitions vary both across cultures and among experts, even political scientists, recently becoming more and more imprecise.

The Central Europe region should not be confused with the area of the Central European Time Zone, stretching from Spain up to Poland. In the most limited sense, the CEE region is reduced to the four member states of the Visegrád Group (Czech Republic, Hungary, Poland and Slovakia). In our opinion, for both political and economic reasons, the Balkan states should be treated as a part of the CEE region. The term Central Europe resurfaced by the end of the Cold War, which had divided the Old Continent politically into East and West, splitting Central Europe in half. Keeping in mind this ambiguity, let’s adopt the classification by German sources, presented graphically in Figure 1.


Economic situation

When comparing recent accessible (2011) data on nominal gross domestic product (GDP) per capita in CEE countries, a tremendous gap is observed between Austria and Germany ($45,000 and $40,600, respectively) and Moldova ($1,400), while the European Union (EU) average is $32,400. A similar picture shows the comparison of monthly average wages: again, the highest values are reported for Germany and Austria ($2,865 and $2,484, respectively), and the lowest for Moldova and Ukraine ($237 and $309, respectively).

Such significant differences are caused by political conditions throughout this region mainly during the second half of the twentieth century. It is crucial to remember that the CEE area is approximately 4.5 million square kilometers (about half of the United States), inhabited by some 470 million people, where about 30 official languages are spoken. From the point of view of the translation industry this is a very promising situation, as at present CEE countries (with the exception of Germany and Austria) are developing extremely fast.

The growing import of high-tech goods in these countries, the relatively strong economy of the Visegrád Group, the size of Russian and Ukrainian markets, as well as the emerging markets of Central Asian and Transcaucasian members of the Commonwealth of Independent States, where the Russian language still plays a very significant role in heavy industry, are the main factors of the quickly growing demand in translations into the languages of the CEE region. The main language combination demanded is still English into Russian. First of all, there are 145 million inhabitants in Russia, and Russian is the main official language in the territory of the Russian Federation. In addition, an overwhelming part of eastern Ukraine speaks Russian.

Moreover, the recent investment projects in the neighboring Kazakhstan, especially in the energy sector, are impressive. During the period of 2000-2010 the gross EU investment was about $56 billion. According to the National Bank of Kazakhstan in 2011, the total EU direct investment inflow was $11.9 billion. It should be stressed that a majority of related documentation should be delivered in Russian (not in Kazakh).

It should also be taken into account that translations into other CEE languages should grow with the increase of CEE economies. The GDP rate in this region is much higher than in Western Europe and in the EU in general. The data on GDP growth within the period 2005-2011 (Figure 2) confirms that almost all CEE countries are leading in this ranking, significantly above the EU and eurozone average. It is worth remembering that in the worst crisis year (2009) Poland was the only country of the EU that achieved a positive value of GDP growth. Currently, Slovakia and Poland are leading (more than 35% GDP growth in six years, crisis period included) and only Hungary reports a growth slower than the EU average.

CEE countries, and in particular Poland, are also well known as a main location of business process outsourcing centers in Europe. At present in Poland, more than 300 large companies employ around 80,000 in-house staff. A quarter of them (almost 20,000) work in the Krakow area, listed as eleventh among the best locations for investment in the modern sector of business services worldwide. In this ranking, Krakow and Dublin are the only representatives of Europe included in the top ten. Such a significant number of outsourcers also generates a demand in translation and interpreting.


Prospects and menaces

As mentioned in 2012 by Common Sense Advisory, the CEE region is one of the smallest in terms of market share worldwide, but it plays a longstanding role in the language service industry. Two translation companies headquartered in CEE (both having their seats in the Czech Republic) are listed in Common Sense Advisory’s annual ranking of the top 50 language service providers (LSPs).

The CEE region, growing so fast economically, is a polyglot area. Therefore, there are many examples of companies, even middle-size ones, which regularly handle multilingual projects, with 10-15 target languages as an average. Such “one-stop-shops” are very convenient for large LSP players, because it helps them to overcome the numerous disadvantages connected with direct cooperation with freelancers in CEE countries.

In the CEE region there are only six countries belonging to the eurozone (Austria, Estonia, Germany, Greece, Slovenia and Slovakia). All the other countries have their own currencies.

Only in three cases (the Bulgarian lev, Lithuanian litas and Latvian lat) are the exchange rates kept almost constant. All other currencies in the CEE region have very unstable exchange rates to the euro.

In Table 1, results of the comparison of exchange rates to the euro for four important CEE currencies illustrate the scale of risk in cooperation with CEE freelancers. The 30%-40% span of the exchange rate within two or three years must be taken into consideration when negotiating the rates with local freelancers. Another problem is related to the costs of wire transfers from banks located in EU countries to beneficiaries in non-EU Eastern Europe. As an example, in the case of wire transfers in the euro currency within the EU, the majority of Polish banks charge €1.20-1.50. The same banks (together with the correspondent bank) can charge more than €50 for a transfer of €3,000-€5,000 to a bank in Russian or Serbia.

One should also keep in mind the extra requirements of Ukrainian and Russian banks regarding the acceptance of wire transfers. For Western European clients it is quite difficult to understand why the invoice must be obligatorily accompanied with a “Completion Act,” which must be signed, stamped and sent back to the provider. However, without the original of this document (signed and stamped), the provider cannot receive money from his or her local bank in Ukraine or Russia.

The average level of corruption in CEE countries is much higher than in Western Europe or the United States. Transparency International (TI) ranked 183 countries in the world using the so-called Corruption Perception Index (CPI). The CPI measures perception of corruption due to the difficulty of measuring absolute levels of corruption (Table 2).

According to TI investigations, the least corrupted ex-Soviet country is Estonia with a rank of twenty-ninth worldwide. On the other hand, in the Ukraine, bribes are given to ensure that public services are delivered either on time or at all. TI reports that Ukrainians stated they give bribes because they think it is customary and expected.

Taxes are another challenge. The level of complication and ambiguity in tax regulations in Poland, for example, is awful. An interesting observation was reported by an American citizen managing a translation company in Poland:  “in Poland, everyone is deadly afraid of the taxman. Unfortunately, there is good reason for this. There have been some well-documented cases of the Polish tax authorities bankrupting companies and then admitting, oops, we made a mistake. One of the most famous cases was of a publicly traded IT company. The tax people fined this company and put the CEO in jail because of the way he interpreted the VAT regulations (which are terribly unclear). Then, after a considerable amount of time and damage, both personal and commercial, the authorities admitted that he had been doing it correctly and they just said, sorry about that . . . clerks yield huge power without consequences if they err.”

It often happens that the interpretation of unclear tax regulations can vary between treasury office branches, even in the same town in Poland. The lack of stability of tax regulations in Poland can be illustrated by the example of the Polish VAT code. The first edition of this law (1993) was amended 42 times by the year 2004. This means an average of four amendments a year. Polish accession to the EU caused a signification modification of VAT law (since May 1, 2004). However, during the next seven years, a total of 507 items were modified, and as a result, a unified text was published in 2012. Numerous modifications valid in 2013 were announced in October 2012. The situation in other CEE countries is rather similar.


The future in CEE

The previously-described peculiarities of CEE, although they are important, cannot obscure the region’s economic benefits, which are the most important from the point of view of the translation market and the broader business market. A period of increased investment continues in the region due to huge funds from the EU. This translates directly into the number of orders for translation services. Large translation offices specialized in handling multilingual projects with a particular emphasis on the languages of CEE have operated for years in this area. They have a wealth of experience and invaluable know-how. Their access to specialists with a good knowledge of foreign languages in combination with solid, high-level education provides the ability to implement complex projects in various language combinations. In addition, the extremely beneficial demographic structure of the region, with a large proportion of young people who know the world and are proficient in using the world’s most recent technology, permits an optimistic perception of the CEE’s future. Thus, the CEE region is a promising translation services market. The CEE share in terms of the translation industry worldwide, reported as 2.8% or less than $1 billion in 2011, will grow much faster than the economy average. Keeping in mind the obstacles and disadvantages discussed previously, it is recommended to establish business relationships with larger local players whose knowledge might come in handy.