The COVID-19 pandemic has accelerated a trend that was visible earlier as well. Startups from Central Eastern Europe are quickly taking market shares, with their total value having reached USD 215 billion in 2021. The number represents a 19-fold increase compared to 2010.
The positive news comes from a report published by the Dutch intelligence platform Dealroom in cooperation with Google for Startups and the London-based venture capital firm Atomico. According to the report, 34 “unicorns” have emerged in Central-Eastern Europe so far. A significant increase compared to only 6 such companies in 2015. In business terms, a unicorn is a privately-owned startup company valued at over USD 1 billion.
The business analytics platform CB Insights reports that there were 803 unicorns across the world as of August 2021. Central Eastern Europe is in an excellent position to keep increasing its percentage of the total number of unicorns out there due to some of its competitive advantages linked to the pandemic, engineering and labor costs.
STEM leads the way
The main advantage that Central Eastern Europe has over other regions is its access to a vast pool of tech-talent created by the strong education system in these countries. Traditionally, even during communist times, the region’s students excelled in STEM disciplines (science, technology, engineering, and mathematics). As many of today’s unicorns are increasingly grounded in the digital economy, web developers are becoming more important than ever for companies to be able to grow swiftly.
According to Hackerrank, one of the market-leading technical assessment solutions for hiring developers. Poland, Hungary and the Czech Republic all qualify on the top 10 list of countries with best computer programmers in the world. The rest of the region is not far behind. Labor costs are the second reason for why Central Eastern European startups are so attractive to investors. Despite rising wages, labor costs and living expenses for founders and investors alike are very competitive compared to Western Europe and the U.S.
Thirdly, the pandemic has accelerated digital transformation across businesses and governments. Certain sectors of the startup world are bound to benefit even more than others, such as the ones focused on remote collaboration, online security, e-health and process automation. For example, the Romanian giant, UiPath, which created software using robotic process automation (RPA) for repetitive front and back office tasks, grew steadily during the pandemic and finally went public in April last year.
Economic trends affecting unicorns
Central Eastern European startups have been quick to capitalize on the growing economic trends that are based on the flood of new technologies that have emerged in the last decade or so. New innovations, including mobile smartphones, P2P platforms and cloud computing combined with social media applications have made it possible to scale up business much faster than previously.
One of the main trends in recent years has been the emergence of the so-called “sharing economy” or “on-demand economy”. It is based on the concept of sharing personal resources through digital apps in order to make money. Three of the world’s five most valuable unicorns (Uber, DiDi and Airbnb) were created with the use of such a model.
Within the shared economy, some startups specialize as so-called “network orchestrators”, becoming companies that allow consumers to share information (e.g. TripAdvisor, Yelp) and peer-to-peer or business-to-person sales platforms (e.g. Amazon, Alibaba). In Central Eastern Europe, companies such as the Uber-rival Bolt (Estonia) or the online marketplace for secondhand clothes Vinted (Lithuania) have walked down this path with great success.
There are, however, some pitfalls that companies from the region must look out for. The highly skilled engineers that make the rise of digital startups and unicorns possible are particularly exposed to brain drain through emmigration. Companies must make it as comfortable as possible for employees to remain in their countries of origin while states in the region should introduce fast lanes in the immigration process for exceptional talents from abroad.
The increased importance of technological and digital excellence in the workforce spells good news for Central Eastern Europe. If the opportunity is seized, it will be possible to build a foundation that will be a cash cow for years to come, enriching owners, workers and societies as a whole.
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