Bulgaria doesn’t have an Amazon, Google or Microsoft. Does the country want them?

The tech giants' avoidance of Bulgaria is nothing new but rather a continuation of their lack of investment in Bulgaria over the past decade. The new government says it wants to bring them to Bulgaria, but the way to lure IT companies seems to be very different from the industry giants.

The problem for Bulgaria is not only that the tech giants prefer other countries for their R&D or data centers. Sadly, Sofia is not even part of the conversation. Conversations with some high level representatives, conducted on condition of anonymity, show that Bulgaria's biggest problem is its reputation as a center of corruption.

At the same time, considering Kiril Petkov's plans to talk to tech giants about such investments, the country should also ask itself whether such a move would usher in more positives than negatives for the IT sector, considering that big companies and young startups are both fighting for the same number of specialists.

"Aren't they corrupt?"

"The different giants have a different way of investing. Google is decentralized, while Apple is super centralized. The process of investments is not that strictly organized, but when there is research, it goes deep. In this case, corruption is a problem, because when any executive in the chain of decision making asks you 'Aren't they corrupt?', there is nothing you can say", says one source with knowledge of the tech giants' investment strategy.

The same argument is repeated in talks with other high-level representatives from tech companies.

The image of Bulgaria is a problem mainly because of the high level of competition for these kinds of investments. All countries in Europe want American tech giants to invest in them, but to the companies concerned, it makes no sense to put your money everywhere. If you have an office or a design center in one country, this nullifies the need for an investment in all neighboring countries. An investment from a giant almost always serves as a green light for more investments - both from the same company and from others, who interpret the move as meaning the targeted country is safe for business.

Different countries have different approaches. The President of Lithuania, for example, wrote a direct letter to Google CEO Sundar Pichai, inviting him to invest. But the company did not invest in Lithuania because it had already done so in Poland.

The Bulgarian government wants to ape this policy. Minister of Innovation and Growth Daniel Lorer says, on the topic of tech giants, that "we will talk with many of them, because a big investment from any of them is symbolic for a country".

Company representatives, however, have told K Insights that when they do major investments they "try not to have talks with the government. The more you talk with the government, the higher the price and the higher the risk of corruption".

Data center - a hope, an office - a threat

If Bulgaria is in the running for anything, it is probably for a data center, for many reasons, not least because of its geographical location. This is also the best case scenario because such an investment would boost digitalization, as well as the country's overall image, and lead to additional investments. Such a move would also not require many specialists - which can be seen both as a pro and as a con. Otherwise the companies can open a center for software development, which might lead to problems for Bulgarian firms which are currently competing fiercely for every developer.

But Kinsights sources openly say that Bulgaria has an unrealistic assessment of how many IT developers it has and how many of them are Google, Amazon or Facebook material. One of the sources says that Bulgaria does not have a sufficient standard of high education (Sofia University is ranked at around 600th place in the QS World University Rankings) and the country still sees itself as a cheap destination, which it is not.

The most important issue for the tech giants is not taxes or gifts from the government, but how easy it is to do business and to find the employees you need. In Bulgaria this might turn out to be hard and turn the heat on the workforce market even more.

But this scenario might be too apocalyptic. Some big Western software companies are operating in Bulgaria even today and some of them are hiring by the hundreds. Diana Stefanova, vice president of VMware, says that the company chose Bulgaria for investments because of the "government policies on investments and the attractive tax structure". She adds that there are insufficient developers at a global level, not just at the local level, and that the company still has a very high opinion of Bulgarian specialists. The R&D centre of VMware in the country develops some of the core products of the company and, according to Stefanova, the Sofia office is accountable for about 1 billion dollars in revenue globally.

The net effect

Another question is connected to the number of entrepreneurs that will come out of the (theoretical) local offices of tech giants. Some managers of venture capital funds say that unlike the US, offices of big companies in Bulgaria (and Europe) do not produce as many entrepreneurs. One representative of a big company says, however, that "if a big company opens an office in Bulgaria, it will not produce entrepreneurs in the short run, but it will do so in the long run".

Daniel Lorer, who will be in charge of potential negotiations, knows all the risks. In his conversation with Kinsights, he says that the geography of Bulgaria, the tax system and the number of IT specialists are the country's main assets. At the same time, as an investor in the IT sector until recently, he knows all too well that not every investment has a positive net effect - especially when on the other side of the table are Google or Amazon, which have more cash to hand than the whole of the Bulgarian economy.

Lorer adds: "It's not only a question of whether we want an investment or not, and whether this is going to hurt smaller companies, but also if we want Google or Amazon to open a big data center if it's going to cost the government money we can't afford. It is obvious that a project of this scale should be calibrated in a way to help Bulgaria grow, not suck money and people out of it. We are looking for the added value - R&D, services, products. This is the package that every one of these companies should bring to the table." He adds that Google investing 1 billion euro in a data center in Bulgaria is not a bad headline.