I had an interesting chat with a friend of mine (from the VC industry) this weekend about the recent success of Huawei and other Asian vendors.  We talked about how India and China have become impressive powerhouses in the telecom world, given the recent trends of outsourcing, the vast human and capital resources available at their disposal and their focus on trying to achieve a huge technological leapfrog that would put them in equal footing with the West.  In other words, modernization of the telecom infrastructure was achieved without necessarily going through all the evolutionary steps that a country like Canada went through (a jump made possibly partially due to the advance of wireless broadband technologies).  Based on this, my VC buddy firmly believed that the next major Silicon Valley would be over in India or China (arguably one might already exist in Bangalore or Zhongguancun).

But interestingly enough, my friend never mentioned Eastern Europe.  And there has been a lot of action happening in that part of the world recently.  The region counts with a highly educated and motivated workforce and lower labor costs than Western Europe.  That makes countries such as Bulgaria, Czech Republic, Estonia, Hungary, Lithuania, Poland, Romania, Serbia, Slovakia, and Ukraine, among others, ideal for establishing both business and manufacturing hubs, particularly in the telecom space.

One success story is Estonia, where Skype has setup its lab with 75 developers, engineers (operations and network) and some customer service functions.  In fact, most of the company's development gets done in its Tallinn office, including new features that are on the roadmap, including video telephony.  So what would make Niklas Zennström consider putting his major R&D center there?  Well, for one thing, a history of success (his previous startup, Kazaa, also had its development in Estonia).  Niklas was impressed with the quality of the country's developers, which he felt was second to none.  Another factor was the favorable labor cost (a developer makes between €1,000 and €1,300 a month, which is about $1,230 to $1,600).  But there is a lot of innovation there.  Take even parking, for instance. The Estonian incumbent (EMT) has an innovative system for municipal parking: drivers pay via an SMS message to the parking authority.  The country's mobile teledensity is about the same as France's (65 subs per 100 people, compared to the French figure of 69).  According to the ITU, Estonia also ranks ahead of countries such as Hungary, Greece, Ireland, Poland and Spain in terms of Internet penetration.  These are impressive numbers and a testimony of how far along the country moved from a technology standpoint since its emancipation from the old Soviet empire. 

I will post future similar Eastern European success stories.  But one thing is for sure: the region presents an excellent opportunity to attract foreign high-tech investment.  Moreover, Eastern Europe is also very strategically important to the US (witness the acceptance of a lot of countries in NATO).  History has shown that wherever US interests are, the money tends to flow.  So aligning geopolitical interests with a talent-rich workforce, attractive labor rates, a more advantageous time zone difference (when compared to India or China), and a smaller cultural gap (vis-à-vis the same countries), and the answer becomes obvious: chances are the next Silicon Valley will be in Eastern Europe.