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Amid a continent-wide push for digital supremacy, CEE’s resourceful economies are leveraging artificial intelligence to vault from tech-outsourcing backwaters into the ranks of Europe’s leading innovation hubs.
For decades, emerging Europe was seen largely as a back office for Europe’s technology sector.
Outsourcing firms sprouted in cities like Cluj-Napoca, Wrocław, and Prague, as Western companies tapped into a deep pool of well-educated and cost-competitive programmers.
Now, this narrative is evolving swiftly. The region is no longer content to remain an IT subcontractor. Instead, it is applying its engineering chops to the next great wave in digital innovation: artificial intelligence (AI).
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From Warsaw to Tallinn, government officials and entrepreneurs alike are betting that AI can help their countries climb the value chain, kick-start more productive homegrown tech ecosystems, and accelerate economic catch-up with Western Europe.
Rising investments, maturing ecosystems
Investment into AI across emerging Europe has surged in recent years. According to Dealroom data, venture funding for AI start-ups in Central and Eastern Europe (CEE) grew by an estimated 35 per cent from 2020 to 2023.
While still small compared to the bigger Western hubs—London, Paris, Berlin—the number of AI-focused companies founded in the region has expanded steadily, and the ambition of these ventures is growing more audacious.
In Poland, the largest economy in the region, the government’s Future Industry Platform and Digital Poland initiatives have put advanced technologies, including AI, at the center of the country’s modernisation strategy.
Poland’s National Centre for Research and Development has, since 2021, channeled tens of millions of euros into AI-related projects, while Warsaw has promoted AI regulatory sandboxes to encourage experimentation.
The capital’s start-up scene is thriving, too: Warsaw-based deepsense.ai has made headlines with its work on computer vision and predictive analytics, and Applica, a Polish natural language processing (NLP) start-up, was acquired by US-based cloud computing giant Snowflake.
Meanwhile, in the Tri-City area around Gdańsk, AI-driven cybersecurity and machine-learning outfits have begun to cluster, drawn by strong technical universities and growing pools of venture capital.
In Czechia, the story is similar. Prague’s Charles University and the Czech Technical University produce abundant technical talent, and the country’s AI ecosystem is starting to coalesce.
The Czech government has rolled out its National AI Strategy, pledging to turn the country into a European AI leader by blending regulatory readiness, talent cultivation, and incentives for research and development.
Already, the Czech branch of Avast (now part of Gen) uses AI to combat cyber threats globally, while emerging start-ups like Rossum, an AI-based document processing scale-up, have gained international recognition. Venture investment in Czech AI firms reached around 60 million euros in 2022—modest by global standards, but a sharp uptick for this small economy.
Estonia: Digital pioneer turned AI trailblazer
Among all the emerging European nations, Estonia stands out. Long lauded for its e-government and digital identity systems, it has been quick to apply AI to public services.
The Estonian state’s ambition—articulated in its 2019 National AI Strategy—is to automate at least 50 public services with AI by 2025.
Projects range from AI chatbots in government agencies to predictive analytics that help forecast unemployment trends. Estonia’s digital infrastructure, including its X-Road data exchange layer, provides a strong foundation for AI-driven governance.
This focus not only nurtures local AI start-ups, such as MeetFrank (a talent-matching AI platform) and FuseBox (an AI-powered energy management firm), but also positions Estonia as a preferred testbed for European AI regulation and data governance frameworks.
Hungary, Romania, Bulgaria
Hungary is also determined to join the AI race. Its National AI Strategy sets out a vision for Hungary to become a regional AI hub by 2030, focusing on education, infrastructure, and support for startups.
Budapest’s AI Coalition—a joint effort of government, private sector, and academia—oversees implementation. The coalition has seeded AI labs and training programmes, aiming to produce thousands of AI-literate professionals.
Hungary’s government has supported projects integrating AI into manufacturing and logistics, reflecting the country’s strength in automotive supply chains. Companies like AImotive, a Budapest-based firm that develops AI for self-driving cars, have garnered global attention. Its sensor-fusion algorithms and simulation tools have attracted partnerships with major automotive manufacturers and suppliers abroad.
Romania, a longtime haven for high-quality software engineers, is beginning to shake off its image as simply an outsourcing hub. Clusters of AI start-ups are forming in Bucharest and Cluj-Napoca, with firms like FintechOS, which applies AI to financial service automation, leading the charge.
The Romanian government launched its National Strategy on AI in 2021, though progress has been incremental. Still, venture investment is ticking up, and Romanian universities are adding more AI-focused coursework, setting the stage for future growth.
Bulgaria, too, is inching forward. Sofia’s Tech Park has set up AI incubation programmes, and the Bulgarian Industrial Association has thrown support behind machine-learning initiatives in manufacturing.
The country still lags behind regional leaders, but as foreign investors, including American and German firms, scout for cost-effective research and development locations, Bulgaria’s stable business environment and improving digital infrastructure hold promise.
Ukraine: Innovation in turbulent times
Ukraine, despite the Russian invasion and ongoing war, remains a significant source of tech talent.
Before the conflict, Ukrainian developers were sought after for their engineering prowess and start-up savvy. Amid devastation, the Ukrainian technology sector has shown remarkable resilience.
AI-led firms such as Grammarly, a cloud-based writing assistance tool, Preply, an online language learning and tutoring marketplace, and People.ai, a revenue intelligence platform, are all globally recognised as leaders in their fields.
The long-term prospects will hinge on the war’s outcome, but the Ukrainian diaspora is already seeding AI ventures abroad.
Post-war reconstruction efforts, when they come, are likely to emphasise technology, automation, and digital governance, giving the country a chance to leap ahead in AI adoption.
Talent, talent, talent
Talent remains the lifeblood of any AI ecosystem, and emerging Europe does not disappoint. The region’s universities churn out thousands of STEM graduates annually.
According to Eurostat, Poland alone produces over 70,000 IT graduates each year, while Romania and Czechia have some of the highest concentrations of IT professionals in the EU relative to their populations.
This talent pool, which historically served Western European and American clients through outsourcing, is now channeling more energy into local ventures. Governments understand the importance of nurturing this shift. They are funding AI research centers, launching data science programs, and encouraging partnerships between academia and industry.
The challenge now is to retain these skilled workers, as tech giants and scale-ups elsewhere in the EU and the United States beckon with higher wages and greater perks.
The policy puzzle
While the promise is real, emerging Europe must deal with a challenging policy landscape. The EU’s AI Act, which entered into force in August, will regulate AI use cases according to their risk profiles.
CEE countries, mostly eager to innovate, are simultaneously grappling with how to meet stringent EU standards without stifling early-stage experimentation. Many governments in the region have embraced regulatory sandboxes—an idea borrowed from the UK and the Netherlands—to strike a balance between compliance and creativity.
Estonia’s proactive involvement in Brussels policymaking committees and Poland’s AI policy think tanks underscore the importance these countries place on shaping, rather than just following, EU rules.
Looking ahead
The next few years will be crucial. Governments are keen to see their countries climb the global rankings of AI readiness. They are investing in digital infrastructure—from 5G networks to high-performance computing centers—and encouraging the private sector to adopt AI tools across industries: from predictive maintenance in factory floors to automated diagnostics in hospitals.
Beyond government initiatives and talent pools, the true test will be the region’s ability to produce globally competitive AI products and platforms.
Pockets of excellence already exist—computer vision startups in Poland, cybersecurity in Czechia and Estonia, self-driving technology in Hungary—but these need to multiply. To fully realise the AI revolution, countries will need more risk capital, better links between research labs and industry, and sustained efforts to attract global tech players who can anchor local ecosystems.
If these conditions are met, emerging Europe could become one of the continent’s most dynamic AI battlegrounds—a place where nimble start-ups and forward-thinking governments collaborate to unlock the next generation of digital innovation.
Photo by vackground.com on Unsplash.
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