335,000 people now employed in business service centers in Central and Eastern Europe. Does the region have a chance of employing a million?
ABSL publishes its “Business Services in Central & Eastern Europe 2015” report in partnership and with the analytical support of McKinsey & Company and additional cooperation from ANTAL, Baker & McKenzie and JLL.
According to the recently published report by ABSL, “Business services in Central and Eastern Europe 2015” [1], there are 335,000 specialists employed in a thousand foreign capital business service centers in Central and Eastern Europe (CEE). Poland, with 150,000 employees, occupies top position, followed by Romania with approx. 51,000 and Hungary with a 45,000 workforce. The business services sector in the CEE region is developing at twice the rate of the corresponding sector in India. Forecasts for the upcoming decade are more than promising. According to McKinsey & Company, the business services sector in the CEE region may well employ from 850,000 up to one million specialists.
According to a report published by ABSL during the joint ABSL and Bloomberg BNA conference in New York, Poland remains the CEE region's leader in terms of employment in centers with foreign capital (150,000 employees), followed by Romania (50,900.), Hungary (45,400), the Czech Republic (40,500), Slovakia (29,400) and Bulgaria (18,900).
- Only 15 years ago, the business services sector in Central and Eastern Europe was practically non-existent. Now, companies from the branch employ 335,000 specialists and remain the biggest employers throughout the entire region. In the last 12 months [2], investors located in Poland, the Czech Republic, Slovakia, Romania, Bulgaria and Hungary have created 40,000 new jobs. Furthermore, 86% of the sector's companies predict an increase in employment by the end of 2016 – comments Wojciech Popławski, Vice President ABSL, Director, Accenture Operations Poland.
Analyses from the last 11 years show that, on average, 70 new business services centers are being opened in the region every year. 2006 holds the record with 100 new centers launched in that year.
- The compound annual growth rate of the business services sector in this part of Europe has now hit 17%. The source of this dynamic development consists of new investors as well as centers present in the region that are expanding their scope of activities. The report shows that the biggest investors are American companies, accounting for 41% of employment – says Marek Grodziński, Vice President ABSL, Head of European BPO Delivery Centers, Board Member, Capgemini Poland.
The CEE region continues to enhance its position as one of the most attractive investment “hot-spots” for the global business services sector.
- Central and Eastern Europe, with Poland leading the way, is one of the global business service destinations. Investors from our region export increasingly advanced business services to the majority of global markets. The diversified business offer in CEE allows these companies to experience a smooth transition to the services the region provides – from managing simple processes to the development of centers responsible for managing the most advanced business projects – comments Jacek Levernes, President of ABSL, Vice President of HP Europe, GBS.
An ability to generate profitability
The Central and Eastern Europe region attracts new investors with a unique combination of competitive advantages that means that the sector can expect another decade of intensive growth. Two global trends will work in CEE’s favor in this transition. Firstly, according to NASSCOM, the global market for outsourced business process services is expected to continue to grow, about 10% annually, with a projected value in 2020 approaching USD 100 billion. Secondly, for the last few years we have been witnessing the migration of lower value-added services towards the lowest-cost locations, such as India and the Philippines. At the same time, more advanced business services will grow in importance and will be provided from countries with appropriate competence, experience and geographical proximity to parent companies.
- With the right mix of initiatives and investment facilitation, the sector in the CEE region could expand to 850,000 to 1,000,000 jobs over the next 10 years, and to 300,000 in related support services - says Wojciech Bogdan, Partner at McKinsey & Company.
Furthermore, another of the region’s competitive advantages is the diversity of locations where investors can launch their centers – it comprises cities characterized by different levels of business as well as cost maturity.
- The dynamic development of the sector is also possible due to a vast university graduate supply available within the CEE region. According to the report, institutions of higher education in the 14 biggest cities of Central and Eastern Europe, produce 1,2 million graduates every year – adds Wojciech Bogdan.
Representatives of the sector intensively work on enhancing the competences of students and graduates. For example, this year ABSL Poland in cooperation with the Technical University of Poland and CIMA Institute, established a pilot edition of the ABSL Academy with the goal of creating skills and competences necessary in the business services sector for prospective employees.
Furthermore, the increase of foreign companies from the sector within CEE is encouraged by a vast range of investment incentives.
- New investors can rely on assistance when entering CEE countries as well as during further phases of the center’s development. Furthermore, it is worth remembering that companies from the sector are open to exchanging best practices and know-how. This encourages the creation of a positive investment climate in this part of Europe – explains Łukasz Karpiesiuk, Baker & McKenzie.
An army of experts
Currently, IT specialists are the biggest group within the sector’s 335,000 workers in the CEE.
- One of the region’s most significant specializations are IT services, provided by a third of the sector's employees. Finance-accounting processes are provided by 20% of workers while operations related to customer service are provided by 18% of employees. Furthermore, 10% of employment within the sector is generated by banking, insurance and investment services. In addition, 40% of business service centers in CEE provide their services globally – explains Janusz Górecki, Head of Research, ABSL.
Nearly nine out of ten centers provide services for entities from Western Europe while 43% for North American companies. The international scope of activities gives employees access to know-how and best business practices established by global concerns. As a consequence, business service centers already present in the region promote the advancement of provided services. The level of advancement of processes managed in CEE countries continue to grow year-on-year – nine out of ten companies interviewed declared they had witnessed an increase.
The vast talent pool combined with specialist competences and know-how as well as excellent soft skills form a solid foundation for the sector’s dynamic development.
- Business service centers create attractive workplaces both for graduates and people with job experience. The sector is based on knowledge, therefore, salaries are no longer influenced on linguistic competences but also on technical competences and the candidate’s job experience. Furthermore, specialist know-how is becoming increasingly important for employers – comments Agnieszka Dzierań, Business Development Manager, Antal International.
In total, employees from the business services sector manage business processes in 40 different foreign languages. A typical unit employs workers able to use nine languages while the record is 32.
The sector propels the office market
The office market in Central and Eastern Europe consists of 17 major cities with a vast supply of modern office buildings fully adjusted to the needs of tenants from the service sector.
- The biggest office market in Central and Eastern Europe is Warsaw, with up to 4.5 million sq m of modern office space stock, followed by Budapest with 3.25 million sqm, Prague with 3,12 million sqm, and Bucharest with 2.2 million sqm. The market’s development is predominantly stimulated by the business services sector tenants, by both new entrants and existing companies who expand their structures. Currently, a total of 2 million sqm of office space is under construction across Central and Eastern Europe markets, with Poland accounting for 1.4 million sqm – says Anna Młyniec, Head of Office Agency and Tenant Representation at JLL.
What now?
The sector’s future development will depend on the ability to attract further advanced services based on know-how. In this case, all countries from Central and Eastern Europe must meet the same conditions, and provide investors with appropriate staffing potential.
- The future development of both Poland and other countries from the CEE region will depend on our employees’ competence, efficiency in operations and the ability to create innovative solutions that generate value added opportunities for the biggest global brands – summarizes Wojciech Popławski.
ABSL report “Business Services in Central & Eastern Europe 2015” was published during the ABSL/Bloomberg BNA conference in knowledge partnership and analytical support from McKinsey & Company with the additional cooperation of ANTAL, Baker & McKenzie and JLL.