Eastern Europe: An Attractive Home for Shared Services Centres
It’s been a long time since the mantra ‘location, location, location’ was first uttered, but in the years since the phrase became popular little has changed. On the one hand an organisation’s base can make or break its reputation; on the other it can have a dramatic impact on the balance sheet.
Yet, perhaps because of the uncertainty of today’s economic climate, cost – rather than location – has become
the
major factor in determining where organisations house their treasury operations.
In a business environment still dominated by talk of sluggish or negative growth, reducing expenditure remains a priority for the boardroom. It is for this reason that Eastern Europe has become increasingly popular as a base for shared service centres (SSCs). Visit the region’s cities such as Warsaw, Krakow and Budapest and you will quickly see that each hosts dozens of centres; each city with tens of thousands of staff.
Unlike economies closer to home in Western Europe, the set-up costs, operational budgets and staff expenditure can be substantially lower in Eastern Europe than they would be if organisations were to opt for near- or re-shoring.
At the same time, while the region has significant cost advantages over Western Europe, competing on cost alone with ‘far-shore’ countries such as India and China remains difficult. For some, the opening of lower cost SSCs in Asia indicates that Eastern Europe’s time may have passed. It’s an easy conclusion to reach, but not necessarily the correct one. After all, dismissing an entire region – and one in which the concept of the SSC is evolving – negates many of the benefits afforded by being closer to home for UK and West European companies. It’s also a short-sighted view. Consider, for example, the benefits that may accrue from having more than one base. In much the same way as many organisations have sister organisations that cross borders, perhaps the same could be said for SSCs?
Skilled Workforces: Asia vs Eastern Europe
Certainly, centres in Eastern Europe are increasingly being seen as one piece in the global service delivery model jigsaw that is required to deliver consistent levels of service across an organisation. This is true regardless of where the work is being done and who is doing it.
In recent times, several Indian outsourcing companies have even reversed the trend of locating solely in the Far East and set up centres in Eastern Europe. Most believe that they need to arm themselves with a variety of technical and language skills and many argue that in order to grow in what is becoming an increasingly competitive market, direct access to European markets is essential.
But access to a wider marketplace is not the only reason for Eastern Europe’s rise up the SSC ladder. United Nations Educational Scientific and Cultural Organisation (UNESCO) figures suggest that the region offers a pool of well educated multi-lingual graduates, with over two million joining it annually. Theirs is a skill-set that is affordable, especially compared with North America and Western Europe. Add this to the low inflation rates in Eastern European countries, and any cost-conscious boardroom should be quick to recognise the advantages of creating a presence in the region.
The Risks
Given these arguments, it would seem that ribbon-cutting ceremonies should be the norm with companies opening SSCs in Eastern Europe, almost at will. If only business life were that simple. Due diligence must never be overlooked, especially considering the risk that countries that have not yet joined the euro may see a deterioration in their cost base – as happened with Slovenia and Slovakia. The perceived higher risk from corruption in many Eastern European countries, compared with Western Europe and North America, also means that questions should be asked about how these risks might be handled.
Of course, each location has a specific flavour. Cities such as Budapest, in Hungary, have attracted high-end roles from global corporations due to the availability of specialist technical skills, while Bratislava in Slovakia has become a specialist hub for insurers for similar reasons. Krakow in Poland has become a hub for many of the business process outsourcing (BPO) providers and Baltic cities such as Riga have grown due to the high technical capabilities on offer, combined with good Scandinavian and English language skills. Lower cost capital cities such as Bucharest in Romania as well as regional cities such as Brno in the Czech Republic also offer a multi-lingual workforce to focus on transaction processing, IT, or call centres to support a global network. Such a spread of skills means that Western European boardrooms effectively have to become geographic experts, as the key to success now rests in their ability to understand the demographic of the available talent when deciding where to locate.
With costs pressures unlikely to ease, SSCs in Eastern Europe will, naturally, face strong competition from traditional low cost ‘offshore’ countries such as China and India. Yet with many outsourcing companies expanding from the confines of Asia, it does seem that Eastern Europe is becoming another hub for SSCs. With the mantra of ‘location, location, location’ still ringing loudly in the ears of executives seated around the boardroom table, it’s a trend that looks set to continue.