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DTZ’s new research report: BPO (Business Process Outsourcing) in the CEE region, focuses on emerging markets across Central and Eastern Europe. The study presents a deep insight into the main drivers behind decisions to locate BPO functions and provides forecasts for the future.
The Central & Eastern Europe (CEE) region has emerged as a worldwide force in the Business Process Outsourcing (BPO) sector.
BPO in the form of multinationals’ in-house European Service Centres and 3rd-party BPO service providers began to take off in Poland, the Czech Republic and Hungary from 1998-1999 driven primarily by the improving investment climates, the low cost labour supplies and the development of modern office markets in those countries. Other locations such as Slovakia, Romania, and Bulgaria have since successfully competed for BPO investment.
Despite being a higher cost location than India, CEE has proved to be a competent BPO destination due to the following factors: low labour costs relative to Western Europe and the US; availability of skills; quality education structures; healthy work cultures; flexible labour markets; favourable investment climates; solid infrastructures; close cultural ties; strong language skills; proximity to western markets; and availability of suitable cheap modern office accommodation.
Higher value “knowledge-driven” business functions such as IT tasks and Research & Development departments are now being outsourced or off shored to CEE.
The differential between wage levels between Western and Eastern Europe has narrowed but only slightly. CEE will remain a low cost location relative to Western Europe and the US for at least the medium-term.
Wage inflation is beginning to blunt the cost-competitiveness of BPO hotspots like Prague, Budapest, Warsaw, Wroclaw and Krakow relative to cheaper locations within the CEE region and locations further east. Regional cities throughout the region can expect more interest from outsourcers.
Dwindling labour supply in the CEE capital cities as well as some regional cities due to falling unemployment and high levels of emigration from some countries is an emerging constraint on BPO growth.
The quality of education and ability in European languages are key drivers of BPO into CEE. Continuing investment into and reform of the education systems is essential to ensure a continuing flow of qualified workers and maintain CEE’s competitive advantage.
Lack of office supply has been a constraint for Prague in 2006 as well as some regional CEE cities. The capital cities however are all currently seeing a wave of development of office space suitable for BPO operations, although lack of office space in many of the smaller regional CEE cities will continue to be a brake on BPO growth.
Leading BPO and Service Centre magnets during the first wave of investment in 1998-2006 have been Budapest, Prague, Warsaw, Krakow and Wroclaw. These cities are well positioned to further develop as IT Outsourcing and Research & Development hubs. Some companies are widening the coverage of their CEE Service Centres in these cities to support not just European client and employee networks but global networks as well.
DTZ expects Lodz, Poznan, Lublin, Brno, Ostrava, Plzen and other relatively untapped Polish and Czech regional cities to see increased BPO investment. Bucharest and Sofia are forecast to emerge as new BPO hotspots in the next 2-3 years.
Due to structural constraints such as weaker investment climates and high property costs, Russia and Ukraine are unlikely to see significant BPO activity in the short-term but have much potential in the medium to long term.
Johnny Dunford,Regional Business Manager says:
“Business Process Outsourcing and Offshoring to Central and Eastern Europe has proven to be a success story for both the outsourcing and offshoring companies in their quest for competitive advantage in the global market. The continuing flow of BPO to the region is evidenced by the stream of requirements for office space. Both occupiers as well as developers and investors should find this report informative and useful as it covers various aspects of BPO, including economic and property-related issues, SWOT analysis of the CEE countries as well as future prospects”.