emea location trends gcs consulting october 14th, 2009
TRANSCRIPT
EMEA Location TrendsGCS Consulting
October 14th, 2009
CB Richard Ellis Labor Analytics Group| Page 2
Agenda
Introduction Overview of EMEA Offshoring Market Central and Eastern Europe Where in EMEA? Comparison of CEE Offshoring markets Country Focus- Latvia Latvia- Salary Movement and Arbitrage Opportunity Country Focus- Bulgaria What is next in EMEA? Q&A
CB Richard Ellis Labor Analytics Group| Page 3
Overview of the Offshoring Market in EMEA
Constrained activity in EMEA in BPO Outsourcing - Q1 2008 to current
Market represents similar signs to 2007
•H1 2008 argued to be an anomaly
•Market Uncertainty
•Decision making delays
Economy should act as catalyst for cost savings and efficiency gains- Has had opposite effect
First 6 months of 2008 saw record levels of activity
Compared to this, we have seen 19% fewer contracts with a 45%
decrease in TCV (TPI)
Weakness is across all regions, including CEE and all functions:
•FM has seen 90% Y-O-Y drop in TCV
CB Richard Ellis Labor Analytics Group| Page 4
Overview of the Offshoring Market in EMEA
The only major deal in 2009 in EMEA BPO has been AXA-Capita contract
•Outsourcing of policy administration- Annual Net Save- £30m
During 2008 – 2009 there have been limited fresh investments in offshoring back office operations to CEE, though there is an expectation that the financial services sector will invest 40 – 45 times the current market size over the next 5 years (Everest Institute).
Countries continue to offer competitive fiscal and other investment incentives to lure foreign investment
There are still positives:
•Outsourcing levels increased over 2008-2009 in:
– Diversified Financials
– Consumer Durables
– Utilities
– Telecommunications
•There is activity- 2/3rds of UK firms have offshored at least some of their IT functions in H1 2009
– 79% said India was location of choice
But also negatives!
•Slump in activity in:
– Banking
– Oil and Gas
– Aerospace and Defence
– Food, Drink, Tobacco
CB Richard Ellis Labor Analytics Group| Page 5
Central and Eastern Europe
Potential labour arbitrage opportunity of 65% - 85% in CEE for German/UK operations
– Poland - 65%
– Hungary – 68%
– Czech Republic – 72%
– Russia – 76%
– Romania – 84%
Poland continues to rank #1 in labour pool availability with an approximate supply of c.400,000 fresh graduates per annum, followed by Romania and Czech Republic.
Romania has a larger population than Hungary, Czech and Slovakia.
Very attractive for BPO set-up
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Where in EMEA?
Poland
Czech Republic
Latvia
Lithuania
Estonia
Hungary
Bulgaria
Romania
Ukraine
Montenegro
Macedonia
Slovenia
Bosnia
Albania
Serbia
Croatia
Slovakia
Germany
Austria
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
Mon
tene
gro
Est
onia
Slo
veni
aM
aced
onia
Latv
iaA
lban
iaLi
thua
nia
Bos
nia
&C
roat
iaS
lova
kia
Ser
bia
Sw
itzer
land
Bul
garia
Tun
isia
Hun
gary
Cze
chR
epub
licR
oman
iaM
oroc
coP
olan
dU
krai
ne UK
Egy
pt
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Population
Unemployment
CB Richard Ellis Labor Analytics Group| Page 7
Where in EMEA?Country Group Commentary
Hungary, Czech Republic, Slovakia, Poland
The countries are relatively mature CEE countries, joining the EU in 2004 and have therefore witnessed a great deal of activity due to lower costs and their strategic position close to Western Europe. Given the size of Hungary, Slovakia and the Czech Republic these markets have tightened, wage inflation and lack of available labour have both been noted by some current operations. Despite this the benefits of experienced, skilled labour, in a relatively stable market (socio-politically) and a strategic location at a cost advantage continue to attract new projects.Poland is the exception – Poland has a much larger population and a spread of office areas across the country, however Poland is impacted to a greater extent by the large migration of workers to Western Europe to secure higher wages. This trend is set to reverse as a result of more job opportunities in Poland, the value of the pound against the zloty dropping and the current economic situation.
Romania, Bulgaria
Romania saw a great deal of interest and activity immediately prior to joining the EU in 2007 given the success of the 2004 accession countries and this activity has continued. Romania is therefore already feeling the effects with wage inflation and strikes to secure higher pay. Romania is a newer market which offers some benefits over the more mature markets such as lower labour costs although increased bureaucracy. Romania does have a good sized population (larger than Hungary, the Czech Republic and Slovakia) and therefore should be able to spread investments. Although Bulgaria joined the EU at the same time as Romania, it lags slightly behind Romania in terms of interest and activity and therefore may be of interest as a less competitive alternative.
Egypt, Tunisia
Tunisia and Morocco are currently seeing a good deal of interest and activity from French companies looking to secure lower cost locations for their operations. These countries both have a good range of sectors including the electronics sector and competitive labour costs being similar to or lower than costs in Romania. CBRE would suggest discounting Egypt – due to the low socio-political score. Although Morocco falls outside the top bracket it may be considered a viable option given Egypt’s discounting.
Estonia
As the highest ranking Baltic country, Estonia may be of interest. Generally the Baltics are considered a strategic location for operations that will also serve Russia and/or Scandinavia. Estonia is a good sized country, experiencing high levels of competition and has the advantage of a relatively stable business environment having joined the EU yet with lower labour costs. Latvia, its neighbour scores lower but may be considered as a viable alternative as Riga is attracting a lot of interest at the moment due to highly skilled finance and accounting specialist staff
Serbia
Despite not being in the top ranking, Serbia could be a strategic alternative. It is receiving a good amount of interest as companies seek a less competitive, lower cost market and given that it is not due to join the EU for a number of years, these advantages could be enjoyed for a good period of time before significantly increased activity and associated factors impact the market.
CB Richard Ellis Labor Analytics Group| Page 8
Comparison of the Key CEE Offshoring Markets Country Key Destinations
(Cities) Comments
Poland Warsaw, Katowice, Krakow, Lodz, Poznan, Bydgoszcz
Offshoring centres are spread relatively widely throughout the Poland with the key players concentrating in Warsaw, Lodz, Krakow and Wroclaw. Substantial wage differentials and economic benefits has led to organisations investing in 2nd tier cities such as Olsztyn
Czech Republic
Prague, Brno, Ostrava, Plzen
Prague continues to be the main offshoring destination in Czech Republic with smaller concentration in other university towns.
Hungary Budapest, Székesfehérvár, Debrecen
Offshoring in Hungary is not widespread and is concentrated very heavily in and around Budapest, which is driven by lack of adequate infrastructure and resources elsewhere in the country. University cities such as Debrecen and Pécs nevertheless offer a strong supply of highly qualified labour and substantially lower wages and therefore have high potential to absorb demand from the offshoring sector.
Slovakia Bratislava, Banská Bystrica
Most offshoring activity in Slovakia is concentrated in and around the conurbation of Bratislava. Lower wage costs and the availability of qualified labour in other university cities (such as Zilina and Kosice) present opportunities for further investments in future.
Croatia Zagreb Zagreb continues to be the only major city in the country which has been attractive to the offshoring sector. Croatia continues to have one of the highest wage costs in CEE which has become the biggest deterrent for the expansion of offshoring in this country
Romania Bucharest, Timisoara, Brasiv and Sibiu
Bucharest is the focal point of the country's offshoring activities with small clusters developing in Timisoara and Brasov
CB Richard Ellis Labor Analytics Group| Page 9
The Second Wave?
Country Focus- Latvia
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Economy has one of the highest growth rates in Europe
Ease of Doing Business is 29/181 EU Structural Fund Incentives available depending on
project Excellent transport links Low salary costs Low corporate income tax- 15%
Economic challenges due to climate Rising unemployment levels- 12.7% by 2011 Main sectors effected by downturn- Construction,
Production and Trade Sectors
STRENGTHS
WEAKNESSES
Population: 2,276,100 Working Age: 1,497,479 Unemployment Rate 6.1% Availability of English speakers 39% Main cities
Riga 717,371 Liepaja 85,050 Jelgeva 65,635
54.4 University students per 1000 inhabitants Total students- 125,350 English, Russian and Germany spoken in
schools 70% of under 40’s speak English Main Universities
Riga Technical University if Latvia Riga Stradina University Latvia University of Agriculture
Tieto Shared Service Centre in Riga
COLLEGES & UNIVERSITIES
RECENT DEALS
CEE Market- Rising LABOR AVAILABILITY
Latvia
CB Richard Ellis Labor Analytics Group| Page 12
Latvia: Competitive position with other CEE countries
CB Richard Ellis Labor Analytics Group| Page 13
Latvia: Average Monthly Gross Earnings and Labour Costs in the main cities
Difference of €300 per month on Gross Earnings and €400 per month on Labour Costs
CB Richard Ellis Labor Analytics Group| Page 14
Gross Monthly salary in EUR for key positions in Financial Shared Service Centres
Low Medium High
Head of Finance and Accounting
2.000 2,660 3,650
Accounting Manager
1,400 1,850 2,000
Accountant 1,000 1,200 1,400
Accounts Clerk 500 600 800
Country Focus- Bulgaria
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With Romania it is newest member of EU (2007) Popular destination for international distribution
companies operating in Asia and Europe Ease of Doing Business is 28/181 EU Structural Fund Incentives available depending on
project 13th in AT Kearney rankings Shared Service Centre's offer English, Russian, Polish,
German and Scandinavian
Economic challenges due to climate Competition from Baltic republics- Lithuania has made
significant growth in annual rankings
STRENGTHS
WEAKNESSES
Population: 7,606,600 Working Age: 4,830,159 Unemployment Rate 6.6% Availability of English speakers 23% Main cities
Sofia 1,240,788 Plovdiv 705,121 Varna 459,613
Number of graduates – 78,332 Main universities and higher education
Sofia University New Bulgarian University Trakia University Tech University of Sofia American university in Bulgaria
HP- Global Support Centre (400) IBM- Procurement (tbc) MoneyGram- Customer Support Centre (70)
COLLEGES & UNIVERSITIES
RECENT DEALS
CEE Market- Rising LABOR AVAILABILITY
Bulgaria
CB Richard Ellis Labor Analytics Group| Page 17
What is Next in EMEA?
Poland/Czech Republic/Hungary reaching saturation on labour costs Romania and Bulgaria emerging as credible locations Latvia/Lithuania South Africa/Egypt/Morocco creating noise
• Supporting operations in France/UK due to similar time zones ITO is booming more than BPO in EMEA Big Question- Where are EU Incentives? Labour Arbitrage moving away from Poland, Czech Republic and Hungary toRomania, Bulgaria and Baltic States CBRE Clients looking at usual criteria:1. Low labour costs2. Skilled Labour set3. Language Availability4. Incentives
Our focus is now on how we offer our “Cradle to Grave” Corporate Services offering to them.
Egypt
Morocco
Tunisia
Bulgaria
Incentives may be available in the form of tax breaks and low cost land.
Ukraine
There may be incentives available for an expansion or to keep the project and jobs in Switzerland
Switzerland
Serbia
Montenegro
Bosnia & Herzegovina
Budget for incentives comes from State budget therefore financial assistance is limited. Tax incentives and subsidised land are usually
Albania
Republic of MacedoniaMoney comes from the State budget. In addition,
have access to pre-accession funds.
Croatia
Slovenia
Slovakia
Romania
Poland
Lithuania
Latvia
Hungary
Estonia
EU members, therefore structural funds are available from the EU to use to provide incentives to
attract foreign investors
Czech Republic
Availability
Egypt
Morocco
Tunisia
Bulgaria
Incentives may be available in the form of tax breaks and low cost land.
Ukraine
There may be incentives available for an expansion or to keep the project and jobs in Switzerland
Switzerland
Serbia
Montenegro
Bosnia & Herzegovina
Budget for incentives comes from State budget therefore financial assistance is limited. Tax incentives and subsidised land are usually
Albania
Republic of MacedoniaMoney comes from the State budget. In addition,
have access to pre-accession funds.
Croatia
Slovenia
Slovakia
Romania
Poland
Lithuania
Latvia
Hungary
Estonia
EU members, therefore structural funds are available from the EU to use to provide incentives to
attract foreign investors
Czech Republic
Availability
Contact Information
For more information, please contact:
Ashu KaushalAssociate Director
+44 (0)207 182 [email protected]
Jamie MurrayHead of Location Analysis-EMEA
+44 (0)207 182 [email protected]
CB RICHARD ELLIS
GCS EMEA Consulting