1 / 13

Magdolna Sass Institute of Economics of the Hungarian Academy of Sciences and ICEG EC

Changes in the Competitiveness in the Service Sector of the New Member States The Role of Business Process Outsourcing. Magdolna Sass Institute of Economics of the Hungarian Academy of Sciences and ICEG EC. Outline of the presentation. What is BPO? What are its main characteristics?

solomon-henson
Download Presentation

Magdolna Sass Institute of Economics of the Hungarian Academy of Sciences and ICEG EC

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Changes in the Competitiveness in the Service Sector of the New Member States The Role of Business Process Outsourcing Magdolna Sass Institute of Economics of the Hungarian Academy of Sciencesand ICEG EC Warsaw School of Economics, 12-13th June 2008

  2. Outline of the presentation • What is BPO? What are its main characteristics? • East Central Europe as a host to BPO • Location advantages of East Central Europe • Impact of BPO projects on the host economy in East Central Europe 5. Conclusion Research on BPO in ECE is based on company interviews Presentation based on the preliminary results of the project „"Foreign Direct Investment in Central and Eastern Europe: What Kind of Competitiveness for the Visegrad Four?" and OTKA no. 68435 (Hungarian research fund). Warsaw School of Economics, 12-13th June 2008

  3. Business process outsourcing1 • Induced and facilitated by technological development: „fragmentation” in services and transferability (IT) + intense competition + liberalisation of services trade • Certain services activities affected (not all) (IT, business process services, etc.), very diverse activities with various skill contents • Further growth in BPO is expected due to various factors Warsaw School of Economics, 12-13th June 2008

  4. Business process outsourcing 2 • Started out in the US, Great Britain followed, continental Europe joined in later • Receiving end: English speaking countries first (Ireland, India, Canada, Israel) • From inside Europe: Ireland, Great Britain, Portugal, Spain + India; CEE countries are relatively new targets • Overall: movements between developed countries (+India) dominates Warsaw School of Economics, 12-13th June 2008

  5. East Central Europe asanew location for BPO • Though methodological problems of measurement (FDI, foreign trade, prices -market shares, number of jobs etc.), • in East Central Europe, especially the Czech Republic, Hungary and Poland are the main hosts to BPO projects, though their share is much lower than expected on the basis of media reports • On the basis of the number of bigger/substantialprojects: 1400-1500 in Europe, 150-180 in these three countries (India, other Western European locations), distributed approx. equally • The biggest projects go to India from Europe, its share can be close to 50 % • Combined market share globally: less than 1 per cent(McKinsey (2006)), it may be slightly higher by now Warsaw School of Economics, 12-13th June 2008

  6. Location advantages 1 • determine which countries are chosen as hosts to new or relocated service centres • similar to those of efficiency oriented investments (costs and availability of appropriately trained or trainable skilled work) + specific: infrastructure (telecom) • Additional: availability of certain services (financial etc.), good regulatory and business environment, protection of IP, office space, geographical proximity/same/similar time zone in some cases (nearshoring)and different time zone in other cases Warsaw School of Economics, 12-13th June 2008

  7. In the three analysed countries additional advantages: knowledge of „smaller” languages, good geographical position Inside the group: Poland stands out with its size (bigger projects), location (NE, Baltics) Czech Republic: central location, bestflight connections, specialisation on IT Hungary: minor languages (minorities in neighbouring countries), good location (SEE) Choosing among the three countries is based on: Earlier presence of the company; Previous good (or bad) experience with the country; Choice is influenced by the relative dynamism, success of affiliates; Special language requirements; Active lobbying of the local affiliate; Quality of life, culture, English schooling etc. in the target city, especially in cases when expatriates are involved Incentives (?) Location advantages 2 Warsaw School of Economics, 12-13th June 2008

  8. Impact on the host economy 1 • Companies with foreign participation have the potential to impact upon positively on the business environment, on local companies in the host country, though this impact is not automatic • While the share of the three analysed countries is not high, from the host economy point of view, these are in many cases big projects and have a potentially big impact on the local/regional economy • Various fields of impact on the local economy is analysed on the basis of company interviews: • Job creation • Linkages and other local contacts • Impact on the business environment and infrastructure • Spillovers through trained employees • BOP (services trade, FDI, profit repatriation) • Potential footloseness – introducing instability - too short history, though some signs Warsaw School of Economics, 12-13th June 2008

  9. Job creation Significant impact: in Hungary approx. 20-22 thousand people working in BPO (incl. captive, but only offshored) Medium to high skilled jobs (very little unskilled) for young university graduates, usually with (multiple) language knowledge Shortage of properly trained employeesin all 3 countries Spreading out to the countryside (from the beginning in Poland, now in the Czech Republic and Hungary) Linkages and other local contacts (Very) limited backward linkages(cleaning, security, little substantial outsourcing etc.) Forward linkages come as local companies become more „mature”, as competition is more intense (in Hungary seems to bemore important compared to the other two countries) Contribution of linkages to raising the level of competitiveness/productivity of local companies: very limited Impact on the host economy 2 Warsaw School of Economics, 12-13th June 2008

  10. Impact on the business environment, infrastructure Competition for appropriately trained employees is intense: companies are more active locally (participation in local business associations, links with universities) Intense use of local infrastructure: in some cases results in better services Spillovers through trained employees This seems to be one of the most important local impacts Trained employees in certain cases set up their own enterprises or go to work to domestic companies Not only skills, but business culture, business ethics are transferred Impact on the host economy 3 Warsaw School of Economics, 12-13th June 2008

  11. Impact on the host economy 4 BOP: FDI, FT, other • Methodological and data problems • Relatively high share in FDI stock • Increase in services trade(combined intra-extra-EU; though intra-EU dominant), especially in other services and other business services • Only 2004-6 data, RCA in certain subsectors of other business servicesfor all 3 countries Warsaw School of Economics, 12-13th June 2008

  12. Conclusion From a competitiveness point of view BPO projectsin CEE • Better domestic business environment, in some cases availability of high quality services for domestic companies(forward linkages) • Local contacts- backward linkages (suppliers): minimal • Job creation for medium to high skilled, spillovers through employees (skills, culture, ethics) • Significant impact on the BOP, though due to methodological problems, it is difficult to quantify separately for these projects (FDI, FT-balance, profit repatriation etc.) • Importance from the point of view of raising the competitiveness of overall EU-27 Warsaw School of Economics, 12-13th June 2008

  13. Thank you for your attention! Warsaw School of Economics, 12-13th June 2008

More Related