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OUTSOURCING IN POLAND

INTRODUCTION
There are an estimated 500 offshore outsourcing centers in Eastern Europe, and Poland is poised for major expansion in the coming years. According to some of the largest IT companies outsourcing services will grow in the areas of large and medium businesses, particularly in the manufacturing and financial sectors. Warsaw, Krakow, Poznan, and Sczecin are just some of the key locations that are primed for the outsourcing market, and many more are expected to emerge in the future. According to KPMG, an audit and consultancy firm, Poland ranks third for shared services centers and business process outsourcing in the world after India and China. Poland's key assets are its trained and educated workforce, economic stability, depreciation of the zloty, and political stability. Poland specializes in software products focusing on projects for embedded systems, business analytics, human resources, finance/banking and accounting, multilingual contact centers, tele-information network management, or programs that use languages like C and C++. Experts believe that the expansion of outsourcing in trade, heavy industry, and telecommunications will result in further development, particularly among call center services or help desks services. Polands rates are actually higher than many of its offshore competitors. EU membership, its proximity to and relationship with Western Europe as a venue for custom software development have resulted in these higher wages. Poland also has problems in fostering and managing opportunities for its IT specialists, due to the European Union's broadening adjustability. According to the World Fact Book 2011, the country has created a successful policy of economic liberalization since 1990. Its gross domestic product (GDP) rose to an estimated 6 percent due to private consumption. The creation of the Polish Chamber of Information Technology and Telecommunication (PIIT) has advocated on behalf of the IT market to companies that are situated in Poland.

CONTENT AND CONTEXT


Poland has a population of around 38.4 million, mostly comprised of people under the ages of 35 years old, making it one of Europe's youngest. Almost 98 percent speak Polish, and some regions speak immigrant languages such as Czech, Eastern Yiddish, Greek, Lithuanian, Russian, and Slovak. It is also a multi-national country, with Brazilian, Russian, British, Spanish, Indian, Italian, and Portuguese nationals living in Poland as well. Poland was conceived in the 10th century and achieved its golden age in the 16th century. However, its strength weakened in the following centuries as it was partitioned by Austria, Prussia, and Russia. Poland gained its independence in 1918, albeit briefly. During the Second World War Poland was overrun and overtaken by the Germany and the Soviet Union. During the early 1990's, the country was able to change its economy into one of the most dynamic and productive in Central Europe. Small and medium state-owned companies were privatized, and an open and flexible law was created to develop the private business sector. It made progressive alliances with NATO in 1999 and the European Union in 2004. Poland transformed into a democratic, market-oriented nation with active memberships in EuroAtlantic organizations. Poland has the sixth largest economy in the EU, and one of the most dynamic in Central Europe. Despite the economic crisis, the nation was able to maintain its economic stability due to the sharp depreciation of Polands currency (zloty). Poland is the EU member that achieved the highest GDP growth in the midst of the recent global economic problems, managing to maintain a strong GDP worth an estimated USD $470 billion or $725 billion when calculated using the purchasing power parity. EU membership has allowed access to funds in order to bolster the economy, helping to fight unemployment which had dropped to 6.4% in 2008. Unemployment has since reached staggering levels of 11.8%, two percept higher than EU averages. In 2011 Polands government announced its plans to develop business-friendly reforms increase workforce participation, reduce public sector spending and encourage corporate privatization. Poland has large regional business centers aside from Warsaw, which is a major advantage for offshore companies who prefer non-capital cities as the location for their operations.

Usually, businesses outside the central districts have lower costs, and companies can utilize this well to save up on their expenditures. Employee compensation: Employee compensation is the greatest component of any outsourcing operation. A typical project will include several junior resources, along with some high-skilled and senior oversight/ project management. Junior resources generally offer the greatest savings in comparison to their US counterparts. A junior software developer/engineer with less than four years experience can provide savings, with salaries ranging from $9,338 to $19,747 USD, with is roughly 21% of similar US salaries. More senior Web developers and engineers earn 40% of comparable US counterparts. Project managers for IT with high levels of experience earn within thirty to fifty thousand dollars US, which is 38% of US salaries. BPO resources offer similar savings, with junior and senior personnel earning twenty-three and forty-four percent respectively. High-level operations management positions offer virtually no benefit, earning almost 97% of what US staff earn. Junior customer service representatives come with savings of 37% below US rates Real estate The office occupancy cost for Warsaw is around $52.34/sf/yr. This figure is high compared to the Philippines ($24.6), the U.S. ($42.3), and even Canada ($50.1). Office lease agreements in Warsaw have taken a stricter tone in its office lease agreements. According to CB Richard Ellis, the economic slowdown and uncertainties in the future market trends have led banks to impose stringent credit policies to companies. The policy asks that 40 to 60 percent of the office space should be pre-leased before giving the construction loan. Banks also demand "high own contributions to the project," which can consequently slow down--or even complicate--the development. Analysts believe that office markets will be hugely undersupplied in the future should the investors and banks continue their strategy of imposing these restrictions.

Resources and skills


Polish programmers have gained an excellent reputation within the industry, attracting some of the best technology firms including Motorola, IBM, and Google. All three have established their research centers in the country. Exports of computer and information services The volume of IT services exports indicates the size and maturity of the IT outsourcing sector that serves the global market. According to the International Monetary Fund's (IMF) Balance of Payments statistics, Poland exports around USD $938 million of computer and information services, less than one tenth of United States production. Education and skills Poland has one of the best-educated populations in Europe. It has an estimated 130 state higher education academies, 17 universities and 18 technology universities. More than 30,000 scientists employed in the country hold PhD degrees. Similarly, Polish IT professionals have high levels of education, and according to the largest competitive software development community (TopCoder), four polish universities have been included in the top 25 schools in the world: University of Warsaw, University of Wroclaw, Jagiellonian University, and Poznan University of Technology. According to UNESCO, Poland has an average of about 533,000 university graduates every year which is six times the number of graduates produced in India. The country may not be able to compete with India in scale, but the quality of its work through education and training outweighs this minor disadvantage. For example, more than 45 percent of the countrys population is in universities compared to India's 10 percent. Language For decades Russian has been the second language of choice in Poland. However, it has been replaced by English or German as the most common second languages studied and spoken. Its English speakers comprise around 29 percent of the whole population, ranking seventh among nations for the number of English-speaking residents.

Technological readiness Poland enjoys a high number of internet subscribers, placing in sixth among the countries with the most number of users per 100 inhabitants. Similarly, it also belongs in the top ten for the most number of broadband Internet access.

Business & economic environment


Economic competitiveness Economic competitiveness is a important component to the long-term development of an outsourcing location. Poland has an above-average overall index, joining in the top ten countries with the best overall index scores. Infrastructure The quality of roads affects employee productivity and costs, which can consequently increase or decrease an outsourcing company's expenditures. According to the World Economic Forum, Poland ranks at the bottom of the list, with Bulgaria, Ukraine, and Romania. However, it places ninth among the top ten countries with the highest rating in the quality of electric supply. Labor market efficiency According to Doing Business survey co-published by the World Bank, Poland ranks above average in employment market flexibility, such as hiring and firing employees. The leading countries on the list include Canada, Malaysia, Thailand, Czech Republic, and Israel. Regulation Poland ranks 72nd in the overall Ease of Doing Business index, followed by Czech Republic, Pakistan, China, and Ghana. The level of complexity in starting a new business for Poland is below average, having a 28-point difference with Hungary, which ranks first in the list. It takes around 395 hours to prepare and file taxes compared to Jordan (101), Canada (119), Malaysia (145), the U.S. (187), and the Philippines (195).

Corruption perception The country ranks 8th among the countries with the best corruption perceptions index scores. China, India, and the Philippines are some of the outsourcing locations with the most corruption challenges and perceptions in the world. Legal protection A nation's economic competitiveness is correlated with its complexity in enforcing contracts. Poland ranks below average in the list, ranking in 7th to Pakistan as the country with the most number of steps required to enforce a contract. It also takes around 830 days to complete this process, which is tedious compared to Russias 281 days.

IT Outsourcing Market in Poland


According to representatives of 200 largest IT companies in Poland, the market for IT outsourcing services will develop at a moderate rate over the next two years. The highest demand for outsourced IT solutions will be reported by large and medium enterprises, primarily from the financial sector and manufacturing industry. In 2007, IT outsourcing was one of the distinguishing segments of the entire market of IT services in Poland. Despite this, the share of outsourcing in the market for IT services measured by the volume of companies revenue grew only minimally, to approximately 15%. This is still significantly less that in the countries of Western Europe, where the ratio of outsourcing services to the total IT services sector fluctuates in the range of 30-40%. On one hand, this demonstrates a noticeable gap in the advancement of the market. On the other hand, it may suggest the sectors potential, even in case of achieving in the long-term a level close to the bottom limit of the above given range. Such an assumption effectuates in more than 10% growth rate of the Polish market in the coming 4-5 years. IT providers speak positively about the outsourcing market. For the needs of this years edition of the report IT market in Poland 2008. Development forecasts for 2008-2012. PMR Research carried out a survey amongst the 200 largest IT companies in Poland. One of the issues tackled in the survey was the structure and development of the IT outsourcing market in Poland.

OPPERTUNITIES FOR OUTSOURCING


In 2010 the value of offshoring investments in Eastern Europe grew by 15%. Poland is the fastest growing player in the sector with 20% growth per annum. According to experts ABSL in the next few years Poland can become the largest European advanced services center for global businesses. The main advantages of the Eastern European countries to the investors are the large labor pool and its relatively low labor costs compared to Western European countries, good transport infrastructure and office space, high quality of services and political as well as economic stability. As the results of analysis conducted by McKinsey & Company, 33,000 jobs were moved to Eastern Europe in 2010. The vast majority (30,000) were the vacancies created in the existing business service centers. Only 8% were the result of new investments. The business services industry in Eastern Europe is growing faster than the market in India says Peter Peters, member of the ABSL and director of McKinsey & Company branch in Dusseldorf. Although India is still the number one in the world when it comes to outsourcing and offshoring of business processes, Eastern European economies led by Poland are becoming increasingly serious competitors he adds. Market value of business services industry in Poland in 2010 reached 2.5 billion USD. This is primarily due to expansion of the existing investors in Poland. According to Krystian Bestry, Vice President and Managing Director of ABSL, Infosys BPO Europe, already present in Poland, is responsible for approximately 65% growth across the industry in 2010. In 2010 Infosys BPO Poland has expanded its activities on behalf of its parent Infosys Technologies Ltd to provide implementation and maintenance services to its SAP clients as Daimler, Adidas and Rio Tinto. The Xerox Company, took over the ACS, one of the BPO leaders in the U.S. market, thus becoming one of the worlds largest providers of advanced business services. In 2010 IBM opened its shared services center in Wroclaw, McKinsey set up R&D centre in Wroclaw, Sony Pictures Entertainment opened its center for financial and accounting services in Tricity, IKEA started its shared services center in Poznan, Amway opened business services center in Zabierzw near Cracow, ACP Pharma opened financial services centre in Rzeszw, Kennametal opened its service center in Poznan, Citi Bank opened its R&D services center in Lodz.

Additionally, in early 2011 new operations were initiated by Ernst & Young (shared services center, Wroclaw), BSH (procurement center, Lodz), McKinsey (support services center, Poznan). In planning are shared services center by Tate & Lyle in Lodz, IT software development center by BMS Bankruptcy Management Solutions in Lodz, Nordeas operations centre in Lodz, Intrum Justitas service center in Bialystok. Members of ABSL are convinced that the inflow of new projects, especially advanced business services such as KPO and R&D is possible provided that Polish economy will be actively promoted to the international business community, and if the government carries out a coherent and clear investment policy and maintains investment in human resources. It is not enough to organize a single event, but it is important to constantly promote the greatest strengths of Polish economy, above all, the enormous pool of qualified staff and friendly investment environment. Polish Presidency in the EU can be a starting point for a stronger, long-term campaign to promote Poland in the business field says Jacek Levernes, Vice President ABSL and Hewlett-Packard GBS in Europe.

EXISTING PLAYERS
Accenture, ADP, Capgemini, Genpact, HCL, HP and IBM have all made significant investments there, in addition to many captive centers that have been established there in recent years.

WHY CHOOSE POLAND


Hardly Attractive for Outsourcing from the US:6-7% appreciation of the INR (Indian Rupee) against the USD created a hue and cry in India with NASSCOM almost portraying it as a threat to the industry (INR has already depreciated to be back to cheaper than earlier levels). The Polish Zlotych had appreciated in excess of 30% against the USD in 18-months! Even though there has been USD appreciation over last few weeks, I am not sure of many business models which can take a hit of 25-30% and still remain viable. More a BPO than a ITO Destination:Poland's is essentially a BPO/Shared Services industry with ITO being restricted to smaller scale Polish players (even with significant presence of IBM and Cap Gemini, their ITO work is not that significant, and focus is more on

BPO - primarily Accounting Services). Even among BPO/Shared Service centers, captives form more than half the industry which is very distinct from the India story. Skill Scarcity: If you sought help from any leading recruitment consultants for hiring people with 4-5 years experience even with common technology skills, they would suggest that it requires a direct search as it is a "senior level" hiring placement. Initial offers from consultants mentioned rates of 20-25% of annual salary you could almost hire a VP on those terms in India. I found this shocking but then it was easy to understand why. A software engineer, business analyst or a transition manager with 5 years experience is a European resource rather than Polish or a Romanian resource and hence cannot be source of any cost arbitrage. Poland makes up its lack of scale through superior quality: Poland has 45% of its population, in relevant age groups, in its universities; compared to only 10% in India. Moreover, until recently, it did not have graduates, but only post-graduates - hence the quality of human resource in BPO and shared service centers is far superior to most such centers in India and other European nations. Most BPOs hire post-graduates in Economics and Finance from top institutes for their operations - a luxury which may not be available in India other than to some high-end KPO operations (see this earlier discussion). Ability to attract a truly global workforce: In our organization we not only have a multilingual workforce, but a multi-national one which includes Portuguese, Spanish, Russian, Italian, Brazilian, British, Polish and Indian nationals. This gives it an advantage which most Indian operations do not have. While most companies currently leverage this facet largely to source language skills, it has the potential to be extended to other areas in the future. Poland has far greater potential than simply being a multi-lingual hub: I have talked to outsourcing heads of two leading financial institutions one European and other American who acknowledge that their Global Operating/Delivery Model is almost a euphemism for an India-strategy backed by couple of other locations for work that cannot be done out of Indiaeither due to EU or local regulatory restrictions or foreign language requirements. The language skills advantage is significant but if that remains the key driver of outsourcing to Poland, then some really bright Masters in Economics would be in an accounting operation for a German client not because she knows econometrics but because she knows German.

In fact this alternative offshore location positioning is unfair to a country like Poland which offers really unique benefits. With the strength of its education system and ability to attract global talent, Poland should challenge the niche positioning of a country like Israel in highend technology or other niche skills rather than be a generic offshoring destination. CONCLUSION Poland has the potential to rise as one of the leading global outsourcing hubs because of the various mentioned advantages it has over many countries. Many companies have already realized the potential and have invested into the country like Accenture, ADP, Capgemini, Genpact, HCL, HP and IBM. The major sector that contributes to the countrys future in outsourcing is the IT sector.