The offshore wind that never dies down

As one of the strongest global outsourcing and offshoring markets in the world, Poland is hoping to maintain its momentum. What are its prospects for further growth?

With less than 20,000 jobs created last year, according to the latest preliminary data from the Polish Association of Business Service Leaders (ABSL), 2016 was for the Polish business services sector a period of rather moderate growth. In the few years prior to this, the sector had become used to annual growth of around 10–15 pct, with 2015 being the peak year, when some 35,000 jobs were created – up 25 pct y-o-y.

Despite this, the outsourcing and offshoring business in Poland has no major reasons to complain. With 230,000 employees it continues to be one of the largest private sectors of the Polish economy, and even with its present growth dynamics it is likely to approach 300,000 employees by 2020 and overtake the automotive industry. The benefits to the Polish economy from BPO/SSC operations can hardly be overestimated. For a country where 20 years ago it was still difficult to find a job in an international company anywhere outside Warsaw, the sudden inflow of foreign investment has helped to substantially spread the wealth elsewhere. Today even more centres are opening in regional cities than in the country’s capital. According to ABSL, between 2013 and 2016 the most rapid job growth was recorded in the TriCity, Lublin, Rzeszów, Kraków and the Katowice conurbation – and only then by Warsaw, followed by Bydgoszcz and Poznań.

Size matters

This dynamism is also providing a considerable boost to the real estate market. Today companies from the business services sector occupy app. 2.3 mln sqm of class ‘A’ office space in Poland, making up a quarter of the entire office market. In 2015 more than 54 pct of the take-up outside Warsaw was generated by BPO/SSC companies. In Kraków, for instance, 67 pct of class ‘A’ office space is now occupied by companies from this sector, while in Łódź the figure comes to 52 pct and in Wrocław 51 pct. According to ABSL, the market is likely to require an additional 200,000–300,000 sqm of office space each year for the next few years to come.

Poland has traditionally had a high reputation for its pool of young and educated talent. “Each year Polish universities produce nearly 400,000 graduates, while the business services sector grows by more than 20,000 people annually. So we have still not exploited the potential of the labour market and I don’t think we are at any great risk of doing so,” says Piotr Dziwok, the vice-president of ABSL and the CEO of Shell in Poland, which has an operations centre in Poland with 2,700 employees. The centre in Kraków services a number of Shell’s operations in Europe, including finance operations, customer service, HR services, supply and logistics, supply chain, internal communication, legal and procurement and contracting – and in 19 languages

In fact, the language abilities and the availability of young talent have become somewhat less of a selling point in the CEE region, since the younger stars of outsourcing – such as Romania or Hungary – have comparable talent but have the advantage over Poland in terms of lower labour costs. According to Piotr Dziwok, it could now be the maturity of the market that is still giving it the edge over its rivals. Thanks to the Polish BPO/SSC market’s dozen or so year history and its current size, it is easier to find highly experienced and trained specialists than on smaller or younger markets. “It is important to realise that today we are competing for a different part of the value chain than 15 years ago. And this applies not only to back office, but also to middle office and core operations,” claims Jacek Levernes, president of ABSL. The main difference, however, between now and then seems to be the risk factor engendered by the country’s domestic political scene. How is the ruling Law and Justice party led by Jarosław Kaczyński, as well as the heated political climate, set to impact the outsourcing business? The Hungarian example shows that right-wing politics could leave the BPO/SCC scene unscathed. Seven years after Victor Orbán won the Hungarian premiership, the country is one of the hottest spots on the outsourcing global map. It took investors some time, however, to gain confidence that Orbán had no intention of hampering foreign direct investment and the jobs it generates.

Alarm signals have yet to be detected when it comes to tenant activity in Poland. With 1.3 mln sqm leased, last year was second best in terms of office demand in the history of the market, although it was weaker than the record breaking year of 2015 (1.5 mln sqm). “Of course, political issues are on the radar, but they are not stopping corporate investment. We are currently involved in discussions with two or three very large corporates who want to expand their existing facilities to over 10,000 sqm. What typically happens with multinational companies is that they enter a country and open a pilot operation so they understand fully how the local market works, and then if satisfied increase their capacity fivefold. So the present political situation has not been affecting decisions to expand in Poland.” says Hadley Dean, the CEO of Echo Polska Properties, a real estate company majority owned by South-African group Redefine Properties, which aims to expand its property portfolio in Poland from its current EUR 1.5 bln to EUR 3.5 bln over the next five years.

Whats in the offing?

Although some investors might now be pausing to reassess the political and economic risks in Poland, Europe or globally, Jacek Levernes is optimistic about the future. He points out that all the external uncertainties have so far played out in favour of the Polish business services sector. The best example of this was the credit crunch. In 2009–2012, when the global financial sector was still recovering from this calamity, the business centre sector in Poland continued to expand, nearly doubling its workforce and enjoying solid double-digit annual growth throughout the period. “Companies were looking at their global location strategies to find ways of cutting costs – and coming to Poland was one of the best ways to do this. The question is today whether the uncertainties surrounding Brexit, Trump, the future of the EU and the possibility of right-wing politicians winning elections in a number of European states could trigger a similar reaction impacting company growth prospects. Companies might even now be looking for more defensive strategies and ways to cut costs,” suggests Jacek Levernes.

Hotspots mapped

Where is the business services sector most likely to grow in Poland? “Warsaw, Wrocław, Kraków, Łódź, Poznań and Gdańsk – it is the major regional cities that will continue to draw in investment. And this is mostly because the large multinationals are already there,” believes Hadley Dean. According to him it is still 60 pct more cost effective to open a back office or a shared service facility in Warsaw than in London. Smaller cities are even cheaper. “We are starting to see a difference in costs within Poland, which are significant enough to tempt some investors to come to some of the smaller academic cities, such as Lublin, Opole, Bydgoszcz, Toruń and Szczecin,” argues Jacek Levernes. But the main problem is the availability of class ‘A+’ office space in these cities. So it requires pioneers to take on some investment risk. “I believe this will happen in one, two or three years’ time,” says Jacek Levernes.

American, French and British

According to ABSL’s Business Services Sector in Poland 2016 report, 28 pct of people working in Poland in the BPO/SSC sector are employed by American companies. French companies employ 10 pct and UK and German firms each employ 6 pct. The Nordic countries account for 10 pct of the market, while the Asian countries active here make up 5 pct in total. Around 17 pct of the entire volume is employed by Polish companies.

The largest number of people (37 pct) are employed in IT services, followed by finance and accounting (19 pct), banking, financial services and insurance specific services (11 pct), customer operations (10 pct), supply chain management (4 pct), R&D (3 pct), human resources (3 pct) and others (13 pct).

Poland in the global rankings

In Cushman & Wakefield’s 2016 Business Processes outsourcing and shared service location index, Poland is ranked as the seventh most attractive BPO/SSC market in the world (in the category for mature markets). The top three countries are Romania, the Philippines and Hungary, followed by Brazil, Morocco and the Czech Republic. Also included in the top ten are India, China and Malaysia. The index is based on an assessment of the market conditions (including the fiscal environment) and the risks as well as the costs for BPO/SSC operations in each country.

One of the best ratings Poland has ever obtained for its attractiveness in terms of outsourcing and shared services was in the Hackett Group’s 2011 ranking of global service destinations. Poland was ranked third behind India and China. In the last three years Kraków has held onto its position as the highest rated European city for outsourcing and as one of the two European cities in the global top ten (together with Dublin, while all the others are Asian cities) in Tholons’ Top 100 Outsourcing Destinations.