Copyright: David Lawson - Europroperty 2003
The media furore over a mass exodus of support services from Europe and the US will bring a sour smile to international investors. They will have been following this trend for years – ever since cheaper, high-speed telecommunications meant that work could be spread across time zones. As one country sleeps, another takes over.
India was grabbing the lion’s share of jobs long before banks like Lloyds TSB and HSBC announced they were exporting up to 5000 jobs. But a similar trend has been overlooked among the explosive headlines. Central and Eastern Europe [CEE]has been quietly competing for the same jobs. Hungary alone has 10,000 people working in call centres. More than 300 centres have been built in the Czech Republic and another 200 are expected to emerge in the next five years, according to Ward Stocker, associate partner in with Cushman & Wakefield Healey & Baker.
‘These countries are offering similar attractions to India: good skills, cheaper labour and lower real estate costs,’ he says. The difference is that they are relatively open to outside investors and developers. India is a closed economy. ‘It could be at least five years before the borders open to overseas investors,’ says Steve Mallen, research director of Knight Frank. Developers could face huge competition even then.
The sub-continent is dominated by powerful local firms like RMZ, which can compete with the best in the world. They have a mantra of building 1000 sq ft a day, putting up design-build units in 10 days. ‘It’s more like 10 months in the West,’ says Mallen, who has just returned to London from a study tour of India.
CEE also has strong local players but international developers like Skanska, ING and AIG Lincoln have been able to carve a niche, says Stocker. And foreign investors such as Europolis [Austria] and CDC [France] have made a mark funding this new generation of centres.
But that should be no surprise, as they are not dabbling in some new-fangled product. Most call centres are in conventional offices. Even where they are big enough to need vast amounts of space they go into ‘big boxes’ – an alternative use for high-bay warehouses, says Joe Valente, research director of DTZ, which has just published a comprehensive study of global business process outsourcing.
The impact has, therefore, been felt directly on mainstream markets. DTZ European research director Peter Murphy estimates around 10 to 15% of the Budapest office take-up in the last year has gone to support centres. This could accelerate as trends swing from pure call centres to back-offices, which tend to be smaller and require standard office space for operations like accounting, invoice processing and software engineering.
Some big names have already made their moves [see box] and where one goes, others follow. No business can stand aloof when competitors tap lower costs. For all the political flack and outcry from unions at home, finance directors can’t ignore the fact that a support centre in London costs an average of Euro 7.4m compared with Euro 1.6m in Budapest.
Cost is not the only driver. ‘Risk a big factor,’ says Mallen. Companies aim to spread across nations to minimise dangers – such as an earthquake or political coup. Then there are the 30% administrative savings by spreading across time zones for 24-hour operations.
But they can’t run support centres without skilled workers who speak the language of their customers. India is lauded for its English-speaking, computer-literate graduates. Yet countries like Hungary, Poland and the Czech Republic are no backwater. Some 95% of agents at the EDS call centre in Budapest are graduates, says Stocker, and many are bilingual.
English is common but so is German, attracting multi-nationals to provide support for what is one of the world’s most powerful economies. Even German companies have moved here to escape privacy laws which prevent monitoring support centre calls at home.
The question remains whether this is all a fad – a short-term blip that will surge and fade as it did in the UK within the space of a decade. Who wants to invest in something that may be over before you notice it has started?
Stocker admits it could be a 5-10 year cycle. ‘But we are at a very early stage and the attraction will last much longer than in the UK because these countries are multi-lingual,’ he says.
It is not just provision of support to 300m-plus European consumers. Back-office operations are now part of this tidal wave and staff don’t talk just to head office in New York or London. Globalisation means companies have sales forces speaking the local language in every major country and these are the main customers for number crunchers, invoice handlers and stock analysts.
But this trend does not exist in a vacuum. Space is being provided by the conventional market – and there is a lot of space available following the Nineties boom. Development won’t take off again in a city like Budapest until vacancy levels fall below 10%, says Stocker. It currently stands at 19%. Rents could take between a year and 18 months to harden.
But by then it could be too late for outsiders. They should be planning moves now – not through speculative development but in partnership with big corporate tenants. That will be tough, as those tenants are uncertain about what may be needed – or even will be allowed if politicians become restless back home. Currently they are tending to share major service centres with other big names, says Stocker. Traditional five-year leases are also being modified with three-year break clauses while they test the water.
But with skill shortages already reported in India and anticipated in major European cities like Prague and Budapest within a few years, the brave investor will be looking to the next level - provincial towns like Brno, with universities producing the technical and language skills required.
300 call centres -more than 8,000 operators – smaller centres growing by 15% pa. Incentives include CZK80,000 per new job. Big names include:
DHL – pre-leased 15,000 sq m for back-office in The Park, Prague
Accenture - outsourced accounting for European clients in shared service centre in Prague – 500 workers work in nine languages – Euro 3m investment
IBM – global IT centre in Brno for European clients – 200 staff - $8.8m investment
Movements out of Sweden to Tallin because of better data communications:
Hilton – European reservations - 200 staff – 300m Kroon investment
SAS – international call centre - 32 staff
Silja Line and Viking Line – 21 and 24 staff respectively
About 10,000 people in call centres – favourable language skills, low wages and flexible labour laws
General Electric - $62m back-office and IT facility in Budapest – 500 staff. Built by Israeli developers Offer Bros
Diageo – financial processing and customer ordering – 300 staff by end of year – considered 19 cities in 14 countries before choosing Budapest – most staff speak two or three languages. Developed by Skanska and sold to French group CDC
General Motors – considering consolidating financial and back-office tasks in Budapest for Opel.
EDS – opened a centre in Budapest to service Europe and the US – expects 250 staff by the end of the year. Preferred to India because agents can work in seven languages.