Top destinations for IT services offshoring

507 billion dollars – according to Plunkett Research, this will be the value of outsourcing and offshoring services on the global market in 2014. Particularly significant development will be seen in such areas as logistics, sourcing and distribution, IT services (including software creation and the management of computer centers), and business process outsourcing (BPO), i.e. call centers, financial transaction processing and human resources processing.

How Poland is taking the outsourcing and offshoring market by storm

Globalization, increasing trade liberalization and the integration of markets, as well as progress in information and communication technologies, are the main factors that influence new conditions for the functioning of the world economy. The globalization of markets creates a need for the globalization of management. Growing interdependence between countries has created an opportunity to search for better opportunities, employees, services and goods outside one’s own “backyard”. Looking for the best possible conditions for production and the placement of capital, international corporations spread their operations across various countries and regions of the world. A decision to transfer business processes to another country (offshoring) or to order them from an external company (outsourcing) is a question of calculation and depends on where the desired “competence” and “values” are to be found.

Offshoring – global trends and forecasts

An important decision in relation to offshoring is the choice of geographical location, as it conditions access to resources and affects operating costs. The selection of an appropriate country is determined by such factors as low salaries and wages, human resources, tax regulations, and trends that characterize a given economy. Companies themselves decide which value is the most important for them at the moment. Currently, services in the form of offshoring are offered in more than 100 countries worldwide. In this year’s ranking, prepared by international consulting company Towers Watson, the most attractive location for transferring business processes is Asia and the Pacific area. Eight out of the top ten destinations for offshoring are countries of this region.

The greatest advantage in this respect proves to be cost structure – starting from Vietnam, which is the most competitive, to India and Philippines. Moreover, language skills and the knowledge of employees in the said region have been assessed as outstanding. However, the latest forecasts indicate that countries of Central and Eastern Europe are beginning to play an increasingly important role in this matter. Therefore, the eyes of international businesses are turning in this direction as well. The main advantages of our region are well-trained experts, a high quality of life, very good infrastructure, a stable economic environment and a direct proximity to Western Europe. According to Tower Watson, the Czech Republic is considered the best in the region. Since 2012 it has been offering, among other things, 10-year long tax incentives, support for technology centers, and strategic service centers to foreign investors. The Czech Republic ranks as the 8th most attractive offshoring destination. This year the total value of direct foreign investments in the country acquired from 2004 reached a total of CZK 415 billion (approximately PLN 63 billion).

Poland is not far behind and, according to some sources, is even ahead of the Czech Republic. In recent years Poland has strengthened its position in Europe and in the world as a place for investment in modern business services. Poland has been recognized not only by representatives of global corporations and organizations but also by international analytic groups. According to Tower Watson’s ranking published in May 2013, Poland’s offshoring attractiveness is ranked 16th. A year later, “2014 Tholons Top Outsourcing Destinations” gave it a position that was higher by 7 points and placed Cracow as 9th among the most attractive cities for investments in the outsourcing sector.

Poland versus other countries – optimistic with a bright future

Cracow wins along with Dublin, Moscow, Kiev and Prague – The Tholons report gives reason for joy. International corporations are beginning to look more and more favorably at Central Europe. Poland is becoming one of the most common outsourcing locations for foreign investors.

Optimism is growing, which is noticeable especially among professionals involved in private equity funds in Central Europe. Results of the 23rd edition of Deloitte’s regional survey “Central Europe Private Equity Confidence Survey” indicates that the index of optimism in our country (Central Europe PE Confidence Index), which is currently 144 (an increase from 127 in the previous survey), is the highest in the last three years and its level is getting close to the maximum results achieved from 2003–2007. General optimism is confirmed by the latest report of the Association of Business Service Leaders (ABSL): “Modern business service sector (2014)”. According to ABSL analysts, the modern business service sector in the country on the Vistula river grew by 50% in the last two years.

Currently in Poland there are 470 foreign capital service centers owned by 325 investors and employing 128,000 people. Since 2013 as many as 66 such centers have been launched in our country – including 60% by new investors who located their financial resources in Poland for the first time. The main offshoring centers for business services are Cracow, Warsaw, Tricity, Lodz, Katowice agglomeration, Poznan, Bydgoszcz, Szczecin and Lublin. The following companies have decided to locate their financial and accounting centers in Poland: Affiliated Computer Services, IBM, Electrolux , Shell, Capgemini, HCL, ACS and HSBC, France Telecom, and Hitachi. The companies Hewlett-Packard, Infosys, and General Electric have also moved there. Motorola has its Software Center located in Cracow and IBM – its R&D Center. Recently, entrepreneurs from 28 countries invested in service centers in Poland. Most of them are companies from America, followed by France and the United Kingdom.

Polish IT specialists – talent for hire

The reasons for Poland’s success as an increasingly important IT service center are, most of all, the knowledge and talent of the employees. Polish specialists more and more often provide services for foreign customers. No wonder – our engineers have been successful in the field of international IT technology for years. Since the 1970s Polish engineers have been influencing the IT of today: they participated in the process of producing silicon monocrystals, which are currently used for the mass production of microprocessors; over a decade ago they developed a blue laser which enabled further work on Blu-ray technology; moreover, they designed a cutting-edge K-202 minicomputer. Today these traditions are continued by Polish IT professionals, software developers and IT/ICT engineers, who represent Poland worldwide.

Polish students have been the finalists of prestigious competitions such as Top Coder, Microsoft Imagine Cup and Google Code Jam. The latest huge success is the victory of students and graduates from Poznan University of Technology in an international computer software developer contest, “Hello World Open”, which was held in Helsinki in June. The talents of Polish IT engineers have also been recognized by foreign companies. According to ABSL, the biggest employment in our country is to be found in foreign business centers supporting IT processes (as high as 29%), followed by finance and settlement centers (22%) and banking centers (14%). Since early 2012, employment in the business service sector has increased by at least 40%. The largest growth has been seen in Wroclaw (68%), Cracow (59%) and Lodz (57%). The biggest number of new workplaces has been created in Cracow (11.4 thousand) and Wroclaw (8.3 thousand).

Key factors for investors

The key factors for foreign investors are still talent and the cost of conducting business. However, increasingly important are such issues as cooperation of businesses with universities, cooperation within the service sector and the support of local administration with respect to attracting investors, initial cooperation, regular operations and growth. The Polish policy of investment incentives grants special preferences to the modern business service sector. The most important incentives are tax incentives in Special Economic Zones (CIT exemption), direct budgetary grants for new investment and employment (from PLN 3.2 thousand to 15.6 thousand per one workplace) and support for R&D operations – grants of up to 65% of R&D costs.

According to ABSL, general opportunities for the modern business service sector in Poland are excellent. Poland is and will be perceived as a mature market, and it is here where foreign companies will be opening their centers. Polish IT professionals remain highly esteemed. Recent investments speak for themselves: the biggest Norwegian media group, Schibsted Media Group, is looking for software developers. In May the company opened its branch office in Gdansk. Also in May an American corporation, EPAM, an international leader in the IT sector and the biggest provider of modern software development services in Central and Eastern Europe, announced recruitment for IT professionals – they need 100 people by the end of the year, while the final number is 500. Optimism continues.

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