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edition 3 (208)
March 2016
Human resources

Young, talented and... gone?

How the demographics and technology are influencing SSC/BPO companies’ location strategies

Agata Kłapeć

Young, talented and... gone?
Nokia Networks has opened a 14,000 sqm R&D centre in Echo Investment's West Gate building in Wrocław. This is Nokia's fourth location in the Polish city

Youthful, relatively inexpensive and qualified staff have become one of the mainstays of the Polish economy. They are drawing in both the capital and the tenants, as outsourcing and R&D centres are opened up and down the country. However, as a demographic time bomb ticks down, there is no way of avoiding the question: how will the BPO boom keep going when we run out of young people?

The forecasts give us scant grounds for optimism. Between 2015 and 2024, the number of young Poles in the 20–24 age group, who amount to just under 2.5 mln at present, is set to fall by around 800,000. Even though a slight increase is expected later, after 2030 there will be a further decrease to fewer than 1.5 mln in 2050, according to the data of the Polish Central Statistical Office (GUS) and the ‘Higher Education Diagnosis’ report prepared by the Polish Rectors Foundation in 2015. “Changing demographic trends, the outflow of the boom generation from universities and the rapid decline in the size of the population at the student age, are creating a new situation, which has and will have a strong influence on universities, leading to changes in the structure and the functioning of the entire sector,” write its authors. Office tenants are also more and more concerned about the decreasing number of students and universities in Poland. According to Walter Herz’s estimates, the foreign investors who rely so much on young Polish staff who are expected to be well qualified, more efficient and cheaper, currently operate over 350 shared SSC and BPO centres, while another 200 or so are centres built with foreign capital. The two kinds of enterprises operate together with 120 research and development centres and almost 80 ITO centres.

Just afew ofus

“Of course, the population decline could be a challenge for SSC/BPO companies operating in Poland. According to the forecasts of ABSL, each year the sector is growing by 15,000–20,000 new employees – and at this time the vast majority of those employed are young people in the 20–30 age bracket. Often these are fresh university graduates of whom there will be fewer and fewer over the years,”
admits Anna Durczak-Szczęsna, an associate director in the SSC department at the Page Personnel recruitment agency. Shortages on the job market has already been spotted by recruiters, as currently the vast majority of BPO/SSC companies in Poland have some kind of recruitment issue. At the same time, the demand for employees from IT sector in Poland is currently app. 50,000 people higher than the number of specialists available on the Polish market, according to the estimates.

The future of both sectors impacts and depends to a great extent upon the plans of real estate investors, particularly on the office market, which has had seen a glut of projects over the last few years. According to CBRE, in 2015 the SSC/BPO sector provided work for a total of 150,000 people [about 30,000 more than the population of Rzeszów – editor’s note] in our country, and its dynamic growth has contributed to the doubling of the office space available in the eight largest Polish cities in this respect (excluding Warsaw) over the last five years. In some Polish cities the companies operating in this sector occupy more than 50 pct of the existing office space [see graph]. For SSC/BPO tenants, smaller cities have the advantage of lower rents, a lower cost of living and, as a result, lower average salaries. Meanwhile, head-hunters are finding it increasingly difficult to find employees suitable for the expanding SSC/BPO market in Poland, while the centres are finding it more difficult to keep them. Both factors are adding to the operating costs of SSC/BPO companies in the country, reducing its competitiveness compared to other regions and their global outsourcing centres.

Young blood behind old walls?

But the changes also have some positive aspects for the employees and the real estate market itself: they are normalising the job market in this sector, which is already being referred to as an employee’s market. This can be seen, for example, in the more generous employment packages being offered at the moment. SSC/BPO centres are taking more care of their employees, their needs and the organisational culture than they did just a few years ago. This often entails more comfortable offices in better locations. Even though companies usually associate this with the higher costs they were trying to limit by moving or opening centres in the CEE region in the first place, according to Jan Cieśla of BuroHappold Engineering, cheaper does not necessarily mean worse. “Well designed, lower standard office buildings may provide effective workplaces and acceptable conditions despite their low construction budgets,” he says. There is still plenty to choose from. According to CBRE, in 2015 class ‘A’ office buildings constituted less than 50 pct of the available office space, whereas the vacancy rate ranged from app. 4–5 pct in Rzeszów and Kraków to over 20 pct in Poznań. In the SSC/BPO sector’s favourite location in Poland, Kraków, the percentage of class ‘A’ office space only amounted to 36 pct.

However, will there be enough people to fill these offices with – whether the premises are new or old? Much will depend upon the efforts of the tenants themselves. An influx of young people from over the eastern border seems promising as they are increasingly tending to opt for emigration – including student emigration – to Poland. Nevertheless, SSC and BPO centres looking for savings are increasingly being supported by technological advances. Systems for reducing the operating costs of companies from this sector have already been introduced to Poland, but have only had a slight impact so far on the HR and space needs of the SSC/BPO sector. “We have been seeing increasing automation of the simplest business processes. In terms of financial and booking processes, companies have already started reducing the size of their invoicing/AP teams, because the scanning and verification of invoices have already been switched to the automated OCR (optical character recognition) process,” explains Anna Durczak-Szczęsna of Page Personnel. The further popularisation of work automation in this business is set to deepen in Poland and will mostly impact graduates who do not have considerable professional experience or the required qualifications. Their jobs will be taken by computers and the IT specialists who supervise them.

Aspiring higher, looking further

However, the decrease in the availability of personnel and the continuing march of technology are providing opportunities for changing the model and proportions of the centres that currently operate in Poland. Increasingly often recruiters are now being required to find not just bookkeepers or linguists, but candidates who are qualified in terms of servicing more advanced SSC/BPO processes, such as financial and business analysis, as well as engineering and technological sector specialists. These are now being hired in many business sectors, including the banking and automotive sectors. It is no secret that the highly specialised technological centres of international companies are considered to be much more stable and generous office tenants compared to financing and client service centres, which are predominantly looking for cost efficiency. Bartosz Ciepluch, the head of the Nokia European Software and Engineering Centre, which is expanding its research and development centres in Kraków and Wrocław, reveals that there is a completely different strategy when it comes to choosing the location of development centres. “The demand for technological advancement means that our company has to grow all the time. Hence the lease of 14,000 sqm for Nokia’s fourth branch in Wrocław. The technological horizon we are looking at goes beyond 2030. Our vision for our technological development involves long-term thinking, many years ahead,” he tells us. The differing operational plans of R&D centres entail slightly different needs, such as when it comes to the location. “The physical proximity of a large academic centre is of key importance for us. Since 2014 we have employed over 1,000 new people in Wrocław alone and they have mostly been graduates and students of technical studies. What we offer is mostly addressed to students taking up internships with us and working with us while studying,” he adds. Nokia is currently cooperating with nine Polish universities on the basis of framework agreements. “A cooperation proposal is usually offered by the company. One example of this is our cooperation with the Wrocław University of Technology, which started naturally in a way – our employees include academic lecturers, who came up with the initiative of developing a joint project,” says Bartosz Ciepluch. In his opinion, one of the most important factors in choosing a location for a company is also the proximity of its clients. All these issues are now attracting the attention of experts from the Polish Rectors Foundation, who claim that the low innovativeness levels of the sector itself is having a significant impact on the operational methods of universities, whereas many activities need to precede the natural ‘suction’ from the economy. “Graduates are not only meant to fill job vacancies but they must also create new ones, based on their own initiative and creativity,” they write in their report.

Easy come, easy go?

Regardless of the results of the various more or less controversial governmental young family support programmes in Poland, there is no miracle on the horizon that could remedy the situation: the demographic facts have no chance of improving soon. This is why one of the possible scenarios is the expansion of current or potential tenants from the SSC/BPO sector in Poland to other CEE countries,
which might be cheaper in terms of leasing and that have less saturation in terms of service centres, while their staff have comparable qualifications. In Cushman & Wakefield’s 2015 BPO and SSC Location Index, which ranks the most optimal outsourcing locations worldwide, Poland was ranked 18th, down from 16th place in 2014. India took the 20th position, while Bulgaria and Romania held 3rd and 4th places respectively. Poland was outperformed by such countries as Hungary (9th), Lithuania (11th) and the Czech Republic (17th). Bulgaria had moved up eleven places since the previous year. “While benefitting from a low tax rate and one of the lowest labour costs in the EU, Bulgaria also possesses a strong labour pool suited to the BPO sector with in excess of 60,000 students graduating annually from all Bulgarian universities. App. 50 pct of the graduates obtain degrees in subjects suitable for the BPO industry. The labour pool also provides a strong international language base,” C&W’s analysts argue. However, Poland remains the most mature SSC/BPO market in the CEE region. At least for now. “If foreign investors are thinking about moving their most advanced business processes somewhere else or they want to recruit people who have a few years of experience in the SSC/BPO sector, they usually choose Poland. Other countries in the region have not built up such a competitive advantage yet,” argues Anna Durczak-Szczęsna. However, she also says that unless SSC/BPO companies start taking the necessary steps to ensure a continuing inflow of qualified staff, replenishing them by attracting Ukrainian specialists, for example, Poland’s position might soon be threatened.

Will there be an exodus of the BPO/SSC sector from Poland, or a kind of regional cannibalism in a few years’ time? Much will depend on the stability of the economies, the rents on offer to tenants and the availability of the office base in the region. However, one bargaining chip for keeping business centres in Poland could also be more streamlined cooperation between the city, the university and the business. Including the capacity to increase and adjust students’ and employees’ competences. “There are many places in Europe that have fine universities and good knowledge bases, and there are many cities in Europe that have an excellent range of properties on offer. There are not that many places that have both. (…) [A city centred on the technology business] has the combination an excellent product – or the possibility of a good product – and very strong support from the public sector, which does not always mean spending money, but showing leadership in helping the private sector to use its resources to turn that potential product into a successful business,” says Mike Emmerich, an economic advisor for the city of Manchester.

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