Hungary for more service centres

By bne IntelliNews May 11, 2010

Kester Eddy in Budapest -

Every time a Tesco store in London needs a case of Johnnie Walker, the phone rings in Budapest. It may seem odd that a supermarket in England should order whisky produced 400 miles to the north in Scotland via the Hungarian capital, 1,100 miles to the east, but that has been the way it has been ever since Diageo set up its customer service department in Budapest in 2003.

"We've been handling customer contact - that is order-taking, credit control and cash collection - for a number of markets across the world this way, and a very good, cost-effective system it has proved to be," says Chris Davies, managing director of Diageo Business Services in Hungary.

Diageo, which now employs some 700 staff in its Budapest offshoot, is one of the pioneers in the shared service centres (SSC) sector in Central Europe. Beginning with relatively simple transactions and accounting, Diageo has moved increasingly complex tasks to Budapest, making it a prime example of a highly successful, if somewhat unsung, corporate story in Hungary over the last decade. Indeed, SSCs in Hungary have bucked recent trends, being a "sector in growth, in an economy in decline," Davies says.

According to a report in April by PricewaterhouseCoopers, the corporate services firm, Hungary has attracted more than 80 SSCs since the start of the millennium. Only Poland, a country four times the size, has done better. The attractions are both economic and in the level of service: western companies moving operations to SSCs in Hungary can typically save 30% on costs, the report notes. Today, these centres employ some 30,000 people and pay 1.2% of the 2010 central state budget in terms of employee-related taxes, duties and VAT payments.

Furthermore, as many of these operations are in what the report identifies as the expansion stage, these are likely to create new jobs in the near term, while another 12-14 companies are eyeing Budapest for future SSC expansion. This is likely to mean an additional 2,000 more positions created in the next 24 months, the report states.

However, the expansion of the sector is threatened by a number of constraints, warns Attila Suhajda, chairman of the Hungarian Outsourcing Association. "Respondents in the survey reported that labour and taxation legislation and practices are relatively complex and annoyingly subject to frequent changes," he says.

But perhaps more fundamentally, many authorities and state institutions, including educational establishments, are both unaware of the quality job opportunities in the sector. This means they typically fail to inform or equip students properly regarding the career opportunities available.

Talk the talk

First and foremost, language knowledge is typically very limited at high school level in Hungary - a major barrier to expansion. "This survey revealed 80% of SSC employees are graduates, as opposed to the global average of 20%. This is mainly because of poor English skills at schools; a significant number of lower-skilled SSC jobs could be filled by school leavers if they had the language knowledge," Suhajda says.

At a higher level, universities are slow to adjust to the new needs of the industry. "The service industry has become very complex, and the traditional science degrees are not adequate to serve it. Leaders are designing a new qualification, called service, science, management and engineering, designed to train experts up to R&D levels," he says.

Despite the inflexibility of many institutions, after serious lobbying Hungary is making a start, with the Budapest University of Economics and Technology initiating a new MSc for the sector this year.

With Budapest hampered by relatively high wage levels and some shortages of specialized staff, the report also identifies the need for provincial cities to improve their facilities if they are not to miss out on the potential employment demand. "Really, far too many of the SSC jobs are in Budapest. Today, the minute students from Pecs or Debrecen graduate, they move to the capital for better jobs and salaries. Budapest is less attractive on pure salary arbitrage than it once was, but the secondary cities must offer a great potential if they can be suitably developed," says Diageo's Chris Davies

The provincial cities need better infrastructure, including office space and readily available rentable housing, to accommodate management on short and mid-term stays, the report notes.

But the international competition, already strong, promises to become fiercer; China alone is now training tens of thousands of students in a variety of languages and skills specifically to serve its SSC sector. So Hungarian stakeholders - including central government, municipalities and educational authorities - need to act, industry leaders say. "The next 24 months are pivotal for the long term success of the shared services industry in Hungary. With more than 2,000 jobs already planned, the key industry players and other stakeholders need to work together to ensure that this country stays viable and competitive against other up-and-coming locations," Davies warns.

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