INVISIBLE HAND: Poles apart in outsourcing

INVISIBLE HAND: Poles apart in outsourcing
Silesia Business Park, Poland.
By Liam Halligan in Warsaw May 25, 2016

Although a Londoner born and bred, Poland loomed large in my childhood conscience. That’s because one of my very first memories involved a goalkeeper described as “a clown with gloves”.

Back in 1973, the great Jan Tomaszewski stunned the football world by single-handedly holding England to 1-1 draw against Poland, diving left and right, saving shot after shot, in front of 100,000 screaming home fans at Wembley. Tomaszewski’s outstanding performance – a triumph of athleticism, guile and, above all, self-belief – stopped England, then a footballing superpower, from qualifying for the 1974 World Cup.

Against the odds, it was the Poles, widely dismissed as a joke, who qualified instead. And it wasn’t a fluke. The skillful, hard-working team from “behind the Iron Curtain”, with their “clown” in goal, took third place in that World Cup, after beating holders Brazil.

At a seminar in Warsaw in May, making a presentation to a bunch of smart youngsters at an event hosted by Poland’s Chartered Financial Analysts Society, I described Poland as a “Jan Tomaszewski economy”. Poland is under-rated, I said. Poland is sometimes dismissed as a joke. But Poland is full of talented, determined and, above all, resilient people. There is no reason at all, I argued, why Poland can’t be among the world’s most successful economies – not least due to the rise and rise of BPO/SSC which, rather than football or any other of my childhood obsessions, was the actual subject of my talk.

Central and Eastern Europe is in the midst of a commercial mega-trend. That trend is all about business process outsourcing (BPO) and the establishment of shared service centres (SSC) – and Poland, for now, is the driving force. BPO involves contracting activities such as customer services or data management to external organisations located in relatively low-wage economies. SSC, meanwhile, are similar organizations handling the accounting and IT requirements of a variety of large corporate customers. Such BPO and SSC operations have sprung up across Poland over the last decade – not just in Warsaw, but regional cities including Krakow, Wroclaw, Poznan and Lodz.

The outsourcing sector now employs over 200,000 Poles and is growing fast. Western companies are transferring more and more of their operational functions abroad, including human resources, payroll and marketing. What began as an extreme cost-cutting measure following the 2008 financial crisis is becoming a way of life. Corporate giants such as IBM, Cap Gemini, Dell, Qatar Airways and HP now all use Polish-based outsourcing. Having taken chunks of business from the Asian “offshoring” giants – India, China, Malaysia and The Philippines – Poland just entered the top ten of AT Kearney’s influential “Global Services Location Index” for 2016.

Since communism ended, the Polish economy has been a star-performer. From 1991 until 2008, real income per capita grew, on average, by 4.6% a year. Poland’s economic trajectory since the Lehman Brothers collapse in 2008 has, if anything, been even more impressive. It was the only EU economy that avoided recession following the global financial crisis, since when real income per head has risen another 2.7% annually.

From 2008 to 2015, Polish growth has outpaced that of all other OECD countries. Unemployment recently fell below 10% for the first time in two decades and the budget deficit is down from 8% to 3% of GDP. Even during 2014 and 2015, caught between a stagnating eurozone and a depressed Russia, Poland still managed 3.3% growth in both years, in part due to a depreciating zloty.

The first quarter of 2016, though, saw signs of a slowdown. The 3% year-on-year expansion of retail sales during March was way below expectations. It came alongside a slump in industrial production, which grew just 0.5% over the same month, compared with a 6.7% year-on-year expansion in February. Overall, Poland’s GDP rose 3% during the first three months of 2016, sharply down from 3.9% growth the quarter before.

Eyebrows have also been raised – not just among Poland’s business community but overseas – at policies pursued by Law & Justice. Following last year’s elections, the party now controls the Polish presidency, parliament and government. Since President Duda was elected last July, some $50bn has been wiped off the value Poland’s WIG20 stock index, amid rising taxation and talk the country is losing its shine as an investment destination. Certainly, the new government has undermined the independence of Poland’s central bank and hiked state spending. In January, S&P imposed a lower credit-rating (from ‘A-‘ to ‘BBB+’), post-Communist Poland’s first ever ratings downgrade. And following protests against new court and media restrictions, Poland dropped 29 places in the 2016 World Press Freedom Index.

Outstanding

For now, though, Polish outsourcing keeps growing. Having expanded some 20% annually since 2008, the sector’s rate of job creation continues to outpace its Indian equivalent. The likes of Infosys and WiPro, in fact, market-leaders in Indian outsourcing, have started setting-up shop in Poland.

With its 38mn-strong population, many of them young, multi-lingual and technically adept, Poland is a natural outsourcing destination. Banks and professional services companies that have traditionally shipped back-office work to Asia are keen to move more complex financial and legal tasks to Poland – attracted by time-zone proximity to Western capitals, EU membership and a better “cultural fit” with Western business practices. Manufacturing and high-tech companies are establishing not just sales and accounting functions in Poland but R&D centres too, attracted by growing numbers of local engineering and technology students who, while more expensive than their Indian and Chinese equivalents, remain much cheaper and more available than their Western counterparts. Local outsourcing employers have also been collaborating with Polish universities, so graduates develop the knowledge and skills that Western conglomerates need.

While leading regional cities have attracted the largest numbers of investors, there’s now a growing stock of office space in smaller Polish cities such as Olsztyn, Opole, Bydgoszcz and Rzeszow. Such places are playing host to international names including JP Morgan Chase, Citigroup, Orange and France Telecom. All told, more than 50 Polish cities and towns have attracted outsourcing investments.

Poland is facing regional competition, of course. Romania, where wages are lower, is a growing BPO destination, with around 60,000 people working in almost 100 outsourcing centres. Even Ukraine, despite geopolitical tensions, has moved up AT Kearney’s league table, and now boasts an IT industry with over 500 outsourcing companies, employing more than 60,000 engineers.

The new hot-spot for CEE outsourcing, though, is Gdansk – the birthplace of Solidarity, the trade union that sparked the overthrow of Polish communism – on the country’s Baltic coast. Almost a third of the city’s economic activity now derives from service centres for global businesses, including Sony, Lufthansa, Bayer and ThyssenKrupp of Germany, Arla of Denmark and the UK’s PwC.

For Zbigniew Boniek, the legendary Polish forward, who also watched that famous 1973 clash as a young aspiring footballer, Tomaszewski was a true inspiration. “The match was a turning-point, opening for Poland the door to world football,” he recalls. Now, the country’s vibrant outsourcing activities are doing the same in terms of global business.

Let’s hope an increasingly nationalistic government doesn’t score any own goals, by hindering cross-border commerce or otherwise threatening an industry providing quality local jobs and putting Poland on the commercial map.

Liam Halligan is Editor-at-Large of Business New Europe. Follow him on Twitter @liamhalligan

Opinion

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