The Budapest vs. Countryside Equation in SSC Location

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SSCs in Hungary are increasingly voting in favor of large rural cities. The decline in the centrality of Budapest is more noticeable year by year; according to surveys, 82.83% of the workforce employed in the sector in 2013, and 84.76% in 2014, were in the capital.

By 2019, this figure was only 76.48%, indicating the development of a diversification strategy. Several provincial cities have consciously begun to attract these companies.  

The SSC sector within Hungary was able to really gain ground in Budapest. Seemingly ever more offices have been established since the 2000s, and today most of the more than 90 domestic SSCs are located here.

The very intensive demand for foreign language-speaking labor has reached such proportions that nowadays it is said that Budapest is “overheated”, which means that the demand significantly exceeds the supply. This started a spiral of wages and, in part to avoid this, a shift.

“In terms of having a center in Budapest or in a Tier 2 city, there is no significant difference in managing their operations, as BSCs are among the most digitized and digitalized workplaces in Hungary, and also worldwide,” Richárd Ránki, director of the Hungarian Service and Outsourcing Association (HOA) tells the Budapest Business Journal.

It has been a trend for more than five years that Hungarian SSCs and BSCs are targeting rural cities, says Katalin Fritzné Szénási, the ideas manager of the SSC Szeged Project. In this university city 175 km southeast of Budapest, they mapped out what the service centers needed, and what would make the city attractive.

The answer was high-quality office buildings with as many foreign-speaking young people as possible, mainly graduates, an investment-friendly city management and good infrastructural facilities. The big cities in the countryside can certainly compete with Budapest, Szénási believes.

The rural university cities have an absolute advantage over other provincial towns because there must be a continuous supply of labor in the catchment area to meet the sector’s requirements in the long run.

Thus, the SSC Szeged project was established with the cooperation of the Szeged city municipality, the Faculty of Economics and Humanities of the University of Szeged, and Szeged Pólus Nonprofit Fejlesztési Kft.

Win-win

The project aims to establish business service centers in the city based on the foreign language skills of its population, thus creating a win-win situation; by providing quality positions, the SSCs help keep qualified young people in the city while getting well-educated employees, and the city also benefits, as retaining a skilled population earning above-average pay has a positive impact on the local economy.

As the world of SSCs is less well known in Hungary, there has been an emphasis on introducing the sector to the general public in addition to university students.

Young people are encouraged on several fronts, but the message is clear: confident foreign language skills (preferably more than one) increase the chances of finding a good quality job. SSC modules are increasingly built into the education of students so they are “SSC compliant”.

Service centers are an attractive place to start a career anyway as salaries are higher than average, mentoring is emphasized, and there is ongoing training. There are quick career-building opportunities, either within the SSC you join, or other players in the sector, and this is a very important aspect of the wish list of job seekers leaving the university today.

Budapest runs into difficulties through the rising apartment and office rents in Budapest and labor shortages. The rural cities, on the other hand, lack infrastructure, especially class “A” office space, to attract the relatively mobile SSCs from Budapest. This has become something of a chicken and egg scenario, which should come first, the SSCs or the infrastructure.

Budapest has seen a huge increase in prices. According to Balázs Horváth, director of shared services and outsourcing consulting at KPMG Hungária Kft., office rents on Váci út, one of main locations for SSCs, have risen from EUR 12.3 to EUR 14.3 per square meter over the past five years.

In the Váci út office corridor alone, at least 20,000 people work in the SSC sector. But housing rents in Budapest have also jumped, taking an increasing share of the wages of those working here.

The Mobility Trap

Rural workers know that life in the capital is expensive, and therefore those who already own real estate are reluctant to move, as they either have to find somewhere to rent in the capital, or sell up their home and buy something much smaller.

With staff turnover in the sector quite high in Budapest (Horváth estimates that 18-20% of employees leave within a year of their own volition), SSCs in rural areas can turn this lack of mobility into a business advantage with lower employer fluctuation and lower wage expectations.

Unlike Budapest, there is also a significant labor reserve in most university cities. In Debrecen, Szeged, Veszprém or Pécs, thousands of students graduate every year, who already have some connection to the city, and know it would be cheaper and easier to start life locally than in the capital, if they could find a good job.

If municipalities or developers can provide class “A” offices in university cities, BSCs can provide the sort of career opportunities that will keep talents away from the “bright lights” draw of Budapest.

They, in turn, spend their disposable income at local businesses, and so the benefits trickle on into broader society. That is a conundrum that seems worth solving, but it is also necessary to do so if the number of SSCs in the countryside is to really accelerate.

Editorʼs note: This article was first published in the Budapest Business Journal print issue of November 13, 2020. Richard Ránki left his post as director of the Hungarian Service and Outsourcing Association on that day.