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Maturing Market Moving up from SSCs to BSCs

Róbert Ésik, president of the Hungarian Investment Promotion Agency, talks exclusively to the Budapest Business Journal about what HIPA is doing to promote the growth of the business services sector in the country.

Róbert Ésik, president of HIPA.

BBJ: What contribution to the economic development of Hungary do SSCs makes?

Róbert Ésik: Hungary has one of Central and Eastern Europe’s most mature SSC markets, not only in terms of numbers but also with regard to the industry’s history and structure. This still young sector has developed at a rapid pace in Hungary during the past few decades, based on the quality and productivity of the Hungarian workforce. Today 110 shared services centers operate in Hungary, employing more than 46,000 people. These employees are mostly young Generation Y graduates with a good command of languages. Usually service industry employees contribute to domestic economic output, in many cases by creating special intellectual added value. As with the production industry, service centers in Hungary are export-oriented, tasks come from and results go to other countries; the value chain is mostly international. Financial and IT processes dominate the Hungarian market, but HR and accounting is also considerable.

BBJ: What are the main advantages of Hungary when it comes to business services investments? How do you see the development of the industry in the country?

RÉ: One of the main advantages of our country is the strong educational background. World-class universities in the capital and in the so-called Tier-2 cities provide companies a labor supply of ambitious, fresh graduates speaking multiple languages. Above the most common European languages, Swedish, Norwegian, Finnish, Danish, Dutch, Japanese, Chinese, Hebrew and Arabic languages are also available. Beyond the strategic geographic location that allows companies to provide services to East and West simultaneously, the booming Hungarian office and property market and the world-class telecoms infrastructure and 4G coverage also support the further growth of the sector in Hungary. The sector shows a solid growth of approximately 8-10% annually.

With maturity comes more complex and high added value activities that means the Hungarian market is stepping up from simple shared services to more complex business services. Moreover, companies are even more likely to bring Centers of Excellence to Hungary. Favorable costs are not the main drivers of this sector anymore; quality workforce has become the most important factor. To this end, business services centers (BSCs) are offering appealing conditions and office environments to attract talent and continuous training opportunities to keep them. All these, combined with the global environment, the diversity and international career opportunities are also attracting talents from abroad to work and live in Hungary. 

To put more emphasis on this progress, we at HIPA now refer to the full sector as a business services sector, and to this end, the annual survey conducted in cooperation with the Hungarian Service and Outsourcing Association - HOA will also called the “BSC survey”.

BBJ: Market players are beginning to expand outside of Budapest. What benefits do countryside cities offer over the capital of Hungary?

RÉ: As already mentioned, companies planning to establish services centers in Hungary are looking for strongly driven professionals, speaking foreign languages. Due to their educational background, university cities such as Debrecen, Pécs, Miskolc, Szeged and Székesfehérvár are the perfect spots for these companies. Fresh graduates are agile, motivated to make a difference, especially in a multinational working environment offering quick career opportunities. This trend can be seen also in our results: important BSC investment decisions from the last few years were made for countryside cities: BP has chosen Szeged for its second office in Hungary, Viessmann voted for Pécs based on the availability of technologically qualified specialists with foreign language skills.

Provincial cities are developing from year to year and are open to helping companies in order to provide permanent local work for young people leaving their universities. For example, Szeged now offers a business services centers course at the university, while Debrecen has just started a BSC roundtable as a platform to encourage discussion between the city and the companies. From the infrastructure and property side, more “A” category office developments are planned, underway or handed over, which will further enhance the opportunities offered outside of Budapest. 

Last but not least, we are able to offer special incentives to facilitate new investments or reinvestments in provincial cities. Subsidies may be granted as regional aid or specific aid, such as R&D subsidies. Regional aid available for investment for a large enterprise may be up to 50% of the eligible costs of the investment, depending on the region.

In conclusion, thinking globally about the BSC sector and looking at the trends and needs, it is clear that there is a high demand on the market for locations with a significant talent pool, great accessibility, competitive operational costs and good reference points. At our agency we experience growing interest towards all the characteristics mentioned and Budapest and Hungary’s university cities possess all these features.

BBJ: What kind of specific services are you able to offer to help BSC investors establish or expand their presence in Hungary? 

RÉ: HIPA provides management consultancy services for investors and prospective investors not only during the planning and preparations, but also in the implementation and operation phases. In the framework of our policy advisory activities, we mediate between business and government and collect company feedback in order to prepare policy proposals. As one of the most important sectors in terms of FDI, a high emphasis is put on the feedback and well-being of BSC investors. The survey – to be launched in June – of the BSC industry in cooperation with HOA will be a key element for us in further improving the business environment by learning industry trends, the development plans of companies and the challenges of the sector. The results of this year’s survey will be presented to industry representatives at a professional event followed by the BSC Gala, where the most significant market players will be recognized by HIPA and HOA.

We also encourage companies’ growth by offering them support in organizing career events abroad. In February 2017, BlackRock and the Embassy of Hungary in London reached out to young Hungarian financial professionals studying or living in the United Kingdom. Following the success of the event, Morgan Stanley and Citibank joined BlackRock along with the Consulate General in Frankfurt to repeat the process in Germany. We are very proud that 20 plus Hungarian professionals working abroad have now decided to move back home with their families and to join the BlackRock Budapest team.

Did you know?

• Szeged now offers a business services centers course at its university?

• Eastern Hungary’s biggest category “A” office is being built in Debrecen with a capacity of 22,000 sqm?