Expanding contractors: firms have been farming out back-office accounting functions to shared services operations for years, but now they are looking for more strategic services, Tim Cooper reports from a conference in Budapest on trends in the BPO market--and their implications for financial managers.
| Author | Cooper, Tim |
| Position | Company overview - Conference notes |
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As labour costs in developing countries catch up with those in the West, shared services operations (SSOs) based in those nations will have to draw on all their skills and experience to provide better services for their clients. Most delegates at the recent conference of the Shared Services & Outsourcing Network in Budapest agreed about this, although there was plenty of debate about the time scales involved and how the trend would evolve.
Labour arbitrage--ie, moving business processes to locations where wages are lower--will deliver returns on investment for at least the medium term in countries such as Hungary, according to Tom Bangemann, vice-president of business transformation at the Hackett Group. Speaking at the conference, he predicted that if wage inflation in Hungary became stuck at a worst-case-scenario level of between eight per cent and 12 per cent, it could take only six years before labour costs in Hungary reached parity with those in the US.
But he added: "Eight per cent to 12 per cent is very high. Hungary has been affected heavily by the recession, so wage inflation has been negative. I would bet that Hungary will not reach parity with the UK, for example, within ten years. Even if it did, that wouldn't make the business case [for continuing to outsource] obsolete."
Finding a suitable location for an SSO is not only about wage costs, of course. Recruiting and retaining appropriately skilled people to run centres is becoming increasingly difficult, according to Pascal Henssen, senior vice-president and chief operating officer, EMEA, at Genpact. He caused a stir at the conference by suggesting that Hungary's capital was no longer an attractive destination for SSOs because it had been "over-fished" in the previous five years.
"It's very tough to get any combination of language and technical skills in Budapest: the price of hiring experienced people such as senior leaders and operations managers has risen almost above US levels," Henssen argued.
This imbalance of supply and demand has been caused by an influx of business process outsourcing (BPO) providers and "captive" (in-house) SSOs into a relatively small country. "The problem is that captives can almost spend whatever money they want, especially if they' re not running it like a business," he said. "They're not always looking at the bottom line, so they can say: 'We desperately need an operations manager, so let's double their salary,' and that is what has happened. Maybe the recession will change that and make more skills available on the market...
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