As shared services centers have graduated to business services centers and now, increasingly, to global business services centers, the industry’s evolution has seen Hungary maintain its role as an essential player at the regional level.
Although some argue that the industry is inherently crisis-proof, the pandemic has brought some changes, while the Ukraine war has manifested further challenges. The Budapest Business Journal explores the current market sentiment with three of the local Big Four companies.
In the early 2000s, the region saw a boom in SSCs, traditionally focusing on a single function or country to serve. However, as the industry matured, they evolved into business service centers and today have morphed even further. Moving up the value chain to become multi-dimensional support functions in many areas, global business services centers, sometimes referred to as centers of excellence, represent the apex of the industry now.
“With the shift from cost arbitrage to quality, standardization, and the activation of value-added services, today’s leading GBS organizations are multifunctional, fully-integrated, end-to-end process-oriented entities with a strong emphasis on transformation and the customer and employee experience,” says Enikő Szalontai, partner of supply chain and operations, andbusiness consulting at EY Hungary.
Covered functions today permeate all corporate areas, such as finance, human resources, information technology, procurement, marketing, sales and engineering, and further supporting technical roles. The SSC-BSC-GBC market is a significant contributor to Hungary’s national economy and remains attractive for foreign investment.
“The sector is still one of the largest contributors to the employment of white-collar workers, with relatively high salaries and high paid taxes,” confirms Balázs Horváth, associate partner of KPMG Hungary. “Hungary remains an attractive investment location with a lower cost yet stable operations and good talent base,” he adds, acknowledging that competition for well-qualified talent is tight in Hungarian and global markets.
Eszter Lukács, GBS director at Deloitte Hungary, told the BBJ that they have identified three key trends driving the evolution of SSCs to GBCs: digitalization, a focus on sustainability, and data’s increasing importance for businesses. As a result of these trends, expectations toward the centers have changed, Lukács says, which has resulted in these centers transforming their operating model.
New Direction“The sector is heading to a new way of business services operation that, in Deloitte, we call the center office,” Lukács explains. It is, he says, a catalyst for driving innovation, digitalization, insight-driven organization, and transformation not just by delivering the changes but through owning the agenda.
The maturing market is good news foremployers and employees alike. “From an employee perspective, the sector provides an excellent opportunity for university students in entry-level positions in various functional fields to build professional experience,” EY’sSzalontai says. “From abusiness perspective, a recent survey suggests 71% of multinational companies that currently operate in Hungary plan to extend their service offerings and bring further services to the country,” she adds.
With the maturing global business centers producing higher value-added than SSCs, talent rules, our experts agree.
“Talent is the most important asset BSCs have; therefore, an enhanced focus is placed on talent development and knowledge management” internationally and nationally, Deloitte’s Lukács says.
Hungary holds a solid position in the regional SSC market. KPMG’s Horváth argues that considering the talent and skills, Budapest and the Polish capital Warsaw are among the best locations regionally. The dominance of capital cities may remain in the long term.
“There is less investment arriving to second- and third-tier locations,” Horváth says, which may push talent to gravitate towards more significant hubs.
“According to a recent comparative study that Deloitte performed including 10 European countries, the total number of BSC/SSC enterprises ranks Poland on the top with 1,400-plus centers [... while] Hungary is seventh with 162 centers,” Lukács notes.
According to EY, the sector now employs more than 70,000 people across Hungary, which puts the country among the top five in Eastern Europe regarding employment figures and third among its Visegrád Four peers after Poland and the Czech Republic.
Larger Scale“GBCs in Hungary tend to have a larger size with more than 50% of the centers employing more than 250 people on average, as they tend to serve large multinational companies,” EY’s Szalontai notes. She adds that the country has been preferred by both European and U.S. companies because of the availability of professional and language skills.
Hybrid work has flourished in the SSC/BSC market since the pandemic. This environment “opens the door for remote [work] or [employing] foreign workers,” Horváth of KPMG Hungary says.
Maintaining the practice of hybrid working was necessitated by changed employee expectations, even once social distancing measures were lifted. However, this has sparked a new challenge: “the reintegration of employees into the office as long-term remote work has hit employee engagement,” warns Deloitte’s Lukács.
The Ukraine war is also affecting the market. It “has made international companies more cautious in their selection process in Europe for new GBS locations,” according to EY’s Szalontai. He adds that it has also triggered reviews of contingency plans and placed more emphasis on resilience in existing GBS organizations.
KMPG’s Horváth seconds this view. “U.S. investors are more careful with new investments, but that is a mix of the war and other inflationary measures and recession fears,” he says.
Lukács also agrees. “On the one hand, the war has imposed a great psychological burden on employees that enterprises need to handle to keep their people motivated,” she says, noting that rapidly rising inflation has pushed several companies to review compensation packages.
“On the other hand, due to the cost pressures caused by the war and the pandemic, most enterprises have started to search for further cost efficiency measures.”
“Nevertheless,” KMPG’s Horváth says, “the SSC business is recession-proof, asthis is a great tool for building efficient operations, driving transformation, and [enabling] cost savings.”
This article was first published in the Budapest Business Journal print issue of November 18, 2022.
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