Hungary’s SSCs may Emerge as Winners After COVID-19

Shared services centers, or business service centers as they are often referred to now, having reached a certain maturity, have been on a constant growth path in the past two decades. While the shift to remote working, caused by the repercussions of the COVID-19 pandemic, has caused unexpected disruptions to their operation, Hungary, and Europe, is expected to become an even more attractive location globally in the near future.

In the early 2000s, the then newly established offices were called shared services centers, the name implying that they shared mainly transactional activities within a group. Today they are often called business services centers; it is certainly the name preferred by the Hungarian Investment Promotion Agency to show that there are higher value added services provided with more business-related decisions.

“Nowadays, many centers try to differentiate themselves from the original structure of transactional SSCs, and they are called GBS (Global Business Services) to represent their global footprint, CoE (Center of Excellence) or even R&D centers,” Balázs Horváth, director of advisory services at KPMG Hungary, tells the Budapest Business Journal.

The general trend in Hungary is that transactional activities are either outsourced or are being automated, which in turn leads to the increasing number of value added activities coming within the scope of BSCs. With these tendencies, the SSC (or BSC) concept is continuously expanding its palette with complex finance, sales, marketing, procurement, information technology and human resources activities being taken on.

How does the country compare to Europe and its Visegrád Four peers of the Czech Republic, Poland and Slovakia, though?

“Hungary is still home of captive SSCs, that means that they provide services within their own corporate. There are fewer outsourcing companies in Budapest compared to the rest of Central and Eastern Europe (CEE). There is a willingness and the potential to add the countryside of Hungary with cities like Debrecen or Szeged to the map of SSCs or via outsourcing,” Horváth explains.

In Poland, especially, but also in Czech Republic and Romania, larger cities beyond the capitals are attracting large investors into the shared services center vertical.

“From a cost, talent and infrastructure point of view, however, Hungary is still a top destination with relatively large IT potential that will be key in the coming years,” the KPMG director adds.

During the last few years, the most critical differentiating factor between business services centers were costs and the talent availability. However, COVID-19 has introduced some disruption in this regard.

“Today what matters is skill, skill and skill [….] and certainly safety, and resilience,” Horváth says.

Hungary’s SSC industry has seen a more than 10% annual growth in the past decades. In 2020, the core business of some centers was hit by the virus, yet, in general, the majority of them are still growing, despite the crisis.

“Every company is cost conscious and the SSC concept is a great and proven way to take cost out of the organization. Albeit new investments arriving to the country are slower than in the last few years, which is probably understandable,” Horváth added.

As the first wave of the pandemic hit in March, SSCs sent employees home in quick order and since then the majority of centers have been working remotely. As with any change in life, this comes with challenges and opportunities at the same time, as the KPMG director puts it. And change is coming, he says.

“It is hard to imagine that, once the crisis is over everybody will go back to work the same way as they did in 2019. In the short- and medium-term, companies will work remotely and are likely to grow in size and scope. In the long-term, I mean in a year’s time, the IT, automation, digitalization skills and safe business operations will make Hungary (or even one SSC vs. another) more competitive. European companies will think twice about outsourcing to Asia,” Horváth believes.

Working from home, however, does not represent that much of a disruption for employees working in many shared service centers as they are technically digital nomads. Employees from many different nationalities work in the business services center sector. In this context, working from home, or remotely, seems to be a viable option for anyone whose job does not require daily personal interaction with others.

It is hard to put precise figures on it, but it has been suggested that during the pandemic, many white-collars have at least toyed with the idea of moving to a Mediterranean or Caribbean island, and working from there. However, doing so may not be that easy.

“Today there is no clear regulation within the EU (not to mention globally) on immigration, taxation and from the legal point of view on how to treat home office or working from abroad. This may have an impact on the way we work today in the next few years,” Horváth concludes.

The expert article was published in the November issue of Budapest Business Journal. 
The author of the article is Christian Keszthelyi.