OffShoring in Central and Eastern Europe

1
Off-Shoring in Central and Eastern Europe

• 4th Vienna Economic Forum VEIT V. DENGLER
• Vienna, November 5th, 2007

2
Executive summary

• OFFSHORING TO CENTRAL AND EASTERN EUROPE IS A KEY
  BUSINESS IMPROVEMENT LEVER
• DELL IS A GOOD EXAMPLE OF MOVE OF KNOWLEDGE JOBS
  TO NEW LOCATIONS

3
Off-shoring to Central and Eastern Europe
countries
NEW CAPTIVE SETUPS
LOGICACMG
CONVERGYS
EXPANSION OF OUT-SOURCING PROVIDERS
Recent Announce- ments

• New call center in Brno

• Billing, customer support service from Budapest

NOVARTIS
LARGE OUT-SOURCING DEALS

• FA out-sourcing to Genpact Bucharest and Kolkata

4
"Came for cost, stayed for quality"
CORPORATE/REGIONAL HEADQUARTERS
KNOWLEDGE HUB
TRANSACTION FACTORY
TRANSACTION CENTER FOR WESTERN EUROPE
EUROPEAN/GLOBAL CENTER FOR CORE COMPETENCIES
EUROPEAN/GLOBAL CENTER FOR CORE COMPETENCIES
Examples

• Lufthansa (Cracow)
• Zurich/Capgemini (Cracow)
• PG/HP (Bucharest)

• Delphi (Cracow)
• Siemens (Wroclaw)
• SAP Labs (Sofia)

• Dell (Bratislava)
• JCI (Bratislava)

FASTER MOVE TO KNOWLEDGE-INTENSIVESERVICES
DRIVEN BY COMBINATION OF FACTORS

• Talented workforce with good functional knowledge
• Cultural proximity/accessibility/timezone overlap
• Language capabilities

5
DELL Evolution in Bratislava
3

• Grew to a European Business Center by 2006, w/
  num. headquarter functions

• Over 1600 FTE by end 2007 covering a wide range
  of front and back office functions

2

• Expanded by 2004 to include German-language Sales
  and Customer Care

• Center with up to 900 FTE to support full range
  of customer-facing functions

1

• Dell launched operations in Slovakia in November
  2002

• Technical Support with up to 300 FTE for German
  language area

6
DELL Finance in Bratislava
BACK OFFICE
MID OFFICE
FRONT OFFICE
Value
Channel Controlling
Commission Targets
Pricing
Business Analytics
Financial Planning Analysis
Business Controls
GL Accounting
OPEX Mgmt
VAT
Reporting
FunctionalAccounting
AP
CreditCollections
Time
Front Office
Back-office
Mid-office
FY05
FY07
FY08
FY06
7
Executive summary

• OFFSHORING TO CENTRAL AND EASTERN EUROPE IS A KEY
  BUSINESS IMPROVEMENT LEVER
• DELL IS A GOOD EXAMPLE OF MOVE OF KNOWLEDGE JOBS
  TO NEW LOCATIONS
• CHALLENGES OF OFFSHORING ARE LARGELY EXAGGERATED

8
Challenges of off-shoring are largely exaggerated

• ONLY TRANSACTIONAL ACTIVITIES CAN BE OFFSHORED
• SAVINGS EXPECTATIONS IN BUSINESS CASES ARE
  INFLATED
• EASTERN EUROPE HAS PLATEAUED, THERE IS NO MORE
  VALUE TO BE EXTRACTED

Activity spectrum and value

• TALENT AVAILABILITY IS A MAJOR CONCERN
• EVOLUTION OF COST LEVELS IS A MAJOR CONCERN
• EASTERN EUROPEAN CENTERS END UP HAVING TOO MANY
  EXPATRIATES

( )
Location

• RAMP-UP SPEED IS USUALLY OVERESTIMATED
• TRANSITION IS COMPLEX AND ERROR-PRONE
• OFFSHORE CENTERS HAVE POOR PERFORMANCE

Organization and operations
SOURCE MCKINSEY
9
Wage differences will persist
SOURCE MCKINSEY
10
Executive summary

• OFFSHORING TO CENTRAL AND EASTERN EUROPE IS A KEY
  BUSINESS IMPROVEMENT LEVER
• DELL IS A GOOD EXAMPLE OF MOVE OF KNOWLEDGE JOBS
  TO NEW LOCATIONS
• CHALLENGES OF OFFSHORING ARE LARGELY EXAGGERATED
• WESTERN EUROPE LIVES OFF THE PAST NEEDS TO
  DEVELOP NEW VALUE PROPOSITION FOR ATTRACTING
  BUSINESS