Offshoring trend promises economic stimulation
Meanwhile, in a positive turn of events, Poland is bracing for an expected flood of hundreds of thousands of new white-collar, skilled jobs over the next four years.
High-profile corporations such as Philips, Siemens, General Electric, IBM and Motorola, to name but a few, all expect to develop or add to their existing offshore outposts in this country over the next few years, whether it's adding accountancy staff, software engineers or call center employees.
Criticism of the Leszek Miller government's handling of the economy abounds. But while national debt balloons and the country battles it out with Slovakia over the much-publicized construction of the Hyundai automotive plant, it seems that Poland is becoming an attractive home for many American and European companies' non-core operations.
"This is a good sign," says Krzysztof Rybiński, chief economist at bank BPH-PBK, referring to the continuing trend.
He explains that economists have been watching this movement, not only for the sheer number of new skilled jobs it will add to the economy, but also for the ancillary benefits it will provide the country.
A McKinsey & Company report last year touched on this trend, called offshoring, noting that, in general, the export of research and design services is an area in which Poland - by virtue of its geographic location among other reasons - could be Europe's leader.
The country is particularly attractive for technology segments of the market. It boasts some 100,000 scientists - half of whom have PhDs - and only 17 percent of whom work in business. Many, instead, have poorly-paid jobs at state institutions.
The report goes on to quote a director of an offshore center, who argues that neither in India nor the Czech Republic can one find 200 economics graduates who know German accounting standards, speak multiple languages and are available to start work in as little as two weeks.
Poland, in this way, is a fetching prospect.
When the report was published, it said there were 15 companies with offshore operations employing some 3,000 workers. McKinsey's forecasts would seem optimistic to those unfamiliar with the market realities, but it expects that by 2008, some 200,000 people will be employed in offshore business.
Business professionals don't think that's very optimistic. Yet these estimates are beginning to become a reality.
Last week, German giant Siemens announced that it would shift some 15,000 of its software programming jobs from its offices in the USA and Western Europe to India, China and Eastern Europe.
Karol Szyndzielorz, the company's Warsaw-based spokesman, says that Poland is one of its target markets for new software jobs. Specifically, he says Siemens would add to its software development center in Wrocław.
"The movement would be gradual," Szyndzielorz says about the company's plans for a global strategy shift.
"That doesn't mean that people will lose jobs on a massive scale," he added, referring to the markets Siemens is exiting.
He explained that executives at the Munich-based company are keen on the Polish market because of the technological know-how of its population.
But it's not just the technological savvy that has executives targeting Poland. And Siemens has company.
Earlier this month, Dutch electronics firm Philips announced that it plans to build a financial and administrative center in Łódź through which it will service some 20 European countries. Poland is to be its financial hub. The company expects to open the center in 2006 to house about 500 finance, accounting, and auditing employees. That would add to the 6,600 employees already here.
At the same time, General Electric (GE) has said it is weighing its options in the country as well.
Last year Lesław Kuzaj, GE's regional executive for Poland, the Czech Republic, Slovakia and Lithuania, told the Business Journal: "We are going in the direction of bringing more value-added services and investment into the region because of the talent we have discovered in this part of the world. We believe more high-tech things can be done here."
He noted that Poles are less and less being sought after for blue-collar employment. GE has clearly put its words into action by opening two engineering offices for aircraft and software in 2000, a part of the zł.1.56 billion ($400 million) it has thus far invested in Poland.
Kuzaj was unavailable for comment for this article.
Texas-based technology company EDS is considering sending some of its call-center and software application development operations to Poland, as well as other cost-effective locations such as India, Egypt, New Zealand, Canada, Brazil and Ireland, says Józef Sobolewski, EDS's Warsaw-based spokesman.
However, Sobolewski commented that any plans were in the very early stages.
There is, of course, a flip-side to this trend. Offshoring is not a zero-sum game; some countries are perceived as the losers.
As jobs shift to Poland and other locations with a comparatively cheap and highly skilled labor force, other countries are cutting jobs.
The U.S. government, in particular, appears at odds with this trend, which a 2002 Forrester Research study forecasts will see 3.3 million service industry jobs, such as call-centers, move abroad over the next 15 years.
The debate is still on about what exact effect - a boon or a curse - it would have on the U.S. economy.
What is crystal clear, however, is that it will be an economic stimulant for Poland.
Michał Gorzyński, economist at The CASE Foundation, sees the deluge of new white-collar jobs as almost inevitable, the natural result of maintaining an educated, business-oriented populace. "People in this country are cheaply employed and highly educated," he says, "Poland is much more economically competitive than some of its neighbors."
He adds that the country also benefits from its size when compared to neighbors the Czech Republic and Hungary: "You take the Philips move," he comments, "It's difficult to get 400 educated people (together)."
He explains that in the Czech Republic, for instance, the small population makes things difficult for larger-scale operations.
Also, Poland's culture of polyglots, generally better-versed in English and German than the Czech Republic or Slovakia, puts it at center stage when western businesses plan to shift part of their operations offshore. For these reasons, Gorzyński notes, Poland will continue to be home to a growing number of offshore operations of multi-national corporations.
As the trend continues, BPH-PBK's Rybiński says, there are other advantages besides simply more jobs - better knowledge, for instance. He points out that as more offshore businesses enter the market - whether via offshoring, or traditional corporate expansion - Poland will become better integrated with western business standards, which is a necessity if it wants equal footing on the global economic stage.
"This is what we call vertical learning," Rybiński explains. He notes that this is an ancillary benefit of all types for foreign direct investment, something the government has been trying to attract with mixed results.
For instance, this country is competing with Slovakia for an investment from Hyundai. The final decision is expected in March.
While opponents and proponents alike are unsure what the end result will be with Hyundai, PAIiIZ, the foreign investment agency, is trying to clean up its act to improve Poland's image among potential foreign investors. The agency is currently working on roughly 100 investment projects, with a combined value of zł.11.5 billion ($3 billion). If successful, the investments are expected to create 25,000 new jobs.
Compare that to the hundreds of thousands expected to be the upshot of the offshoring trend, and the importance to the local economy becomes clearer.
Outside of the realm of technology, economists expect banks to be spearheading offshoring efforts as well. Citibank sees Poland as a potential hub for its financial transactions in the future. Other banks are expected to follow suit.
"Banks will look to shift some of their back-office operations [here]," Rybiński says.
Analysts say the trend is the result of economies becoming more and more global, but also the anemic economy of the past few years has forced multi-national companies to re-evaluate the way they do business. This means that cost cutting is of the essence.
For Siemens, however, Poland is not just an avenue to lower operational costs; the company values the country's technological expertise, says Szyndzielorz.
Siemens' Wrocław-based software center has added 200 employees since it opened its doors three years ago. And Szyndzielorz say that, job relocation notwithstanding, the German company would look to increase this staff of software engineers.
High-profile corporations such as Philips, Siemens, General Electric, IBM and Motorola, to name but a few, all expect to develop or add to their existing offshore outposts in this country over the next few years, whether it's adding accountancy staff, software engineers or call center employees.
Criticism of the Leszek Miller government's handling of the economy abounds. But while national debt balloons and the country battles it out with Slovakia over the much-publicized construction of the Hyundai automotive plant, it seems that Poland is becoming an attractive home for many American and European companies' non-core operations.
"This is a good sign," says Krzysztof Rybiński, chief economist at bank BPH-PBK, referring to the continuing trend.
He explains that economists have been watching this movement, not only for the sheer number of new skilled jobs it will add to the economy, but also for the ancillary benefits it will provide the country.
A McKinsey & Company report last year touched on this trend, called offshoring, noting that, in general, the export of research and design services is an area in which Poland - by virtue of its geographic location among other reasons - could be Europe's leader.
The country is particularly attractive for technology segments of the market. It boasts some 100,000 scientists - half of whom have PhDs - and only 17 percent of whom work in business. Many, instead, have poorly-paid jobs at state institutions.
The report goes on to quote a director of an offshore center, who argues that neither in India nor the Czech Republic can one find 200 economics graduates who know German accounting standards, speak multiple languages and are available to start work in as little as two weeks.
Poland, in this way, is a fetching prospect.
When the report was published, it said there were 15 companies with offshore operations employing some 3,000 workers. McKinsey's forecasts would seem optimistic to those unfamiliar with the market realities, but it expects that by 2008, some 200,000 people will be employed in offshore business.
Business professionals don't think that's very optimistic. Yet these estimates are beginning to become a reality.
Last week, German giant Siemens announced that it would shift some 15,000 of its software programming jobs from its offices in the USA and Western Europe to India, China and Eastern Europe.
Karol Szyndzielorz, the company's Warsaw-based spokesman, says that Poland is one of its target markets for new software jobs. Specifically, he says Siemens would add to its software development center in Wrocław.
"The movement would be gradual," Szyndzielorz says about the company's plans for a global strategy shift.
"That doesn't mean that people will lose jobs on a massive scale," he added, referring to the markets Siemens is exiting.
He explained that executives at the Munich-based company are keen on the Polish market because of the technological know-how of its population.
But it's not just the technological savvy that has executives targeting Poland. And Siemens has company.
Earlier this month, Dutch electronics firm Philips announced that it plans to build a financial and administrative center in Łódź through which it will service some 20 European countries. Poland is to be its financial hub. The company expects to open the center in 2006 to house about 500 finance, accounting, and auditing employees. That would add to the 6,600 employees already here.
At the same time, General Electric (GE) has said it is weighing its options in the country as well.
Last year Lesław Kuzaj, GE's regional executive for Poland, the Czech Republic, Slovakia and Lithuania, told the Business Journal: "We are going in the direction of bringing more value-added services and investment into the region because of the talent we have discovered in this part of the world. We believe more high-tech things can be done here."
He noted that Poles are less and less being sought after for blue-collar employment. GE has clearly put its words into action by opening two engineering offices for aircraft and software in 2000, a part of the zł.1.56 billion ($400 million) it has thus far invested in Poland.
Kuzaj was unavailable for comment for this article.
Texas-based technology company EDS is considering sending some of its call-center and software application development operations to Poland, as well as other cost-effective locations such as India, Egypt, New Zealand, Canada, Brazil and Ireland, says Józef Sobolewski, EDS's Warsaw-based spokesman.
However, Sobolewski commented that any plans were in the very early stages.
There is, of course, a flip-side to this trend. Offshoring is not a zero-sum game; some countries are perceived as the losers.
As jobs shift to Poland and other locations with a comparatively cheap and highly skilled labor force, other countries are cutting jobs.
The U.S. government, in particular, appears at odds with this trend, which a 2002 Forrester Research study forecasts will see 3.3 million service industry jobs, such as call-centers, move abroad over the next 15 years.
The debate is still on about what exact effect - a boon or a curse - it would have on the U.S. economy.
What is crystal clear, however, is that it will be an economic stimulant for Poland.
Michał Gorzyński, economist at The CASE Foundation, sees the deluge of new white-collar jobs as almost inevitable, the natural result of maintaining an educated, business-oriented populace. "People in this country are cheaply employed and highly educated," he says, "Poland is much more economically competitive than some of its neighbors."
He adds that the country also benefits from its size when compared to neighbors the Czech Republic and Hungary: "You take the Philips move," he comments, "It's difficult to get 400 educated people (together)."
He explains that in the Czech Republic, for instance, the small population makes things difficult for larger-scale operations.
Also, Poland's culture of polyglots, generally better-versed in English and German than the Czech Republic or Slovakia, puts it at center stage when western businesses plan to shift part of their operations offshore. For these reasons, Gorzyński notes, Poland will continue to be home to a growing number of offshore operations of multi-national corporations.
As the trend continues, BPH-PBK's Rybiński says, there are other advantages besides simply more jobs - better knowledge, for instance. He points out that as more offshore businesses enter the market - whether via offshoring, or traditional corporate expansion - Poland will become better integrated with western business standards, which is a necessity if it wants equal footing on the global economic stage.
"This is what we call vertical learning," Rybiński explains. He notes that this is an ancillary benefit of all types for foreign direct investment, something the government has been trying to attract with mixed results.
For instance, this country is competing with Slovakia for an investment from Hyundai. The final decision is expected in March.
While opponents and proponents alike are unsure what the end result will be with Hyundai, PAIiIZ, the foreign investment agency, is trying to clean up its act to improve Poland's image among potential foreign investors. The agency is currently working on roughly 100 investment projects, with a combined value of zł.11.5 billion ($3 billion). If successful, the investments are expected to create 25,000 new jobs.
Compare that to the hundreds of thousands expected to be the upshot of the offshoring trend, and the importance to the local economy becomes clearer.
Outside of the realm of technology, economists expect banks to be spearheading offshoring efforts as well. Citibank sees Poland as a potential hub for its financial transactions in the future. Other banks are expected to follow suit.
"Banks will look to shift some of their back-office operations [here]," Rybiński says.
Analysts say the trend is the result of economies becoming more and more global, but also the anemic economy of the past few years has forced multi-national companies to re-evaluate the way they do business. This means that cost cutting is of the essence.
For Siemens, however, Poland is not just an avenue to lower operational costs; the company values the country's technological expertise, says Szyndzielorz.
Siemens' Wrocław-based software center has added 200 employees since it opened its doors three years ago. And Szyndzielorz say that, job relocation notwithstanding, the German company would look to increase this staff of software engineers.
