India is losing ground to 'New Europe' as the preferred destination for Western European companies looking to outsource 'nearshore' services rather than 'offshore' them. The Czech Republic is holding its own in the battle for the business. Mark Fernandes has the story.
Companies from all over Western Europe are outsourcing customer care and IT centres in countries a bit closer to home. This is from a new report by independent market analyst Datamonitor. Rather than "off-shoring" to India, the long preferred choice for companies looking for cheap but educated labour, Western European companies are increasingly "near-shoring".
According to the report, "Profiting from Nearshore Outsourcing," outsourced call centre agent positions in the European nearshore areas of Central & Eastern Europe and North Africa, are set to rise by 13,700 by the year 2008 up from 4,400 last year.
Much of that near-shoring business will go to the Czech Republic, the report says, with this country second only to Poland in the 'New Europe' and a prime destination for locating foreign call centres. The key to this high rank, it says, is the growing pool of young, multilingual Czechs who are capable of adapting to a globalized workplace.
This comes as no surprise to Radomil Novak, the head of CzechInvest, the state's main foreign development agency. He sees that foreign companies have steadily warmed to the idea of locating support services in the Czech Republic.
That is about $250 million in foreign outsourcing for things like call centres and other strategic services, says Mr Novak.
"We see a major shift now compared to the past. It is mainly because of the improvement in soft infrastructure which would mainly be telecommunications. Other soft infrastructure I would consider also human resources. The knowledge of languages has increased dramatically, according to some studies, especially among the young generation - those between the ages of 20 to 30. About 60 per cent of this generation can already speak English and German, which are the most common languages."
Jakub Dosoudil is the kind of long-haired, youthful-looking employer you might expect to see heading an IT start-up. Anticipating the near-shoring boom, in 2000 he founded Cleverlance, a Prague-based company that handles outsourcing in sectors like programming and technology governance.
Since its founding, Cleverlance has worked steadily with companies from Germany, Switzerland, the U.K., and the Benelux countries. Mr Dosoudil says that after the dotcom bubble burst landing such outsourcing work became more problematic to find. But there has been renewed growth in the sector since the Czech Republic's accession to the European Union in May 2004, he says.
"What we would definitely like to do is to focus on the international markets on the markets of the European Union a little bit more next year. We hope that most of our income will come from abroad and outsourcing will grow."
Mr Dosoudil sees his strength as his employees, who are multilingual and cheap. He says 90 per cent of his employees speak English, 10 per cent German and a "handful" French.
The global management consulting firm Accenture, the logistics company DHL and Air France are among the big name companies that have located in the Czech Republic for strategic services and call centres. Mr Novak of CzechInvest sees that the adoption of new languages here as a by-product of globalization.
"For example Accenture has established a financial centre here which should go up to 1,000 people. They operate in 12 languages. So, there is even potential [to hire people here who speak] other European languages - especially now due to membership in the European Union."
Irena Dominikova, the director of the Bell School in Prague, has already seen this trend. Of her 700 students and people taking part in in-house company training, most are studying English.
"The language which is most in demand is English for self-explanatory reasons but in the last five years we can trace the trend to learn more German or French or Italian or Spanish. But, obviously, with EU accession into the European Union the demand to learn all languages is growing."
What language a person learns is quite often directly tied to their opportunities to use it. Czech Republic's close proximity to Germany makes it an ideal location for "nearshore" outsourcing.
According to the Datamonitor report, the Czech Republic, Poland, and Hungary will be the destination of choice for higher-end jobs for German and English-speaking customers because their young workers know those languages well enough to provide technical support. While a country like Romania, who has Latinate roots, is ideal to focus on Italian and French clients. Croatia and Slovenia both have great numbers of Italian and German speakers in their workforce.
But language isn't the only factor a company takes into consideration. Moving work to India, where English is widely spoken, can save a U.K.-based firm up to 40 per cent in operating costs because pay is only 10 to 15 per cent of U.K. wages.
For some multinationals, the quality of the service has been problematic. Earlier this year, Dell computers stopped outsourcing technical support calls to Bangalore, India after customer complaints.
However, the low prices for outsouring look too good to pass up. With more companies across Western Europe looking to cut costs, places like the Czech Republic have potential to become legitmate contenders in the high stakes outsourcing market.
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