Eastern European markets offer language capabilities as well as an emerging infrastructure of service provider companies

by Simon Tarsh

During the past decade and a half, the “crown” of the European business process outsourcing (BPO) market, particularly in finance and accounting outsourcing (FAO), reigned primarily in the U.K. Throughout the 1990s and into the new millennium, the U.K. reigned in scoring the largest number of public/government outsourcing transactions, compared with the rest of Europe. Today, that eminence is evolving, and FAO is becoming widely adopted across the European continent.

Those initial government contracts with BPO multinational service providers, as well as early outsourcing adopters such as BP, have served as a springboard to outsourcing expansion, a cause-and-effect relationship resulting in an increase of sourcing operations across the continent, a larger number of service providers, and a broadening of F&A services being outsourced. In fact, landmark contracts from Unilever, Nestle, and Procter & Gamble seem to support recent reports indicating that spending on finance and accounting BPO will increase more than 16.4 percent CAGR during the next five years, with a large portion of that spending originating in Europe.

It should come as no surprise that cost savings drive outsourcing in Europe, as the largest portion of an organization’s finance and accounting cost base is its employees. Thus, labor arbitrage—employing highly skilled workers based in lower-cost geographical locations—offers much potential in net savings.

The scope of F&A outsourcing transactions is also expanding. What started with accounts payable, employee travel and expense processing, and some general accounting with a small handful of other common processes has now evolved to include accounts receivable, credit collection, and some increasingly complex F&A functions such as closing the books for the year. At the same time, many FAO service providers are increasing their domain expertise and global reach while providing additional BPO and ITO services from an ever-expanding array of global or regional centers.

European BPO has at least one distinctive difference from other parts of the world. In Europe, service provider language capabilities are a key requirement in facilitating the drive towards FAO expansion. Europeans to a large degree continue to utilize India for outsourcing, yet the model is typically a hybrid—split between delivery locations in India (for cost savings) and Europe (for language capabilities). Having a solid base of foreign language skills beyond English in the selected service provider centers is critical. There are more than 13 languages spoken in Western Europe alone, and this breadth cannot be supported from traditional delivery destinations such as India.

Furthermore, if clients of FAO services do not take into account all the unique characteristics that apply to each European Union (EU) or European country, such as country regulations, government labor policies, worker rights, and other issues, the success of the outsourcing arrangement is at risk. This presents a huge obstacle in attaining an eastward expansion, if that is the objective.

LANGUAGE CAPABILITIES ARE EVERYTHING
“Language is the inventory of human experience.”—L.W. Lockhart

During the past few years, it has become apparent that service provider language capabilities are a huge outsourcing driver. Continental Europe encompasses dozens of countries, so there are a number of different languages spoken, and Eastern Europe has emerged as an important location for BPO operations with a workforce trained to speak other languages since childhood. While labor rates can be extremely appealing in some Eastern European countries, the more important factor is the ability of provider employees operating a center from a Polish city, for example, to speak and communicate in a variety of European languages to address customer concerns across Continental Europe. Without the range of requisite foreign languages spoken by its workforce, Eastern Europe might not be such an attractive location for front-office customer relations skills as it is today.

Every year, the risks of moving work into this region diminish. Many Eastern European countries offer the benefits of highly developed communications and infrastructure, low geopolitical risks, an extremely educated labor pool and, most importantly, well developed language skills among its workforce. It is no wonder that many of the largest providers (including Accenture, IBM, Capgemini, ACS, HP, and others) have operations throughout this region. From Prague to Krakow to Bucharest and Warsaw, the Eastern European workforce has the language capabilities to serve Western Europe, and these regions could ultimately serve the U.S. as well, emerging as a global center to handle F&A, and other BPO and ITO engagements from around the world. And not just for back-office functions:

The willingness to move to customer-facing processes has been promoted by language availability. However, not all Eastern European countries have the same language capabilities.

Romania, for example, has become a very popular destination for F&A outsourcing by southern European customers. The workforce in Romania has strong English and other western European language skills, and the country’s proximity is ideal. Poland has a large pool of English speakers, and has become a desirable location for northern European languages. Hungary is another growing destination for outsourcing, with a culture similar to that of western Europe and English language skills that are rapidly improving.

PUT TIME ON YOUR SIDE
Many European service providers—for F&A or any other business process—are now part of the EU. This intergovernmental union of democratic member states whose responsibility centers on developing common policies and procedures for regulating the four factors of production: goods, services, capital, and labor. And if a country is an EU member, its enterprises must abide by standards and policies that emanate from the EU government. This covers issues surrounding data privacy, a hot topic for outsourcers and service providers alike.

According to EU regulations, some information is not allowed to be transmitted outside the EU. So, when a company operating in a certain country is developing a plan to outsource, create a shared-services center, or design any other sourcing strategy, it will be most successful if enough time is allocated to properly review, address, and implement the guidelines and procedures stipulated by EU mandates on data privacy and security. Although the EU has been widening with new members, not all companies want to have service centers in EU countries due to strict governance.

European countries have also created government entities that oversee employment policies that affect national workers and employers. For example, a works council governs and tempers local employer companies’ treatment of employees under circumstances in which the employees’ jobs are changing or are being eliminated. Under works council legislation, a company is required to consult with the employees if their jobs are in jeopardy due to a planned business strategy such as outsourcing. If a job needs to be terminated in France, for example, it can take more than 18 months to negotiate a separation agreement with the affected employees.

In the U.K., employment status is very similar to the U.S., but both countries have very different approaches. In many U.K.-based firms, employees sign contractual agreements that cover them for several months should the employer decide to eliminate their positions. U.S.-based employees generally have no such cushion of protection.

In short, companies contemplating outsourcing across geographies in Europe need to be fully aware of all the regulatory implications, national laws and policies, and local works council procedures and take time to accommodate all considerations. It is imperative to perform all the due diligence towards each country’s employment laws and act within the bounds of the local, national, and EU laws in implementing a successful
sourcing arrangement.

Although labor and operational costs continue to drive Europe’s eastward expansion, multiple foreign language capabilities are an increasing attraction.

Organizations need to build in enough time and due diligence as they negotiate their outsourcing contracts, terms, and conditions to account for national laws, EU regulations, and local cultural and social mores. In so doing, they will achieve a successful outcome that yields enduring value during the lifetime of the sourcing initiative.

Eastern Europe is perhaps the new “crown jewel” in Europe’s trove of national treasures, made more precious by its sparkle, which emanates from a unique blend of multi-lingual and cross-cultural heritage enhanced by the global impact of high technology and instantaneous communications on all types of business operations.