BSCs harness Slovakia’s engineering skills, innovation and creativity

When companies started establishing their business service centres in Slovakia in the 2000s, the country’s lures for the sector were its geographical position in the centre of Europe and its low costs for a skilled labour force.

Now, the industry that has silently grown into one of the biggest in Slovakia’s economy no longer relies on the economic model of cheap labour. Its representatives say that there is a lot of potential in the country for the arrival of new centres as well as the expansion of existing ones, particularly by taking on more demanding roles.

“Business service centres are an indicator of the country’s potential,” Peter Rusiňák, coordinator of the Business Service Center Forum (BSCF) industry association running under the American Chamber of Commerce (AmCham), told The Slovak Spectator. “They are a great step from the manufacturing economy on the way to industry 4.0.”

The Slovak Investment and Trade Development Agency (SARIO) highlights that business service centres (BSCs) are evolving into centres with higher added value and a greater emphasis on the quality of the services they provide, thanks to the skilled workforce. “They have moved higher up in the value chain, creating centres of excellence with specialised positions,” SARIO told The Slovak Spectator.

The state’s investment agency sees potential for further growth in the sector not only in Bratislava but also in the regions outside the capital. “This sector is already strong in Košice and is slowly gaining strength in regional and larger Slovak towns, such as Prešov, Poprad, Banská Bystrica and others,” SARIO added.

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The Covid-19 pandemic has not hindered the growth of the sector, which went up 5.5 percent in terms of headcount in 2021. People from within the sector as well as market watchers see that as proof of the industry’s adaptability and resilience.

“Activities that no one expected to be able to do remotely were suddenly done by people from home. I expect this to help the further growth of this industry,” Miloš Martončík, a partner in the Audit and Assurance business at Deloitte in Slovakia, told The Slovak Spectator.

The BSC sector in Slovakia is composed of 65 companies employing almost 40,000 people or 1.5 percent of the economically active population of Slovakia. It generates about 4 percent of the state budget’s income. The Economy Ministry said it recognises the sector’s important role in Slovakia’s economy.

“It is a sector with a high added value and it is constantly growing,” the ministry stated for The Slovak Spectator.

Finance dominates

In 2022, BSCs in Slovakia are mostly mature centres that provide value-added services and sophisticated processes for their global or regional operations. “Historically and still now, Slovakia is attractive mainly for finance and IT centres, but there are a large number of HR, procurement and various call centres, too,” Lygia Fullbrook, director of KPMG in Slovakia and the sector leader for shared service centres, told The Slovak Spectator.

While Rusiňák does not have a clear answer as to why the finance sector dominates, as most company representatives would tell you they can imagine better-quality graduates in Slovakia and a better, overall environment for growth, he thinks that people in Slovakia are still smart enough and their skills are sufficient enough to be capable of working in the finance sector.

Tereza De Bardi, director in the Consulting practice of Deloitte in the Czech Republic, noted that Slovakia might become an attractive centre of technological innovations for not only robotic process automation but also in the support of ERP (enterprise resource planning) implementation, data analyses and cloud solutions.

Attractive, but...

New arrivals on the market, like Takeda Pharmaceutical’s Innovation Capability Center, as well as the expansion of existing centres, indicate that Slovakia remains an attractive destination for investors, Fullbrook noted.

Yet in Slovakia, the BSC sector is the smallest relative to the country’s population when compared to the Visegrad Group, which is made up of Slovakia, Hungary, Poland and the Czech Republic. Only Hungary has proportionally less employees, but more centres than Slovakia.

Population-wise, the Czech Republic is twice as large as Slovakia, but its BSC sector is more than three times larger. With a population of 10.7 million, the Czech Republic is home to 350 centres employing 145,000 people.

Martončík noted that Slovakia often makes the short list in the region of central and eastern Europe when a corporation is choosing the location of its new centre, yet in most cases, the winner is Poland, the Czech Republic, Hungary or even further east in Romania.

“Our business environment is not very attractive for shared service centres, and that puts us at a disadvantage,” said Martončík.

Slovakia has the highest tax rate of all the countries in the region. Poland, the Czech Republic and Hungary overtake Slovakia in incentive schemes and Romania and Hungary in the legal environment. On the cost side, Slovakia is also one of the most expensive. “This is primarily because Bratislava, which is one of the most expensive cities in the EU, is usually considered,” said Martončík, adding that low wages are no longer a driving force for the inflow of investments in BSCs and beyond.

Rusiňák noted that Slovakia has significantly higher total wage costs compared to other countries in the CEE region due to the cumulative amount of employee and employer contributions while the general trend is negative.

He specified that in 2018, the annual average cost per employee increased by 30 percent and in 2019 by another 12 percent. Wages themselves increased by only 3 percent on average both of these years. He said higher health insurance contributions and an increased base for social contributions are behind the rising costs.

On top of that, mandatory holiday vouchers were introduced without any wider social discussion or preparation period for companies.

When it comes to talent, Slovakia is somewhere in the middle, but the higher ranking of Slovak universities could help.

“We also have other cities with BSCs, and their promotion should be at a higher level,” said Martončík.

Rusinak pointed to what he has called the lukewarm interest of municipalities in this new industry.

Gabriel Galgóci, Slovakia Country General Manager & Director Client Network Operations Management at AT&T in Slovakia, used the example of Košice to explain how the BSC industry is affecting the city.

When AT&T opened its operation in Košice in 2006, all the restaurants would close early in the evening. But over the years, restaurants, pubs and bars have mushroomed in the city and remain open until morning.

“We obviously pay our people well and they spend this money locally,” said Galgóci.

Very real differentiators

Experts and BSC representatives agree that Slovakia is an attractive destination for BSCs due to its highly qualified labour force, good language capabilities, relatively stable political environment and competitive salaries.

An advantage is that Slovakia is part of the European Union. As a result, the protection of personal data, i.e. obeying the General Data Protection Regulation (GDPR), is significantly easier than, for example, in the Philippines, Malaysia or India.

Peter Mrázik, Global Innovation Delivery Center Easter Europe ITO&Cloud Leader at DXC Technology, believes that while technology is set to remove the need for language skills, cultural and physical proximity is not easily replaced. "That is why our position in Europe is much better than anywhere else in the world,” said Mrazik. He also highlighted the ability of people in Slovakia to resolve difficult problems which require a multidimensional point of view.

“Asia is very good at the replication of existing solutions, but to create something that customers are willing to pay for is what we should be thinking of when positioning ourselves,” said Mrázik.

Galgóci sees the advantage of the CEE region and thus also Slovakia in the local creativity and innovation potential and its ability and willingness to take a smart risk.

“If you give employees the feeling that they are allowed to go into unknown areas and try something new, with some assurance, they don’t mind exploring those fields and even burning their fingers if it ends up being the wrong direction,” said Galgóci, adding that this is what differentiates central Europe, especially Slovakia and the Czech Republic, from other counties in the world where AT&T operates. “This is absolutely something attractive for our companies.”

Galgóci noted that corporations like AT&T look at every country through different benchmarks. His company looks at 17 indicators, including political stability, the education system, and monetary stability.

“Slovakia is not really leading in these 17 categories, but when you put together all the marks, then Slovakia is number one from a global perspective,” he added.

Rusiňák pointed to the good geographic location, enabling centres operating in this region basically 24/7 to cover the demand and needs of their customers worldwide. Another great advantage of Slovakia and the CEE region in general is language skills.

"The variability of languages is higher than in other [global] locations,” he added.

The pandemic has not halted growth

"Knowing things could be delivered effectively and at the best quality possible in a different manner compared to before the coronavirus crisis is the most important positive aspect of the pandemic,” said Rusiňák, adding that most BSCF members did not struggle with a loss of productivity.

On the contrary, 6 percent even registered a significant increase. SARIO expects the sector to continue growing. The agency reports that more than 40 percent of BSCs in Slovakia have declared an interest in a further centralisation process in the near future, and 12 percent want to take over operations with higher added value. This translates to the development of a competence centre or the use of artificial intelligence or blockchain technologies in processes.

When the worldwide economy restarts after the pandemic, Galgóci hopes it will go hand in hand with the further stabilisation and growth of the sector. The operations of AT&T, a global corporation that serves clients around the world and helps them improve their communication, were indirectly impacted in Slovakia.

"Projects we did for our customers were either delayed or cancelled as a result of the lack of expansion of our clients,” said Galgóci, emphasising that this was not specific to Slovakia.

Martončík said that with the pandemic, companies have moved some activities outside of Europe but have returned others to the continent.

"Time will tell what the final balance will be, and it also depends on the skill of our centres’ management,” said Martončík.

The future of the BSC sector is in the centres’ hands.

If they want to retain their relevance and growth in Slovakia, they need to focus on higher value-added activities like IT, development, and controlling, and a more massive development of automation and robotics.

Looking at the global scale, De Bardi noted that the standardisation and automation of processes, a prerequisite for the introduction of innovative technologies, has significantly accelerated.

The need to work more with remote data has in turn created a demand for reliable and flexible user-centric analytic solutions. BSCs are finally promoting a clientcentred approach, with the client in this case being the company in the group, and the related implementation of systems that support this interface. "The pandemic has significantly accelerated all of this and there is no way back,” said De Bardi.