For the first time, smaller business services centers have won with the leaders.Thanks to Brexit they will grow even more.
This was not yet the case in the business services sector.Although investors have always chosen not only the most popular Kraków, Warsaw and Wrocław, but also a few smaller cities in Poland, in the first half of 2017, for the first time the second and third league attracted almost 70 percent.all new service centers – according to the Everest Group report.
In the past several years, Poland has become the most prominent global services delivery destination in the European region. But, unlike other countries in which the lion’s share of digital services activity is in tier-1 cities – think India and the Philippines – Poland’s tier-2 and 3 cities have outpaced activity in its tier-1 cities since 2008.
Why? Everest Group research identified two key reasons:
Increasing activity in tier-1 Polish cities, e.g., Krakow and Warsaw, has created intense competition for talent, driving higher attrition/turnover, longer hiring cycles, increased premiums for niche skills and seniority, and faster wage inflation
Increasing maturity of tier-2/3 cities over the past five years has established a critical mass for global services delivery in these cities, leading to a higher degree of comfort in talent capabilities and the ease of scaling up operations in these cities.
Other factors, including less competition for talent, lower salaries and infrastructure costs, better quality of life, stronger government support, and the opportunity to leverage untapped talent pools, have also contributed to tier-2/3 Polish cities’ rise above tier-1 cities in the country.
To understand the full story, Everest Group evaluated multiple aspects of the tier-2 and 3 cities, including relative delivery scale/size, work complexity, extent of digital services delivery, and typical source markets supported.
Here are some of our findings.
Shift in nature of leverage
Historically, tier-2 Polish cities, such as Katowice, Łódź, Poznań, and Tri-city, and those in tier-3, including Bydgoszcz, Opole, Rzeszów, and Szczecin, were leveraged as small spokes to tier-1 city hubs. They were largely meant to accommodate “spill-over” growth, or to host more transactional work. But this is changing rapidly, as more companies, both in captive and outsourced arrangements, are establishing their delivery hubs in these cities.
Largely single functions to multi-functional delivery
While both Global In-house Centers (GICs) and service providers had previously been leveraging the tier 2- and 3 cities largely for IT services delivery, their increased confidence in the breadth of talent has prompted establishment of large, multi-functional centers in these locations.
Digital services CoEs
Most importantly, while where tier-1 cities in other delivery destinations like India and the Philippines account for more than 70 percent of all digital delivery centers, Poland’s tier-2/3 cities are brimming with digital services activity.
Of course, any company’s selection of a tier-2 or 3 location in any country depends on its appetite for benefits versus trade-offs, including high cost savings versus low scalability, and early mover advantage versus relatively lower maturity. But Poland’s smaller cities certainly have a compelling digital services delivery proposition.
Poland’s tier-2/3 cities have seen significant digital services activity, unlike other major digital services destinations – such as India and the Philippines – where tier-1 cities account for more than 70% of all digital delivery centers
New locations (think Jamaica, Romania, Malaysia, and Singapore) are gaining traction as Global In-house Centers (GICs) and service providers seek to match talent to specific need, as well as to diversify their location portfolios
While APAC remains the dominant delivery location, global services headcount is growing in other locations as GICs and service providers recognize the value of location-specific talent and seeks to diversify their portfolios