SIGNIFICANCE OF RIGHTSHORING MODEL IN CENTRAL-EASTERN EUROPE REGION Robert Marciniak University of Miskolc, Hungary Young Scientists 1st International Baku Forum May 2013 Baku, Azerbaijan

Global Trends The globalization of economic activities has an effect on every part of today's global economy. Traditional, centralized decision-making centers of the company has lost its effectiveness. Globalization has forced the corporate structures that are able to meet criteria for "glocal" operation. Headway of service sector is one of the most important trend in the global economy (in developed countries 70-80% of GDP, employment) Business Related Services (BRS) means those functions which are inputs in manufacturing other products or delivering other services and taking part in the production process. BRS – in service centers (outsourcing providers, service companies, shared service centers) BRS as a favor instrument of economical policy and economic improvement Within the BRS I am focusing on the shared services model and mainly on its appearance on the Hungarian and CEE market 2 Baku 2013Robert Marciniak

Global Trends For an organization to ensure the needed resources or services is called "sourcing activity". There are four types sourcing activities: – Creating (or maintain): traditional operation of the organization – Buying: provide a service or resources from external sources – Cooperation: two or more units (or organization) creates a solution by sharing resources – Compete: when a company integrates market approach into an internal service organization and this unit is responsible for the operation of service delivery, service cost, charging, and it leads to a profit approach and creating spin-off companies or shared service centers that have external clients beside the internal ones 3 Baku 2013Robert Marciniak

Global Trends 4 Baku 2013Robert Marciniak

Global Service Map 5 Baku 2013Robert Marciniak Source: Everest Group, 2011

Shared Service Model During the focusing of core competence shared service model appeared in the 80’s in the USA It was an answer of unsuccessful outsourcing decisions Since then there is high interest not only in the private sector but in the public and non-profit sector as well Main target of the model was primarily cost-cutting and service quality improving but until now it has been extended. The main drivers are: – improved services, reduced costs; – standardized services and processes; – diminished administration costs; – supporting corporate strategy; – grouping similar tasks and demolishing redundant processes; – favoring progress; – facilitating introduction of new technologies; – improving working capital. 6 Baku 2013Robert Marciniak

Shared Service Model Focusing of core competence shared service model appeared in the 80’s in the USA It was an answer of unsuccessful outsourcing decisions Firstly in the private sector but later in the public and non-profit sector as well In general shared service model means that some of internal services are centralized into one (or more) organizational unit(s) to deliver them for other units or maybe for external (partner) organizations. Shared service models have a lot of names but if we make order than there are three main subtypes: Captive center Shared service center (SSC) Hybrid models: BOT, BOOT, virtual captive 7 Baku 2013Robert Marciniak

Grouping of Service Models 8 Baku 2013Robert Marciniak

Rightshoring Model in CEE CEE countries has a great potential because of pool of educated human resources million people were in tertiary education across the region including Russia, compared to 13.6 million in India. It is 30% cheaper than Western-European countries or US It is quite close in geographically, time zone, cultural, legal system to „West” So CEE region got very good position on the global service market in the last decades It was the nearshoring model for CEE countries firstly but nowadays it is rightshoring The rightshore really means to select the most appropriate location for a particular service. This basically means some kind of mix of cost and service quality but there other factors It is also called hub-and-spoke model as well. It breaks with practice that supporting services need to be located always closer to the clients. This model is not about moving the whole supporting process to somewhere but disassembly of the process parts, analyze them and decide which part can be standardized and what extent and from where could it be delivered. 9 Baku 2013Robert Marciniak

Rightshoring Model in CEE While in Hungary there is neither a shortage of workforce nor oversupply on this segment, in Czech Republic or in Slovakia the shortage could be sensible. In the coming years, organizations in Western Europe will rightshore services to CEE. The key drivers are the proximity limited time zone differences, lower transactional costs than in Asian alternatives. Drivers of Hungarian service market progress: – Language proficiancy of European and world languages, – Political and economical stability – Favor tax system – Investment supporting from own or EU sources – Advanced labor market – Well-educated, skilled, young man-power To preserve this situation governments have to strenghten the higher education and cities ensure appropriate office infrastructure for this companies 10 Baku 2013Robert Marciniak

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