If there’s one thing recent HFS data is telling us, it’s that European businesses are keen to spend more on external services (see Exhibit 1), bucking the global trend of a bleaker appetite. While this is broadly good news for the entire sourcing industry, the real winners are likely to be closer to home as satisfaction and demand for onshore and nearshore capability increases. Simply put, if cities and nations in eastern and central Europe play their cards right, shifting business appetites could spell out a boom in investment. But locations aren’t created equal, and many suffer from an inconsistent investment track-record and under-developed infrastructure, hampering talent growth and retention. Executives must carefully pick the locations that have the capability they need to deliver business services—or risk falling afoul of over-ambitious marketing campaigns.
Exhibit 1: European executives buck the global trend with a clear appetite for external services
Sample: Global 2000 enterprise leaders = 209
Source: HFS Research, 2020
European nearshore hotspots climb up the ranks of location attractiveness
As the sourcing market shifts away from traditional forms of value creation—nominally cost reduction—to new structures and models, nearshore destinations have every opportunity to become sourcing hotspots. In Exhibit 2, we can see several European nearshore destinations moving up the chart of location attractiveness; this chart is usually dominated by the offshore giants that have exploded onto the offshore boom over the last decade.
Exhibit 2: European locations are climbing the ranks as attractive outsourcing destinations
Sample: Global 2000 enterprise leaders = 209
Source: HFS Research, 2020
And, at least at a recent event we attended in Poznan, Poland, government bodies and the private sector in the area are eager to encourage investment and support the ambitions of European executives to nearshore higher-value work, particularly in core business services such as IT, finance, and HR. According to government statistics, Poland boasted a new record for foreign direct investment in 2019, with an ambitious roadmap to secure more in 2020; much of this investment sits in business services, either through captives, shared service centers, or outsourcing. The City of Poznan, which received an award for its commitment to the industry, has shown a clear strategy for driving investment from companies looking to base operations in the city.
However, in an increasingly competitive space, Poznan will no doubt come under fierce competition from other cities and areas looking to capture mindshare from sourcing decision-makers. The hardest part for decision-makers will be ensuring the locations they shortlist for investment are as committed to the industry as they are. Capital cities, usually mandatory additions on shortlists, are rapidly falling out of vogue, if only because of the comparative cost of labor between cities and other regions. Sourcing executives have also told us candidly that they’re eager to look at cities where their competitors are not, often because they are tired of pyrrhic battles for limited talent pools.
The Bottom Line: As nearshore becomes a core part of European executive strategies, more cities and regions will want a piece of the action—looking beyond marketing and at real capability is key to success.
Already, cities, regions, and companies are eager to embrace the shifting sourcing environment, and for those that invest in infrastructure and develop talent, the opportunities are considerable. But for executives, the hard part is just beginning. In Exhibit 3, we can see how essential meaningful and collaborative partnerships are for business success. Now, sourcing leaders must build a coherent location strategy into their plans and find the cities and regions that offer them the best blend of cost savings and value creation.
Exhibit 3: European locations climbing up the ranks as attractive outsourcing locations
Source: HFS Research, “Journey to the Digital OneOffice 2018”
Sample: Enterprise digital leaders n=395
An important part of this process will be working with partners—such as the global outsourcing firms who have invested in localization strategies that enable executives’ easy access to regional talent hubs. Or finding experts in the space to help them locate the areas with the talent pools enterprises need to build a successful delivery network. But, the simple fact is, glitzy shows championing the potential of cities will only go so far. Sourcing executives would do well to look beyond the hype and toward the real capabilities and opportunities and build a blueprint for delivery center locations that leverage the benefits of each unique region.