Nordics Centers Migrating South
SSON Editor's analysis of Dart Research & Analytics Report
As shared services continue on the path to becoming more entrenched in organizational operations, the combination of available skilled talent and experience in Central and East European markets, and increased confidence in the nearshoring model, means that while the number of centers across the Nordic region is still increasing year-on-year, there is also a growing trend of Shared Services Centers migrating away from the region and into Central and Eastern Europe. SSON’s new analytics center, Dart, recently investigated the factors that are influencing this shifting landscape.
Still growing, but moving
The most significant shared services trend across the Nordic region is that of continued growth in absolute numbers, driven predominantly by local small and medium-sized enterprises launching shared services.
Sweden tops the list for hosting the greatest number of shared services (1/3 of all SSCs across this region), followed closely by Denmark and then Norway. What is notable is that in every country, the capital city is the most popular location, confirming that cost is not a key driver in choosing locations. In fact, other than Norway, Sweden has the highest salary index across the entire region. (By comparison, Poland’s salary index is less than half that of Sweden, and other East European countries are even cheaper: Lithuania and Romania’s salary indices are half that of Poland.)
The big migration
To date, one out of five Nordic shared services has moved south – the vast majority (nearly 2/3) over the course of the last three years. So, what characterizes these SSCs? Where are they going? And what's been driving this move? The data tells us that nearly 3/4 of the Shared Services Centers in the Nordics are multinational corporations – and that 100% of the migrated centers are multinational too, the majority Nordic-headquartered.
We also see that certain Nordic countries are favoring specific CCE countries: Norwegian SSCs, for example, are moving primarily to Lithuania, while Swedish SSCs are moving mainly to Poland. Taken overall, the largest segment by far of migrating Shared Services Centers chose Poland (42% compared to the second most popular locations, with 7.3%). One possible reason for this preference is that Poland offers multiple tier 1 and tier 2 cities – far more than other countries across the CEE. This additional choice, along with low-cost, skilled talent, is a persuasive factor in evaluating SSC locations outside a home country.
Poland: a key attraction
Although Romania offers the cheapest cost of living across Central and Eastern Europe, there are a number of factors that explain Poland's popularity, primarily salary and availability of graduates. Compared with Sweden, for example, the starting salary of accounting graduates in Poland, at just over U$17,000, is less than half of Sweden’s. But where Poland truly stands out in in the number of business and legal graduates it produces every year: 250,000 – vastly more than all the Nordic countries put together. In addition, Poland is perceived as relatively safe and offers one of the lowest costs across Central and Eastern Europe (only Bulgaria and Romania are cheaper, by a fraction).
What will be interesting to see is whether Poland can maintain its pole position for Nordic SSC migrations. Compared to other countries across Central and Eastern Europe, its salaries are the highest. And while the Czech Republic, Hungary, and even Estonia all share similar salary levels, Bulgaria, Latvia, Lithuania, and Romania offer significant opportunities for wage arbitrage. These topics will be under discussion in November, at the Nordic Shared Services, BPO and GBS Summit in Stockholm.
Key requirement: language
Given the need for multiple languages to serve the Nordics, a key factor in determining a cost advantage is the cost of hiring technical skills in a given language. For example, the relative cost of an accountant in Warsaw, Poland is significantly higher for Finnish language than it is for Danish, Swedish, or Norwegian (English language is roughly 25% cheaper than the latter three, and nearly half as expensive to recruit as Finnish]. What's even more interesting is when we compare the relative cost of hiring a Finnish speaking accountant in Poland to an equivalent employee in Finland itself: the advantage in wage savings is then only 8%. On the other hand, the wage arbitrage for a Swedish speaking account in Poland versus a similar employee in Sweden offers savings of nearly 50% in terms of wage.