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Shared Service Centers and BusinessProcess Outsourcing in Germany

SSCs & BPO in Germany

An Industry to Count on in Germany

Germany is one of the biggest growth markets for the SSC & BPO industry in Europe. More and more German companies and global players oper-ating in Germany are using these innovative concepts to optimize their back offi ce and non-core functions.

An increasing number of companies are choosing to locate in Germany as the country increases in attractive-ness thanks to moderate wage cost developments and low fl uctuation rates.

International outsourcers are also starting to produce at German loca-tions in order to meet the high qual-ity and data security requirements of their German customers.

With a large pool of highly qualifi ed and motivated people from intercul-tural, international work experience, and foreign language backgrounds, Germany is also an excellent loca-tion for pan-European and other international projects.

The German SSC and BPO Industry in Numbers

Service Centers Around 75 percent of the top

German companies have already

installed shared service centers

(SSCs). German companies are

satisfied with the SSCs established:

three quarters would not outsource

any of the processes already bund-

led within an SSC to a third party. Seventy percent of German com-

panies will establish further SSCs

in German locations. Key drivers

are the availability of qualified per-

sonnel, labor costs and the increa-

sed significance of labor turnover

rates. Internationally active companies

with pan-European and EMEA

SSCs in Germany include BASF,

Bayer, Beiersdorf, GMAC, Heidel-

bergCement, Merck, and Parexel. Special collective agreements

negotiated and signed with trade

unions help reduce labor costs by

up to 40 percent. In Q3/2008, labor costs rose by only

0.7 percent; this is the lowest rate

EU-wide (EU average: 3.4 percent).

Indirect labor costs are actually

declining (by 0.3 percent) due to

new regulatory legislations. Labor turnover rates are signifi-

cantly lower than in near or off-

shore locations (being only bet-

ween five and 10 percent in Ger-

many).

Business Process Outsourcing The BPO market is highly frag-

mented in Germany; the top

20 BPO providers occupy less

than 30 percent market share. In Germany, annual growth rates

for the total BPO market are ex-

pected to be near nine percent; and

more than 10 percent for front-

office and back-office services.

By 2012, the BPO market in Ger-

many will have reached an esti-

mated volume of EUR 16 billion. Around a third of German com-

panies plan to outsource business

processes during the next two-

year period. BPO delivery centers in Germany

include ADP, HP, and Paychex.

Industry Overview 2009 www.gtai.com 3

Shared Service and BPO Delivery Centers in Germany

Source: www.typoly.de

Advantages of Ger- many as a Sourcing Center Location

The organizational concept of shared service centers and business process outsourcing helps compa-nies to concentrate on their core businesses and run their non-core activities in a more professional and effective manner. Administra-tive functions are being bundled and centralized – be it captive or outsourced. Thanks to optimized concentration, processes can be standardized and automated in order to achieve higher proficiency levels through economies of scale.

Key Drivers for Sourcing LocationsGermany is ready and able to meet

all of the major requirements of the

international sourcing industry:

Labor costs and developments Availability of qualified and moti-

vated staff (technical and linguistic

skills) Labor attrition rates Attractiveness of the location

(also for international talent) Real estate (availability and cost) IT and physical infrastructure Location accessibility (providing

quick and easy local access to em-

ployees and international transport

infrastructure) Taxation Incentives

PersonnelGermany has a globally unique

professional education system: the

so-called “dual system.” The system

is called this because education and

training are provided in the work-

place and at part-time vocational

schools over a three-year period.

This is the main type of vocational

training in Germany, with more than

60 percent of young people putting

their first foot on the career ladder

involved in dual vocational training.

The German model provides compa-

nies with access to a broad array of

highly trained and motivated employ-

ees at market competitive condi-

tions. Approximately 300,000 young

professionals successfully take their

German Chambers of Commerce

and Industry-certified occupational

exams annually; with two thirds of

them specially trained in administra-

tive functions. There are currently

around 350 recognized occupations

for which the federal government has

issued training directives.

Moreover, approximately 220,000

graduates complete their univer-

sity studies every year in Germany.

Of these, around 15 percent are

foreigners from the 7.2 million for-

eign nationals who live in Germany

(equivalent to almost nine percent

of the total population). Temporary

work can easily be used to meet peak

time and other demands. There has

been constant growth in the German

temporary labor sector since it was

opened up by sweeping liberaliza-

tion measures in 2004. At present,

there are around 800,000 people

employed in the temporary labor

market.

MarketAs the “world export champion,”

Germany is the most important

industrial nation in Europe and the

third largest economy worldwide.

It is also Europe’s largest consumer

market with more than 82 million

inhabitants. The German economy

is not only made up of industrial

giants like Daimler, SAP, Siemens,

Bayer, and BASF, but also from

small and medium-sized companies

(SMEs). In fact, over three million

SMEs employ 80 percent of all per-

sonnel. A small business-based

economy allows new companies to

enter the playing field more easily

4 Industry Overview 2009

Development of Labor Costs (Year 2000 = 100)

EU total

Eurozone

GermanyFrance

Portugal

Spain

UK

Cyprus

Slovenia

Czech Rep.

Poland

Bulgaria

Slovak Rep.

Hungary

Lithuania

Estonia

Latvia

Romania

0 100 200 300 400 500

131.9

125.1

114128.9

129.4

140.5

143.9

149.7

169.9

174.4

174.6

181.4

186.3

204.7

212.4

254.8

313.9

473

Source: Eurostat Online, 2008


and opens up enormous market

potential for the service industries.

Actual front-office services like

customer management dominate the

German BPO market, followed by

banking processes. Back-office ser-

vices like finance & accounting (F&A)

as well as human resources (HR) only

account for seven percent of the total

BPO market in Germany respectively,

but are expected to experience sig-

nificant growth over the next years.

Physical Infrastructure Germany provides access to a com-

prehensive infrastructure that inte-

grates the most modern telematics,

IT, and telecommunications systems.

Highly competitive real estate prices

help make Europe-wide services

from Germany affordable. Thanks to

an average vacancy rate of around

10 percent, investors typically find a

tenant market with negotiable rents

and conditions. Office rental prices

in German major cities start from as

low as EUR 5/m² a month. A modern

and reliable public transport system

allows easy access to office loca-

tions: 24 hours a day, 365 days a year.

With state-of-the-art transporta-

tion networks by road and rail, and

a dense network of both national

and international airports, Germany

provides access to markets on a truly

international scale.

Stable Investment Environment Social, economic, and political sta-

bility provide a solid foundation for

your corporate projects. The Ger-

man judiciary and civil services are

highly professional. Contractual

agreements are secure, and intellec-

tual property is strictly protected in

Germany. The country’s 2008 com-

pany taxation reforms have further

improved competitiveness, with

current tax burden levels putting

Germany in the middle of the field

in Europe. Source: Ernst & Young: Outsourcing – Baustein eines neuen Unternehmensmodells, 2008

BPO Market Potentialin Germany

Industries Manufacturing Financial Services Telecommunications Media Utilities Health Sector Retail

Processes Finance & Accounting

(particularly A/P; A/R) Travel Expenses HR Services (particularly payroll) Recruitment Document Management Insurance Processes Customer Relationship Management Customer Care Loyalty Programs Credit Card Processing SEPA Transactions

The Current BPO Market in Germany (in percent)

Source: NelsonHall, 2008

Banking

Processes 35.0

Customer

Management 25.0

Document

Management 21.0

Finance &

Accounting 7.0

Insurance Processes 3.0

Others 2.0

Human

Resources 7.0

Source: NelsonHall et al., 2008

22.0

28.028.0

24.0

22.0

20.0

12.0

Future Plans for Outsourcing in Europe (in percent)Expected outsourcing demand in the next two years

European Average

GermanyBelgium

Italy

France

Spain

UK

0 10 20 30

Opportunities

Germany is a competitive sourcing

location for shared services and

BPO delivery. Thanks to the pres-

ence of a highly qualified workforce,

increased integrated processes can

be implemented in the centers. Ac-

cordingly, the units in Germany can

reach a higher level of standardiza-

tion and work more efficiently. Labor

turnover rates of around five to ten

percent are significantly lower than

in near or offshore locations. Labor

costs remain stable; with higher sal-

ary levels adequately compensated

by more effective work-flow sys-

tems and increased productivity.

With GDP of EUR 2,423 billion, Ger-

many is – after the USA and Japan –

the third largest economy in the

world and the leading economy in

Europe. German GDP is equivalent

to 20 percent of that of the total of

the European Union’s 27 member

states.

For globally active companies,

a German location can meet the

requirements for international,

non-transactional services which

require a multilingual workforce

with international work experience

and a significant German back-

office specialist base to service the

large domestic market. Germany

is already a proven location for

international SSCs as the following

success stories amply illustrate.

BASF, “The Chemical Company,”

has established its European SSC

in Berlin, Germany. Employing ap-

proximately 700 employees from

37 nations, it delivers F&A and HR

services for all companies of the

BASF group in Europe (more than

100 companies). BASF’s decision to

locate its SSC in Berlin was made

possible by the provision of specially

negotiated collective agreements.

DB HR Solutions GmbH is a 100

percent subsidiary of Deutsche

Bank Group with sites in Berlin and

Frankfurt. The group’s HR SSC is

responsible for all HR processes in-

cluding administration, recruitment,

payroll, and employment references.

As part of the SSC, HRdirect in Ber-

lin forms the service line and first

point of contact for all HR issues for

group employees in Europe and the

Americas. Services are provided in

German, English, French, Spanish,

and other European languages.

PAREXEL International, a leading

global biopharmaceutical services

provider, has 71 locations in 52

countries, including major biophar-

maceutical centers such as Berlin,

Germany. In addition to comprehen-

sive clinical research operations in

Berlin, PAREXEL operates one of

its global financialSSCs, which pro-

vides supporting services to other

offices in over 15 European coun-

tries. PAREXEL’s global operations,

such as its financial SSC, benefit

from several advantages in the Ber-

lin area, including low turnover rates,

affordable office space, and a broad

range of available language skills.

Pho

to: B

ASF


American company Hewlett-Packard (HP) took over the financial SSC of

German company SCHOTT (a multi-

national, technology-based group

developing and manufacturing spe-

cialty materials, components and

systems) to provide onshore BPO

services for the German market in

2008. HP established its German

F&A BPO services delivery center in

northern Bavaria, close to the Czech

border. While offering BPO services

from a local center, HP also enjoys a

competitive advantage over interna-

tional BPO providers delivering from

offshore location using non-native

speakers.

According to a recent study, 28 per-

cent of German companies plan to

outsource in the next two years.

Many of them will focus on reliable

services delivered from service pro-

viders operating from German sites.

Pho

to: A

DP


Success Story

ADPAutomatic Data Processing, Inc., (ADP) is one of the world’s largest

providers of business outsourcing solutions. With nearly USD 9 billion in

revenues and over 585,000 clients, ADP has secured a 15.5 percent share

of the global HR business process outsourcing market. Leveraging nearly

60 years of experience, ADP offers a diverse range of HR, payroll, tax and

benefits administration solutions from a single source.

Founded in 1949 in the US, the company began its European expansion in

1995 with the opening of its European headquarters in Paris, France, and

a German branch office in Neu-Isenburg near Frankfurt. Within Germany,

ADP concentrates on HR solutions, payroll and travel services. ADP cur-

rently performs 2.5 million postings per year. Apart from application host-

ing, complete business processes can be outsourced to ADP. One in every

five payrolls in Germany is produced using ADP products and services.

With growing market presence in Germany and increased demand for

quality services, ADP added to its existing operations in Stuttgart, Frank-

furt, and Bremen with the opening of a BPO site in Dresden in 2001. Today

it employs around 140 customer service representatives who are deliver-

ing world class service on a daily basis. ADP settled on Dresden, capital

city of the federal state of Saxony in the southeast of Germany, because

of its optimal fit to its resource requirements. Bernhard Reeder, General

Director of ADP Germany, is convinced that the company made the right

decision in locating in Dresden. “We decided on a location in Germany

because of its labor market. People are well-trained thanks to the special

German system of dual professional education. Therefore, we do not need

to hire graduates as with other nearshore locations, but have access to a

large and highly qualified labor pool. Here in Dresden, we find motivated

people with high loyalty levels and all of the necessary qualifications at a

moderate wage level. It really worked out for us.”

Incentives for SSC & BPO in Germany

Germany offers numerous incen-tives for all investors – regardless of whether they are from Germa-ny or otherwise. There is a large selection of programs designed to support a wide variety of business activities at different stages of the investment process available. Sup-port ranges from cash incentives for the reimbursement of direct investment costs to incentives for recruitment and training support.

Effectively Reducing

Investment Costs

Germany’s investment incentives

package signifi cantly reduces inves-

tor operations facility set-up costs.

The package consists of cash incen-

tives and loan programs offering

reduced interest rates and public

guarantees at the state and national

level. The investment incentives

amount generally depends on three

factors: project scope, investor com-

pany size, and the new investment

location.

Investment Grants

Cash incentives provided in the form

of non-repayable grants make up

the main components of this pack-

age. The major program directing

the allocation of investment grants

is the “Joint Task for the Promotion

of Industry and Trade” (Joint Task).

The Joint Task regulates the distri-

bution of non-repayable grants for

investment costs throughout Ger-

many. Money available through this

program is usually distributed in

the form of cash payments which

are based on investment costs or

assumed wage costs. In the case of

wage costs, the jobs created must

require above average skill levels,

provide signifi cant added value or

be jobs in a sector with particularly

high innovation potential.

The actual incentives amount granted

varies from region to region subject

to respective economic development

level. Those regions with the highest

incentives rates offer grants of up to

30 percent of eligible expenditures

for large enterprises; up to 40 per-

cent for medium-sized enterprises;

and up to 50 percent for small enter-

prises respectively.

Eligible industries include most

manufacturing and certain service

industries. Generally speaking,

investment projects receiving funds

from the Joint Task program must

create long-term jobs (i.e. any jobs

created have to remain in the invest-

ment location for a period of at least

fi ve years). Please note that invest-

ment incentives have to be applied

for before the investment actually

commences.

Supporting Human

Resources Growth

Labor-related incentives play a

signifi cant role in reducing the

operational costs incurred by new

businesses. The range of programs

offered can be classifi ed into four

main groups: programs focusing on

recruitment support, training sup-

port, wage subsidies, and on-the-job

training. Labor-related incentives

are available throughout Germany;

independent of factors such as

company size, industry sector, and

investment project location.

Recruitment SupportWith over 800 local job centers

located throughout Germany, the

Federal Employment Agency assists

companies in fi nding new employees.

Regardless of the qualifi cation or

experience level required, job

centers offer a highly competent

and professional service as well as

market expertise to help identify

prospective employees in all sectors.

Incentives in Germany

Types of Incentives in Germany

1) only in Eastern Germany

Cash

Incentives

Investment Incentives Package

Operational Incentives Package

Interest-

Reduced LoansR&D Incentives

Labor-Related

Incentives

Investment

Grant

KfW Loans

(National Level)

Investment

Allowance1

State Development Bank Loans

Grants Recruitment

LoansTraining

Silent/Direct

Partnership

Wage

Subsidies

+

Public

Guarantees

State

Combined State/

Federal

On-the-Job

Training


Assistance provided covers every-

thing from job vacancy advertising

and pre-selection of candidates (i.e.

assessment centers) to the provi-

sion of facilities for conducting job

interviews. Because job centers

are state-funded institutions, all

services are provided entirely free

of charge.

Pre-Hiring TrainingProspective employees often need

to participate in appropriate training

measures before starting at their

new place of work. Such measures

can be organized and administered

by external specialist institutions. In

general, training program costs of up

to 100 percent can be met by regional

program managing authorities.

Wage SubsidiesEmployers can be granted a direct

cash payment issued as a proportion

of the employee’s wage. Grants can

account for up to 50 percent of wage

costs including social security con-

tributions. They may be provided for

a period of up to 12 months. Wage

subsidies are granted when hiring

from the long-term unemployed.

When hiring people who are long-

term unemployed, have disabilities

or who are older, wage subsidies can

be raised to a maximum 70 percent

of wage costs paid for a period of up

to eight years.

Wage subsidies are generally al-

located if investors provide long-

term employment contracts. Please

note that wage subsidy applications

should be made in advance of the

contract being signed.

On-the-Job TrainingThe German federal states and the

European Social Fund (ESF) offer a

variety of on-the-job training pro-

grams. Companies can be supported

with subsidies covering up to 50 per-

cent of all training costs. European

Union (EU) authorization is required

if the amount awarded to a single

company exceeds EUR 2 million.

Incentives Programs Recruitment Support Pre-Hiring Training Wage Subsidies On-the-Job Training

Program Offerings Organization and/

or support of recruit-

ment process by

local job centers Assessment center

provided by training

agencies

Organization of

training courses

for unemployed

candidates by local

job centers in close

cooperation with

investor No binding work

contracts required

Provided for employ-

ment of long-term

unemployed candi-

dates or unemployed

candidates under the

age of 25 Company has to

provide a work con-

tract with a mini-

mum 15 hour

working week

For all employees Financed by the

European Social

Fund (ESF) EU notification

required for grants

exceeding EUR 2

million per company

Eligible Costs Job vacancy

advertisements,

applicant screening

and pre-selection Assessment center

Trainee labor costs Training course

costs

Wage costs Social benefits

Training courses

Possible Promotion Rates

Up to 100% of

eligible costs subject

to local job center

budget

Up to 100% of

eligible costs for a

training period of up

to three months

Normally up to 50%

of eligible costs for

up to 12 months

Up to 50% of

eligible costs

Managing Authority Local job centers Local job centers Local job centers Appropriate federal

state labor ministry

Recruitment


Pre-Hiring Post-Hiring Further Education

Our Services


Germany Trade & Invest closely supports your project management team throughout the entire investment decision process

Investment Process Milestones

Ger

man

y Tr

ade

& In

vest

Key

Sup

port

Are

as

Information

Consultingand ProjectCoordination

General market information

Industry guides/reviews

Conditions for investment, (e.g. economic data, labor market,

incentives programs, and tax & legal framework)

Proactive identification

of business opportunities

Identification of project-

specific location factors

Support with final

site decision

Selection of project partners

and facilitators (service

providers, financial partners)

Negotiations with

relevant authorities

Assistance with the incentives

application process

Seamless project handover

to the economic develop-

ment corporation in the

selected state

Discussion of market

entry strategies

Advice on project financing

Model calculation

of potential incentives

Cost factor analysis

Identification of possibilities

for cooperation with suppliers,

R&D institutes, technology

partners, etc.

Organization of site visits

and fact-finding missions

Contact with the economic

development corporations of

the German states

Strategy Evaluation Decision and Investment

Germany Trade & Invest Helps YouOur team of industry experts will as-

sist you in setting up your operations

in Germany. From market informa-

tion to site selection, we can support

your project management team from

the earliest stages of your expansion

strategy. We do this by providing you

with all of the industry information

you need – covering everything from

markets and industry trends to on-

site local information.

Profit from our experience and

know-how to identify the investment

location which best meets your

specific needs. We help turn your

requirements into concrete invest-

ment site proposals, providing free

consultation services to ensure you

make the right location decision.

We coordinate site visits, meet-

ings with labor market experts and

provide you with a one-stop-shop

of expertise. Our team is on hand to

provide you with all of the relevant

background information concerning

Germany’s tax and legal system.

Germany Trade & Invest’s team of

consultants helps you plan the

appropriate financial package for

your investment and brings you into

contact with suitable fi nancial part-

ners. Incentives specialists provide

you with detailed information about

available incentives, support you

with the application process, and

arrange contacts with local eco-

nomic development corporations.

Take advantage of our range of free

of charge services.

Imprint

Publisher & EditorGermany Trade and Invest

Gesellschaft für Außenwirtschaft

und Standortmarketing mbH

Friedrichstraße 60

10117 Berlin

Germany

T. +49 30 200 099-0

F. +49 30 200 099-111

offi [email protected]

www.gtai.com

Chief Executive: Michael Pfeiffer

Director Marketing Communications: Bettina Knape

Contact SSC & BPO Industry: [email protected]

Conception, Layout, Text, TranslationsGermany Trade & Invest

Supported byGermany Trade & Invest is supported by the Federal Ministry of Economics

and Technology in accordance with a German Parliament resolution.

Notes©Germany Trade & Invest, February 2009

All information provided by Germany Trade & Invest has been put together

with the utmost care. However we assume no liability for the accuracy of the

information provided.

Order Number14130

Contact

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About Us

Germany Trade & Invest is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises and supports foreign companies seeking to expand into the German market, and assistscompanies established in Germany looking to enterforeign markets.

All inquiries relating to Germany as a business location are treated confi dentially. All investment services and related publications arefree of charge.

www.gtai.com

Germany Trade & InvestFriedrichstraße 60

10117 Berlin

Germany

T. +49 (0)30 200 099-0

F. +49 (0)30 200 099-111

[email protected]

Pho

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About Us

Germany Trade & Invest is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises and supports foreign companies seeking to expand into the German market, and assistscompanies established in Germany looking to enterforeign markets.

All inquiries relating to Germany as a business location are treated confi dentially. All investment services and related publications arefree of charge.

www.gtai.com

Documents

Shared Service Centers and Business Process Outsourcing in