SIGNIFICANCE OF RIGHTSHORING MODEL IN CENTRAL-EASTERN EUROPEAN REGION

Robert MarciniakUniversity of Miskolc, Hungary

Young Scientists 1st International Baku

Forum 2013

20-25 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

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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

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Global Trends4

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Onsite/Onshore

Offsite/Offshore

Nearsite/Nearshore

Hub and Spoke/ Rightshore

1980 1990 2000 2010

• The staff is working on the client’s premises to maintain personal interaction.• The special tasks require a high degree of customer participation.

• Moving operation to remote locations for the sake of cost reducing.• Well-defined tasks with low customer interaction.

• The customer service center is close to the client to reach cost-benefit and proximity of client.• Specialized tasks with moderate interaction

• Multi-level functional model that promotes the benefits and risks of the operation of the release sites. Hub means the contact point and central interface to customers. • Complex and specialized tasks that requier a moderate to high level of interaction with customers.

Global Service Map 5

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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.

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Grouping of Service Models7

Outsourcing

Market orientation

Shared Service Models

Complexity of cooperation

Hybrid Models

Shared Service Center

Captive Center(GIC)

CoE

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Rightshoring Model in CEE • CEE countries has a great potential because of pool of educated human

resources. 17.2 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.

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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

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Thank You for your attention!

marciniak.robert@uni-miskolc.hu