Companies are realizing they can fill wide gaps in their workforce strategy – and that their managers can be back in London or Amsterdam in time for dinner – by growing their teams in Eastern Europe, instead of far-off locations in Asia and India.
A spate of successful, new shared-service centers in Lithuania provides evidence that previously overlooked and peripheral locations in the region are producing substantial pay-offs for pioneering companies. Here are a few recent examples:
- A global Fortune 500 financial services firm quickly grew to more than 1,000 resources, mostly in finance and general/administrative functions, which represent more than 10 percent of the firm’s global workforce in a location where they had zero employees four years ago.
- A leading British bank has hired more than 1,400 resources, mostly experienced IT engineers, to balance workforce centers in the UK (expensive) and Asia (high attrition and rising labor costs) .
- A Europe-based credit rating agency built a data analytics team of 200 in less than 18 months.
- A growing, mid-sized American healthcare data processing and IT services firm started an integrated service center, and had 200 resources within a year to support the North American business.
PREMIUM CONTENT: Largest IT staffing Firms in Europe
S3 customers in Lithuania who also have centers in India report that there is rate parity – the labor cost is the same in both locations – for 90 percent of their IT engineer roles. With actual wages for those with all kinds of professional skills – not just IT – increasing by as much as 30 percent annually in India (and 20 percent in China), you don’t need a crystal ball to see the end of the wage gap with Asia for business services. And, that includes Europe (and America.) For example, Pune-based research firm Offshore Insights predicts that the cost of employing a programmer (like a Java developer) in India will only be 20 percent less than one in America (and near the same in Europe) by the end of 2015.
In Europe, the economy has been slow to recover from the financial crisis, and unemployment has remained persistently above 10 percent (nearly 25 million Europeans were unemployed at the end of September 2014.) Also, most labor markets in Europe are stubbornly inflexible (which is good news for lower-end wage arbitrage with Asia), but there are signs of change all around. Reforms are being mooted and promoted around the continent, even in giant Germany. Smaller, more nimble countries like the three Baltic countries (Lithuania, Latvia and Estonia) are able to rapidly introduce changes to their labor code – such as streamlining work permits for foreign managers and technical experts, and capping severance payments and restrictions (originally designed for an industrial-age labor force) for high-earning IT professionals – that attract firms to set up shop and hire there.
Finally, countries in Eastern Europe continue to convert their local currency to the euro. Lithuania is next up, and introduced the Euro on Jan. 1 of this year. This lowers costs for financing and generally simplifies and standardizes business transactions. In half of the countries that S3 operates, the euro is the currency; the rest use their own. That keeps our accountants and legal teams busy; but that cost center – and complexity – shrinks with each new country that adopts the euro.
MORE: Be careful when staffing cross borders — employment law
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