Why Central and Eastern European is an attractive captive market | HCLTech

Why Central and Eastern European is an attractive captive market

Why Central and Eastern European is an attractive captive market
October 06, 2022

Within the business services industry, captive centers have emerged as a key segment for growth. The business services industry in Europe has undergone a major resurgence, particularly in the Central and Eastern European (CEE) countries, and the region is well positioned to play a key role in the global business services market.

The CEE countries are rich in trained professionals with proficiency in multiple foreign languages and adequate cultural acquaintance. Not to be ignored in this context is the ease of international travel across EU nations compared with international travel to and from other regions.

The captive sector is also continuously evolving and includes trends such as graduate programs, employee empowerment, and attractive career development opportunities. Tapping into the potential of these trends is the key to ensuring the continued attraction of talent and steady and productive growth.

Why CEE is a favorable captive market

Some of the factors that make CEE attractive for the captive market are its relatively stable economic environment and favorable tax policy.

Captives in the CEE market are also attracting talent as the industry is gaining popularity amongst recent graduates, especially those who know one or more foreign languages. Competitive compensation packages, state-of-the-art offices, and lively work culture are some of the main attractions for talent.

Language diversity is another benefit since captive centers in the region require a wide range of European languages which can be a challenge to attract talent outside of Europe. Many large European companies and several global companies have multilingual customer and partner bases. So, they must have multilingual captive centers in European countries.

Another reason for the huge interest in the CEE for captives is that their parent companies cannot deliver business services globally from one geographical location alone, even if it offers the highest cost advantage. Organizations need their service centers to operate 24x7 to be available for their customers globally. For that, it is not enough to have service centers in specific geography alone, one or more centers are needed in CEE, especially because of its central location.

The time zone of CEE is a critical factor as captives in the region can serve the Americas in the afternoon and evening, and Asia in the early morning, while also serving the entire region of Europe and the Middle East and Africa (EMEA) with minimum difference.

Within the business services industry, captive centers have emerged as a key segment for growth. The business services industry in Europe has undergone a major resurgence, particularly in the Central and Eastern European (CEE) countries, and the region is well positioned to play a key role in the global business services market.

The CEE countries are rich in trained professionals with proficiency in multiple foreign languages and adequate cultural acquaintance. Not to be ignored in this context is the ease of international travel across EU nations compared with international travel to and from other regions.

The captive sector is also continuously evolving and includes trends such as graduate programs, employee empowerment, and attractive career development opportunities. Tapping into the potential of these trends is the key to ensuring the continued attraction of talent and steady and productive growth.

Why CEE is a favorable captive market

Some of the factors that make CEE attractive for the captive market are its relatively stable economic environment and favorable tax policy.

Captives in the CEE market are also attracting talent as the industry is gaining popularity amongst recent graduates, especially those who know one or more foreign languages. Competitive compensation packages, state-of-the-art offices, and lively work culture are some of the main attractions for talent.

Language diversity is another benefit since captive centers in the region require a wide range of European languages which can be a challenge to attract talent outside of Europe. Many large European companies and several global companies have multilingual customer and partner bases. So, they must have multilingual captive centers in European countries.

Another reason for the huge interest in the CEE for captives is that their parent companies cannot deliver business services globally from one geographical location alone, even if it offers the highest cost advantage. Organizations need their service centers to operate 24x7 to be available for their customers globally. For that, it is not enough to have service centers in specific geography alone, one or more centers are needed in CEE, especially because of its central location.

The time zone of CEE is a critical factor as captives in the region can serve the Americas in the afternoon and evening, and Asia in the early morning, while also serving the entire region of Europe and the Middle East and Africa (EMEA) with minimum difference.

The European Union (EU) and North Atlantic Treaty Organization (NATO) memberships hold special relevance in this context. It allows organizations and captive centers in the member countries to have standardized functions at the time of opening a captive center in a new region.

Lastly, the General Data Protection Regulation (GDPR) is certainly a prime consideration as well. The data privacy and localization mandate and other cybersecurity governance and compliance standards stipulated in GDPR are favor in disguise for the CEE, as onshoring and nearshoring have become necessary for many organizations in the region.

How CEE stacks up against other regions

The list of leading regions for the captive centers has been constantly changing. That said, CEE is currently amongst the most attractive investment locations. In fact, within the region, some countries have successfully carved a relatively better position for themselves than others and have achieved a very mature captive market. These countries have alluring, future-oriented policies, strategies, and frameworks designed to help attract and retain investments for the establishment of new captive centers.

In this regard, the expansion of the business service sector and the subsequent increase in the number of captive centers in Hungary, the Czech Republic, Poland, and Slovakia comes into focus. The position of the Baltic countries, especially Estonia, Latvia, and Lithuania, has also strengthened over time, and the general perception of Romania and Bulgaria as feasible growth spaces has also improved.

On the global scale, many countries are ahead of the CEE nations. However, they cannot be considered direct competitors because most of them are the preferred location primarily for business functions that do not demand niche skills.

The Middle East and North Africa (MENA) have garnered attention as captive markets mainly because of their cheaper labor and infrastructure. But the volatility of the political atmosphere in these regions has considerably offset the cost-benefit advantage it offers.

Asia has also struggled to match up to CEE in terms of captive center feasibility. Organizations that have multi-cultural and multi-lingual dependencies — clientele, suppliers, workforce — must maintain the same capabilities in their captives for operational convenience. They need to have strong and readily accessible local contacts for high operational responsiveness in such a diverse setup.

How HCLTech can help to establish captive centers in the CEE

Our customers benefit from an array of bespoke engagement models and partnerships, designed to help them achieve their business goals

At HCLTech, we have successfully built and supported operational captive centers in various emerging cities for our customers. Our capability is backed by over four decades of experience in technological innovation and excellence, along with our immense human capital investments. And our range of services includes captive sourcing, location strategy, facilities as a service (FaaS), competency-based staffing, managed services, workforce strategy, digitization, infrastructure management and upgrade, and more. We help set up and service captives through joint ventures (JV), intellectual property (IP) partnerships, and acquisitions, as we build, operate, and transfer (BOT) models.

With HCLTech, enterprises benefit from an array of bespoke engagement models and partnerships, designed to help them achieve their business goals. Powered by these capabilities, HCLTech has positioned itself as the preferred strategic partner for organizations looking to build or scale their captive centers in various parts of the world, with the CEE being key among them.

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