Despite dealing with the Business Service Center topics for some time, it seems to stay a bit unclear — the reason why we talk to Monta Geidane, Executive Director at ABSL Latvia (ABSL stands for the Association of Business Service Leaders), to clarify the term.
Although Business Service Centers can be connected to any industry, it doesn’t always mean that such business units operate to gain profit or are involved in carrying out the main business activity of the organization. According to the nature of previously mentioned business structures, they are rather cost centers or in other words – a part of the global organization responsible for back-office functions, also doing what’s possible to run the multinational business more efficiently.
A GBS Center in most of the cases is the global company’s structure or separate establishment responsible for providing business support services such as IT, accounting and finance, client service, procurement, logistics, legal, document management to its group companies worldwide. A GBS center however can provide similar business services to legally unrelated entities. In the latter case it’s the core business activity from which the company gains profit, nevertheless the nature of how such outsourcing centers operate is quite similar to captive centers. The Business Services Sector can be divided into two main groups – shared service centers (also called GBS Centers, Centers of Excellence) and business process outsourcing or IT process outsourcing companies.
- Shared Service Centres, Centers of Excellence, GBS structures:
A shared service centre is a part of globally operating organization. We all know that a global company having its local offices in several countries tend to have the same back office functions in each country or branch office.Thus, every branch has their own processes, system of preparing reports, functionalities etc. To be efficient in monitoring the whole business and to save costs, these functions must be aligned and unified to serve any of the branches. This is the reason why global companies make their decision to set up a shared service center providing back-office services to its group companies. Thus a Shared Service Centre always belongs to one organization with a global or multinational presence.
- BPOs — Business Process Outsourcing, ITOs — Information Technology Outsourcing
Other globally operating companies decide to outsource specific business services, but this time to legally unrelated organizations. These are the BPO services (most typical ones – accounting, call-centre service) delivered from partners outside of the organization. ITO centers have the same principle – such companies are providing IT support, IT help desk, software development services to unrelated entities worldwide. ITO partners are chosen by organizations that prefer to outsource specific IT processes instead of performing them internally with the help of their own employees.
To be associated with the Business Services industry and become a member of ABSL in Latvia, a company must fit the following criteria and should be:
A global company with a business unit established in Latvia with a purpose to provide business services (IT, finance, accounting, customer service, HR, procurement, document management, logistics etc) to clients (related or unrelated entities) around the globe. More than 50% of all services carried out by the Latvian organization should be provided to clients outside of the country (it’s all about the export of business services).
One of the goals of ABSL is to foster and improve the business ecosystem in Latvia for the growthof the Business Services Sector. The better the industry is being served from the business environment perspective, the more positive effects it has on the ability to expand and overtake additional business support functions, thus creating new jobs. A well-established business environment also helps to promote the destination Latvia and encourage international business leaders to consider the opportunity to settle down in Latvia and establish their business support units or outsourcing centers exactly in Riga or in other parts of Latvia.
Latvia is relatively new in actively promoting itself as destination for Global Business Service centers. Although this may seem to have been a lost opportunity, it actually brings certain advantages for the location – a low saturation level and capacity to welcome new players and foster the growth of existing companies operating in the industry is quite doable in Latvia compared to other popular GBS locations in Central Eastern Europe. Many countries in Central Easter Europe with a strong GBS ecosystem have already reached a high market saturation level (% of all talent employed by the sector) — which results in increased employee rotation rates and difficulties to find the right talent with the needed skills. In Latvia, there are around 50 Global Business Centres, employing approx.15,500 staff.
Talent is the most important indicator to foster the growth of the GBS industry in any location. Only around 8 % of jobs provided by Business Services Sector in Latvia are occupied by foreigners. Organizations, mainly those ones that are seeking for IT talent, are open to recruit high-level professionals from Belarus, Russia, Ukraine or India. This is the way how investors bring in special knowledge required for the company and at the same time train local talent and create new jobs. Knowledge transfer is an essential component in expanding the talent pool and creating new jobs in Latvia.
Most of the Business Services centers in Latvia are in fact located in Riga, capital city of Latvia. The reason for that is the good accessibility of city. Riga International Airport plays an important role in the decision process providing frequent flights to countries and their capitals worldwide. This ensures great connectivity with the headquarters’ office, allowing high level managers to physically reach their business support unit in Latvia quickly if needed. A location decision in Latvia may also depend on the purpose of the Business Service Centre — if it mainly serves clients in Russia, requiring talent with Russian language skills, investors can prefer to set up operations somewhere else in the country, for example, in Daugavpils (a city close to the border of Russia) thus getting access to plenty of Russian speaking talent.
With changes brought by the pandemic, the forecast for the future of work is re-shaping. Will people work from their offices or will they prefer working from home? In fact, all is possible and the short distances in a compact country like Latvia allow talent to work from everywhere and just occasionally visit their physical offices. Many GBS organizations are currently aligning their hybrid working policies allowing employees to decide how often they come to the office.
All stakeholders involved in creating and improving the GBS ecosystem in Latvia — like LIAA (The Investment and Development Agency of Latvia), the recently established Riga Investment Attraction and Tourism Agency as well as ABSL, work together and support each other in their efforts to attract new investors: LIAA with a wide range of expertise consults potential investors in all priority sectors, Riga as the capital of Latvia plans to build recognition of Riga as location for investments in the global area as well as focus more on attracting high level professionals from abroad and ensuring that Riga is welcoming highly skilled talent, ABSL supports both government institutions in providing the necessary data and in-depth knowledge in cases when investors are evaluating Latvia as potential destination for setting up a GBS center.
To summarize, the main reason for setting up GBS Centres in Latvia, is the close proximity to almost all European countries thanks to Riga International Airport, the availability of multilingual and highly-skilled talent, a low market saturation level and cost-saving opportunities compared to other countries in Europe. That is also the reason why sector companies are mainly dominant in Central Eastern European countries, where costs of living, office space rentals, salary levels can be significantly lower than in the Western European countries.
The Business Services Association in Latvia has been established in April, 2019, under the branding of ABSL which is a leading organization standing for the needs of industry in Poland, Czech Republic, Romania, Bosnia and Herzegovina, Albania and now Latvia.
Interview and text Johanna Fischer, tmf knowledge destinations
If you are based in the German-speaking markets and want to invest in Latvia, please contact: Helmuts Salnajs, Botschaftsrat Wirtschaft und Handel
Tel.: +49 (0) 30 609 29 421
Mob.: +49 162 916 9418