Central & Eastern Europe is favoured outsourcing destination for Europe

20 Jun, 2005, London

- Offshore outsourcing property needs of European companies to reach nearly 40 million m² over next ten years
- Central & Eastern Europe is the favoured destination.
- UK-based companies and institutions have more offshore outsourcing property requirements than any other European country, followed by Germany and France.
- Biggest expansion is for outsourcing Human Resources functions.

European companies and institutions are likely to have offshore outsourcing property requirements of 37 million m² over the ten years to 2015, according to On Ousourcing to EMEA, a briefing paper by Cushman & Wakefield Healey & Baker (C&W/H&B), the European division of global real estate consultancy Cushman & Wakefield.

Of this 37 million m² of property requirements, 40% is set to be in Central & Eastern Europe, 34% in India and China, 19% in Western Europe and 7% in other countries. These requirements are made up of offices (13 million m² - equivalent to the size of the City of London and Docklands market put together), with the remainder being manufacturing and warehousing.

"The perception is that European companies are focussing their outsourcing requirements on India and China. Although these two countries will remain popular destinations, the countries of Central and Eastern Europe are in fact their preferred outsourcing destination," says Michael Creamer, C&W/H&B's Head of Client Solutions.

According to C&W/H&B's On Outsourcing to EMEA, the biggest demand for offshore outsourcing property requirements over the next ten years is due to come from UK companies and institutions, which account for 62.5% of the 37 million m², followed by Germany (13%), France (9%), The Netherlands (3%), Italy (2.5%) and other countries (10%).

Meanwhile, the trend for outsourcing continues unabated, with a predicted one million jobs set to be outsourced by European-based companies and institutions over the next ten years. Sixty per cent of these jobs are likely to be in the financial services, manufacturing and IT sectors.

And no longer is outsourcing just about call centres and manufacturing. "Human Resources is one of the fastest growing sectors, in particular the outsourcing of payroll administration. This is likely to expand to include functions such as benefits administration and education & training," explains Michael.

In the financial services sector, higher skilled, higher paid jobs are being outsourced - in particular research and analysis. "This is not only to avoid conflict of interest between investment banking and research, but also companies are under pressure to deliver value for shareholders, to drive down costs and to improve business efficiency," continues Michael.

In C&W/H&B's On Outsourcing to EMEA report, outsourcing destinations are split into four types of outsourcing country locations:

- Established: Portugal, Spain, The Netherlands, Ireland
- Preferred: Czech Republic, Hungary and Poland
- Expanding: South Africa, Estonia and Lithuania
- Emerging: Russia, Turkey and Ukraine
- Potential: Tunisia, Dubai, Jordan, Morocco, Israel, Kenya and Ghana.

"The appeal of the Central European countries of the Czech Republic, Hungary and Poland is the low costs in terms of real estate and of the skilled labour force, coupled with membership of the European Union," says Ward Stocker, based in Budapest and part of C&W/H&B's Global Outsourcing Team.

Looking at the 'expanding' outsourcing locations, South Africa is in particular targeting the call centre market focused on the English-speaking markets of the UK, Ireland and North America. Estonia and Lithuania, meanwhile, offer open economies, good transport links, a skilled labour force and a strategic location at an entry point to the Baltic Sea region.

Going forward, outsourcing activities are likely to choose secondary locations in destination cities in order to keep down costs further. On average, this reduces property costs by nearly 30%.

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