Off-shoring Opportunities

Hungary has not traditionally been a huge ICT off-shoring country. However, because of its advanced telecommunications infrastructure, abundant supply of skilled labor (many people have an impressive command of European languages), and quality of life it is beginning to present attractive opportunities for foreigners. As an off-shoring location, two main selling points Hungary has are its status as one of the most stable countries in Central and Eastern Europe and its very appealing corporate tax regime. Taxes are generally low, and its 16% corporate income tax rate is among the lowest in Europe. Combined with Hungary's proximity to Western Europe and good flight connections makes the country a surprisingly attractive location for off-shoring. Unemployment is well below the euro zone average.

Off-shoring in Hungary is concentrated very heavily in and around Budapest, because adequate infrastructure and resources are not necessarily available elsewhere in the country. In spite of this, Hungary could experience an upsurge in R&D outside of Budapest, specifically in University cities such as Debrecen and Pécs because of substantially lower wages and even more generous tax breaks and incentives.



Currently, off-shoring suppliers include global outsourcing providers EDS, Accenture, IBM and Sykes. These multi-nationals offer a variety of services, ranging from IT through customer service to financial accounting and data entry. Many multinational enterprises have elected to set up their European off-shoring center in Budapest, Hungary. Some companies establishing financial and accounting services, call centers and back-office and technical support are: AVIS (car hire firm), Alcoa, Cisco, Exxon Mobile, GM and ING. For the most part, captive off-shoring is the preferred model for these large corporations.

Hungary started to take part in outsourcing, mainly as the host, during the second half of the nineties. Investment in services from Foreign Direct Investment (FDI) connected to outsourcing has been recorded since about 2002. Presently, around 20,000 people work for various service centers in Hungary; approximately 75% are employed in Budapest. There are some competitive disadvantages because of high average wage costs compared to cheaper surrounding countries, like Poland, which are further amplified by high nonwage labor costs. Labor costs are predominantly steep in and around Budapest where the bulk of off-shoring takes place.

Table 1 contains a list of 16 companies that carry out various activities, starting from call centres through financial services to software development. Their combined employment exceeds ten thousand. While their main location is Budapest, more and more shared service centres (SSCs) are moving to countryside towns.

Table 1 Supported SSCs in Hungary


Company
Country
Location		 Number of jobs created
(planned)
ExxonMobil USA Budapest 1,200
IBM ISSC USA Budapest 1,300
Diageo Great-Britain Budapest 600
Getronics Netherlands Budapest 510
Jabil USA Szombathely 719
SAP Germany Budapest 600
Tata India Budapest 450
Convergys USA Budapest 282
EDS USA Budapest, Szeged 1,150
InBev Belgium Budapest 380
Budapest Bank USA Békéscsaba 530
Morgan Stanley Great-Britain Budapest 450
Citigroup USA Budapest 302
Vodafone Great-Britain Budapest 746
British Telecom Great-Britain Budapest, Debrecen 700
T-Systems Germany Budapest, Debrecen 1,750


Source: ITDH

Reference: 7.1