Kraków currently rules the roost when it comes to business services investments in Poland – but that could change soon. Warsaw is not far behind, and its sheer size gives it a distinct advantage. The smaller regional cities that have previously garnered the attention of international investors are becoming saturated and less competitive. Warsaw, for its part, still offers plenty of potential employees and office space. At Primetime Warsaw III (see pages 39-51), Poland Today held a round table discussion on the future of the industry in the capital.
Taking part in the discussion were: Courtney Fingar, editor-in-chief of fDi Magazine; Paweł Panczyj, managing director of the Association of Business Services Leaders in Poland (ABSL); Arkadiusz Rudzki, leasing & asset management director at Skanska Property Poland; Jakub Sylwestrowicz, head of tenant representation at JLL; and Andrzej Wilk, senior vice president at MoneyGram Payment Systems Poland. Poland Today editor Andrew Kureth moderated the discussion.
Andrew Kureth, Poland Today: What does the future hold for the business services sector in Warsaw?
Paweł Panczyj, ABSL: It all started with Warsaw. In the 1997-2000 period, Warsaw, Prague and Budapest were the most popular destinations in the region for business services investments. The smaller cities in Poland, especially Kraków, came later. Just taking into account companies with foreign capital, this business has created nearly 30,000 jobs in Warsaw in the last 10 years.
At the moment we have the seventh or eighth wave of investors from locations like Scandinavia, Germany, Austria, Switzerland, France, the UK and the US . The recent trend shows that the companies coming to Central and Eastern Europe are coming with more and more complex processes. When you think about the analytics, complex data – companies don’t want to take much risk. The more traditional businesses – heavy industry, pharma, medical, and the financial industry – these companies do not want to take the risk of going somewhere where their investment may not work. They want proof that it will work within the time frame that they have prepared. So they go to a location that gives them that proof – Warsaw is that location.
MoneyGram has a business services centre in Warsaw. What exactly does it do and why did you choose Warsaw?
Andrzej Wilk, MoneyGram: Within three quarters we’ve managed to put together a workforce of 550 people, and they speak 25 languages. Right now we deliver 45 processes to every MoneyGram location globally. At the moment we employ 25% of the global workforce of MoneyGram here. Warsaw plays a significant role on our map.
Why did we choose Warsaw? At the beginning, finding a low-cost location was at the core of the discussion. But I think the most important element is the talent pool. Obviously, the infrastructure exists here. Also, we were able to secure a location that will finally host 800 people on one floor – that was an important element that differentiated Warsaw from Kraków or Wrocław or Łódź – which we also analysed. But the talent pool is something which is key.
I have just recently come back to Poland. I spent the last three years in Budapest with my previous company. One thing that really surprised me is that Warsaw has become an international centre. And when I talk about it – I see people joining my company right now who come from Spain, Portugal, Greece – Warsaw is becoming this European centre where it not only offers jobs, but it offers everything else: entertainment, reasonable costs of living, great connections to the rest of Europe.
Wrocław and Kraków also have great talent pools, great recreation, low costs of living and so on. So what is it that differentiates Warsaw?
AW: When it comes to the talent pool, Wrocław and Kraków are cities of approximately 700,000 people. Warsaw has an agglomeration that hosts close to 2 million. That’s a big difference.
The second thing is that while Kraków is the number-one business services location in Poland, that is exactly why we didn’t want to be there. I would guess that those markets are a bit saturated at this moment. When it comes to the labour, when it comes to the ability to attract great people, you immediately enter into very strong competition with the players that are already established there. So for us, Warsaw was a less-penetrated market when it comes to talent.
That’s interesting, because some of the biggest global brands are here in Warsaw too. But what I understand is that the talent pool in Warsaw is simply deeper than in other Polish cities. Is that right?
AW: I think it’s deeper. Moreover, we see the contracting of the financial sector that started in 2008 and has not yet finished. So it’s a natural feed to our industry. Warsaw is the centre of financial services industry in Poland. Great – that’s exactly why we are here, because we can source from this pool.
PP: Occasionally you will hear that the Wrocław or Kraków markets are saturated. Have you ever heard that said about Warsaw? No. Not because things weren’t happening here, but because it is so huge. So that’s the difference: it will not get saturated. 300,000 students in Warsaw, 200,000 students in Kraków. It’s just one of the data points that makes the difference.
Obviously, business services has driven a lot of the development of office space throughout Poland. How does Skanska, as a developer, see the industry on a Poland-wide scale?
Arkadiusz Rudzki, Skanska Property Poland: We were the first developer who really believed in the sector. We were first to develop the tailor-made solutions, to be supportive for those companies’ operations. It was a really big boost for us to look for other locations in Poland and right now around 90% of our business is outside of Warsaw, due to the fact that the regional cities in Poland are really booming and are supported by the business services sector.
Does that indicate that maybe the trend will then come back toward Warsaw?
AR: I really believe that will happen, especially considering the turn toward specificity of services – it will be much more complex. Taking that into account, Warsaw seems to be the natural choice. One thing is the depth of the market, in terms of the labour force, and also the attractiveness of the city itself. This is truly an international place right now.
‘If a company wants to put a business services centre in Europe, Poland has one of the strongest hands to play’
What is the view from the real estate advisory side in terms of business services?
Jakub Sylwestrowicz, JLL: I can only repeat and add to what Paweł and Andrzej have already said about the great abundance of skills, the labour market and so on. But I would do so using the example of our company, because JLL has its shared services centre in Warsaw. It’s not huge in terms of headcount, but it is really doing well, and the team has grown by 20 people. A couple of weeks ago they moved to another building. The fact that we have been very successful and we are still growing this team, the fact that they are looking for people using different languages, from Hebrew to Hungarian, from Russian to Romanian, and the fact that we can find these people, it speaks to the quality of Warsaw as a place to run this business.
Real estate is not the essential element for business services investors. Once you are sure that you will find the people that you are looking for, that you will be able to pay the salaries they expect, only then do you have to find the place where these people will be working. In this respect, Warsaw not only has a large office market, but it has a market that is driven by speculative development. You simply go and collect the offers from landlords who are building in anticipation for tenants. This fact, plus the fact that the rental rates are very attractive compared to other CEE locations, all of these factors speak for the advantages of making such investments in Warsaw.
It is widely known that Warsaw’s high vacancy rate has been putting pressure on rental rates. How important a factor is that?
JS: I think it is important, but I wouldn’t go so far as to say it would make a big difference between whether a company chooses Warsaw, Wrocław or Kraków. At this stage I think it’s more about being in the city centre and the Wola district or a more peripheral district. So it is important, but not in the sense that it will distinguish between cities. It will distinguish between different sub-markets within the city.
Courtney, where does business services stand in terms of the ranking of the number of foreign investments in Warsaw?
Courtney Fingar, fDi Magazine: Business services is third. Financial services is number one, software and IT services is number two, and then business services. But they all fit together, so that just shows the dominance of the industry.
Do you see that continuing?
CF: I think so. Having strengths in business services, from the perspective of foreign direct investment [FDI], is handy, because business services is the number-two sector globally for creating FDI projects, and it’s number one for capital expenditure. It’s a healthy sector. There a lot of projects around, so that’s good.
The other handy thing is that the top two source countries for business services projects are the US and the UK, and these are two markets in which Poland can compete for investments really well. In particular the UK, where Poland is clearly the regional leader. Looking at our data, Poland is ahead of Romania, ahead of the Czech Republic, and ahead of Hungary for these projects. At the city level, Warsaw is ahead of Bucharest, Budapest and Prague, so it has clearly sown up the business services market in Central and Eastern Europe, which is encouraging.
However, if you look at the data over the past five years, compared to the data over the past 10 or 15 years, it has declined a little bit on the destination list, as destinations in Asia have risen. So the competition is coming from there, rather that from some other regional players.
I’ve heard that it tends to be the more simple processes that are going to Asia, whereas the more complex process are coming to Poland. Do you think that’s the case?
CF: Possibly. There is a value chain and it is true that there is a role for all of these markets to play and as I said, business services projects are abundant, more so than some other sectors that generate FDI. So it’s not necessarily a zero-sum game. However, some other locations are rising up the ranks.
You mentioned some of the positives of business services investments. Are there negatives?
CF: To be honest, there are not huge negatives for Poland or for Warsaw in this particular sector. It’s not the cheapest location going, but it offers a really good mix of cost and quality and the skills are really high. In some cases, maybe it makes sense for various reasons for a company to put a centre in Asia to deal with that market, and another in Europe for that market. If they’re going to put a centre in Europe, Poland has one of the strongest hands to play. It’s really just more about keeping up that competitiveness, adding to the skills and keep moving up the value chain rather than overcoming some glaring negatives, because it doesn’t have a lot in this area.
‘We don’t need hundreds of thousands of identically educated people, we need people who will challenge the status quo’
What are the other challenges it faces when it comes to the business services industry?
AR: We need to concentrate on making sure there is consultation between education and business. I’m not sure if this is happening in Warsaw. How Warsaw could improve is to have really specific vision of how to set up a programme for graduates.
JS: I would say that the traditional locations for business services operations – namely locations in the Służewiec Przemysłowy neighbourhood of the Mokotów district – are saturated in terms of the transport infrastructure. It is not aligned with the number of office blocks or the number of employees working there. It’s not a threat to the sector, but in certain instances it makes some investors less prone to decide to go to these locations.
Another challenge is whether companies want to follow the flock or be pioneers. Andrzej mentioned that they indeed were thinking about other cities such as Kraków, but found that it was saturated. Instead, they wanted to make a bold decision and be pioneers. However, I think Warsaw faces that challenge of whether companies have the guts to make that bold decision.
Thirdly, going back to the more micro level, it’s about making a decision if they want to be in a more economical location within the city, and then maybe struggle to recruit people, or maybe they would like to go to locations like the Wola district which is booming and which has a lot of pipeline projects underway, where they can take the benefit of the subway and the tram lines, but pay slightly higher rents.
AW: Commuting to work is one of the biggest issues. We see this in Służewiec Przemysłowy. I think it requires the immediate attention of the city. That’s one thing and it’s going to hinder Warsaw’s development and growth. I cannot imagine that my CEO would put money behind Służewiec Przemysłowy if she saw employees would have to spend an hour and a half in traffic each morning.
There’s another thing which I thought about and that is the talent pool. Today it is true that we are enjoying a time when we can attract pretty much everybody. But I’m thinking that in five, seven years from now, we will need a strategy for how we are going to ensure that the talent pool can be redeployed to different sectors. Today what I see is that all the business services operations are hiring people who are very ambitious and well educated. The problem is that if all of your employees are very ambitious people, turnover is going kill you at some point. So how can we ensure that people can be redeployed? A structural approach to education is critical.
A good education system is always an important factor. Courtney, how does education factor in to your rankings?
CF: There are several data points within the rankings that are focused on education at all levels. Warsaw comes top in Poland. But in that category, it didn’t come in the top 10 in the European rankings at the city level. Poland suffers a little bit just because there are so many cities. Things are a bit spread out – in many other countries, most of the main universities are concentrated in one city.
But the education system in Poland is well regarded, and that’s at the heart of the skills here being so well regarded, along with some characteristics to do with the work ethic and the way people are. But it gets top marks from investors and is widely considered a good educational system, both by numbers and also perception.
Is there some kind of measurement of how education cooperates with the business community?
CF: That’s hard to measure. The thing is for the local authorities and those looking to talk to the companies to find out what gaps there are in the skills and what skills they think they might need five or 10 years from now, and being ahead of the curve and making sure that either the technical colleges or the universities are offering those courses. That happens a lot anecdotally, but it’s very hard to measure in any real terms.
So many of Poland’s students are going abroad for their education. While some come back, many do not. At what point does that affect the talent pool?
PP: It’s true that there is this decline in the number of people. It’s no longer 2 million students, it’s 1.8 million. It’s no longer 500,000 graduates, it’s something like 420,000. We can try to convince them to stay in Poland, but that won’t work if we don’t have the arguments to keep them, and right now we do not. Now companies are talking to the Ministry of Labour, Ministry of Foreign Affairs and Ministry of Economy to open the Polish market and Polish universities for people that may fill in the gap that was created by Poles leaving: students from Ukraine, from Serbia, from Croatia, from Montenegro. There was even a campaign for students from India and from China to study in Poland. These efforts won’t lead to a complete replacement of the number of people who left, but we need a structural approach to this question, and we need to test something.
Andrzej, I know that a lot of foreigners work at MoneyGram. Could you tell us a bit about that?
AW: We have 18 different nationalities, and we didn’t really do any recruitment outside of Poland. We only advertised here in Warsaw. So there is a certain traffic of students, as well as young professionals, coming this direction.
There is another interesting thing to note when considering all of this. When we look at the history of Poland, when it was a really powerful nation and when the economy was growing, this was also a time when we as a nation were educating our kids in the best universities of Europe: Prague, Italy, etc. So I don’t see this, at least the students moving abroad, as a danger but rather as an opportunity. We don’t need hundreds of thousands of identically educated people, we need people who will challenge the status quo here. Now is the time when we have to figure out how to be very attractive for them in four or five years when they come back.
AR: Education is one thing, but we do have a lot of foreigners coming to Poland to work – especially from Spain, Greece, Italy, Portugal, for example. So we are attractive as a country, I think. The question is whether business will be here.