Interview with Dr. Josefine Dutschmann, the Senior Manager responsible for BPO/Shared Service Centers at Germany Trade and Invest, the foreign trade and economic development agency in Germany. The country is targeted by many service provider companies that see a chance to enter the market for ICT and business process services as a result of the high number of lack of skilled people in IT-related professions.
Conversely, Germany is also becoming increasingly attractive for global delivery center providers. Dr. Dutschmann, with your considerable experience in analyzing and providing advice to international organizations opening delivery centers for business process services in Germany we wanted to ask you if you could give us a short interview on the current situation and conditions.
1. Could you give us a very short overview as to why international companies choose Germany as a location for their delivery centers?
Germany is the most important industrial nation in Europe and the world’s fourth largest economy. It is also the largest European consumer market, with a population of 83 million. Intelligent and smart sourcing is essential to the functioning of a developed economy. After the UK, the DACH region is the second largest outsourcing market in Europe.
Since German customers, most of whom are medium-sized companies, have high demands in terms of service quality and especially data security, many national and international service providers also operate delivery centers in Germany. Native language competence and intercultural know-how also play a role here.
As we are currently experiencing with the treacherous coronavirus and its as yet unknown effects on ability to work in different regions, the importance of a network of regional delivery centers in order to continue to provide services has never been more apparent. They allow risk to be mitigated, while simultaneously building “resilience” for business continuity in the event of unforeseen difficulties as is currently the case.
2. Which locations would you recommend looking into when evaluating opening or expanding delivery centers in Germany?
Important criteria for the location choice of service centers are currently size of the local labor market, local salary level, office rents, etc. University towns and cities are often preferred. Accessibility and transport links to potential locations are also important for many companies – both in terms of proximity to or accessibility for customers, as well as for networking with headquarters and other delivery centers.
However, in most cases the required skill set is the main factor in the site selection choice. If, for example, other markets beyond the German markets are to be served, then the availability of appropriate language skills among employees is also important. The greater the number of languages required, the larger – and more attractive for international talent – the city should be. Many providers have established centers in the major German cities, but there is increasing competition here too, for example in trying to attract dynamic start-ups with qualified personnel.
The many ”second tier cities“ in Germany are a good alternative, inasmuch that they too have a sufficiently large labor market and interesting cost structure. Most domestic providers operate from a number of locations in Germany, and each with medium-sized centers. Germany Trade & Invest recently supported an international service provider looking for a new location for its German-speaking services – the company was no longer able to recruit suitable personnel from its existing location. In order to provide German-language services to existing and new customers, the service provider plans to open a center in Magdeburg, the capital of Saxony-Anhalt, with a population of approximately 235,000 and around 150 km from Berlin.
3. Could you name a few international companies that operate centers in Germany?
Many German companies run captive centers in Germany, some close to their HQs (like eg. Beiersdorf in Hamburg), some in other locations like Daimler or BASF in Berlin. One of the newcomers is KWS, one of the world`s leading plant breeding companies, who builds its global transaction center for HR, Finance, Controlling, Procurement and IT in Berlin. KPMG, one of the leading auditing and advisory firms in Germany, has established its shared delivery centers in Leipzig and Essen.
Many international companies are active in the German market. BPO and IT service providers in particular offer their services in Germany, often entering the market through mergers. The global IT service provider HCL, for example, has taken over one of the largest IT service providers in the German automotive industry, H&D International Group located in Wolfsburg, in order to be present in and expand in the German and European markets with its own capacities.
Germany is not just an interesting delivery location. The country is also predestined for the establishment of digital innovation centers. At the end of 2019, Infosys opened a digital innovation center in Düsseldorf in addition to its delivery locations. It also operates its continental European digital studio in Berlin as a hub for expertise in AI, automation and machine learning.
4. How do you think the conditions compare with locations in Poland for instance?
Nearshoring in and outsourcing to locations in CEE has been a very successful business concept for many years. Poland has an excellent reputation as a location for international shared services and is one of the leading service delivery locations in Europe. Germany is not a direct competitor in this environment. Germany is a country with high productivity, including the service sector, but also with relatively high labor costs. These do however vary greatly from region to region. Service delivery from Germany is only worthwhile for processes that require customer proximity and skill sets (i.e. German language skills) that cannot be replicated at other locations.
The special “dual system“ of vocational training allows well-trained and loyal specialist personnel – who do not necessarily possess a university degree – to be recruited at moderate conditions in Germany. This puts the labor cost advantages of nearshore locations in perspective. Locations in Germany do not differ greatly from those in Poland or other CEE locations in terms of office space and infrastructure costs.
Germany currently has an unemployment rate of around five percent, subject to regional differences. Specialists are particularly sought after in the IT professions. For that reason, the federal government enacted a new law. The Skilled Labor Act, effective as of March 1, 2020. This will make it easier for qualified specialists from non-EU countries to come to Germany and work.
5. What public support can companies that consider opening or expanding centers in Germany expect from agencies like Germany Trade and Invest?
Germany Trade & Invest is the economic development agency of the Federal Republic of Germany. On behalf of the German government, we assist international companies who plan to set up in Germany with:
- information about key industries in Germany
- legal information on setting up a company
- tax information (national and international)
- information on government incentives for businesses
- assistance with finding the right site location for the business
Together with our 16 partners in the German federal states, we are able to support your location selection process. According to your key drivers, we research the relevant data for sites in Germany, provide you with the information and identify the best location for your project in Germany together.
International companies also have complete access to the effective business development system established by the federal and state governments in Germany. The aim is to strengthen Germany as a business location, create jobs, promote innovation, and protect the environment in the long term. Subsidies are available to all investors – including investors from abroad. Germany Trade & Invest advises on the range of suitable subsidies available before the project has even started and also provides assistance in putting together different financing options.
And saving the best for last: all of our services are confidential and free of charge. Everybody is welcome, talk to us to find out more.
Dr. Josefine Dutschmann will share more insights and practical advice on taking advantage of the favorable conditions in Germany, especially for global business process services organizations that provide services in German language, during our annual conference, the Outsourcing & Shared Services Germany Forum on October 7, in Berlin. More information and ticket reservation at www.outsourcing-forum.org