Business Services Sector in the Czech Republic

BUSINESS SERVICES SECTOR IN THE CZECH REPUBLIC 2016 Report prepared by the Association of Business Service Leaders (ABSL) in cooperation with: Grafton Recruitment, Jones Lang LaSalle, PwC, CzechInvest

Project Coordinator : Darie Zmátlíková, Operations Manager, ABSL e-mail: [email protected]

Authors of the Report: Ota Kulhánek, Accenture Services & Jonathan Appleton, ABSL | Chapter 1 Kevin Turpin & Jana Krajčíková, Jones Lang LaSalle | Chapter 2 Martin Ježek, Grafton Recruitment | Chapters 3, 4 Karel Kučera & Lucie Polášková, CzechInvest | Chapter 5 Mike Jennings & Adam Jamiol, PwC | Chapter 6

Chief editor and proofing: Jonathan Appleton, ABSL

Graphic layout and typesetting: www.copygeneral.cz

® ABSL 2016 All copyrights in this work are the property of ABSL. Unless otherwise stated by the relevant provisions of law, any use, reproduction, duplication, modification, adaptation or retransmission of this work, in whole or in part, in any manner, without the prior written consent of the copyright holder, is a violation of copyright law. Table of Contents

Introduction 5

1. Profile of the business services 9 sector in the Czech Republic

About the report 10

Structure of the business service sector in the CR 15

Range of services the business service sector in the CR 20

Development of the business service sector in the CR 24

Human capital in the business service sector in the CR 30

2. Office market 37

3. Labor market 47

4. Salaries in business services 57

5. Investment incentives 61

6. Global services market trends and forecast 67

Business services sector in the Czech Republic 5 Introduction

Introduction

I am proud to introduce the third ABSL report. It presents the development of the Business Service Sector in the Czech Republic and I believe it shows the very successful story of one of the key industrial sectors in the Czech Republic. Overall we calculate that the business services sector creates around $3 billion in revenues or 75 billion Czech crowns and represents 1.5% of the Czech Republic GDP. The sector employs about 65.000 people in more than 180 centers. These are impressive statistics but even more important than the size of the industry is the growth. In the last year we have seen average growth of 15% per year and the demand for new centers is still high. We see continuing high interest of international investors in the Czech Republic and all our existing centers expect further expansion in their scope, as well as their employee numbers.

The other important trend we see is the change of the scope of services. While previously the centers were focusing on the centralization of the individual business processes, today most of them have become innovation centers, focusing on improvements and process optimization. With the development of new IT technologies, for example, we see a broad application of automation and robotics in many areas of our operations. Employees of the centers therefore no longer need to perform routine activities, but are solving tasks with greater added value. It is in this area, that we see great potential and opportunities for development in future years.

In the following chapters you will learn about the current profile and status of the sector, as well as some of the newest trends for the business service sector in the Czech Republic. The centers need two important elements for their existence – good people and the right office space. You will find more detailed insights in the relevant chapters that were provided by our strategic partners. The Chapter about labor market was provided by Grafton and chapter about the office market by JLL. I would also like to thank to CzechInvest for contributing to the report with the information about the Czech Republic and Incentive Structure.

One of the challenges we are facing is the correct terminology for this dynamic sector. Traditionally in the Czech environment and language, everything that belongs to the centralized Business services is called Shared Services. You will notice that we intentionally tried to avoid this term in our report and always use the term Business Services to reflect our members broad activities in Business Process Outsourcing BPO, Shared Services SSC, IT outsourcing ITO and research and development centres R&D.

I hope you will find the data and information published in this publication useful and relevant for your business needs. Ota Kulhánek President of ABSL 6 Business services sector in the Czech Republic Introduction

ABSL Czech Republic. From strength to strength.

I am delighted that our ABSL Czech membership has grown by over 30% in 2015 to over 50 members. A significant part of this growth is members from the Pharma, logistics and IT/ digital technology sectors. This reflects the increasing demand and investment in these sectors across the Czech market today.

Our member companies now represent over 15,000 employees and many of the largest business services employers in the country. Our members are telling us that ABSL adds value to their firms by providing them with the following benefits:

» Access to our huge ABSL network and knowledge they can share with leaders of Czech and international business service centres

» Best practices from benchmarking studies, sector reports, conferences and workshops

» Opportunities to influence and change the Czech business environment to drive the growth of their business

As this years report clearly shows, our members are growing – in size and complexity. ABSL is growing with them and together, we will achieve our strategy to keep Czech Business Services at the forefront of the sector in CEE and Globally. Our future plans for ABSL 2016 include :

» The launch of the ABSL HR Club which provides HR leaders in our sector with professional insights and issues regarding recruitment, talent retention and development, employee remuneration.

» The launch of the ABSL Awards programme to recognize best practices and promote Czech service centres for their innovations and great working practices.

» The introduction of the ABSL Academy to promote the development of talent within the services sector and provide common learning solutions to attract and develop talent in business services.

» ABSL board members will keep supporting growth of our members by improving mutual cooperation with governmental, regional and educational bodies across the country.

We have achieved a great deal together in 2015 - and laid strong foundations for the future. I would like to thank all of our members and sponsors for their efforts this year and we look forward to building on our achievements in 2016

Jonathan Appleton ABSL Managing Director Business services sector in the Czech Republic 7 Introduction

ABSL growth ? 60 52

40 founded in 2013 30 by 15 members *

4/20135/20136/20137/20138/20139/2013 1/20142/20143/20144/20145/20146/20147/20148/20149/2014 1/20152/2015 4/20156/20157/20158/2015 10/201311/201312/2013 10/201411/201412/2014 3 /2015 9 /201510/201511/201512/2015

* Founding members:

ACCA Gardner Denver CZ + SK ZEBRA Technologies

Accenture Services Infosys BPO PPG Industries Czech Republic

ČEZ Korporátní služby JNJ Global Business Services PricewaterhouseCoopers Česká republika

DHL Express (Czech Republic) MANN + HUMMEL Service Process Solutions

Edwards Services Monster Worldwide CZ Siemens 8 Business services sector in the Czech Republic Introduction 9 Business services sector in the Czech Republic 9 Chapter Content Provider: ABSL

1 | Profile of the business services sector in the Czech Republic

The local market data for the business services sector shows that the Czech Republic is one of the key target destinations for the business service centers in Europe. International and local investors recognize the Czech Republic for the availability of a well qualified workforce with very good coverage of foreign languages. They also find here good infrastructure and competitive costs as well as political and economic stability. Another important aspect that influences investor decisions is our cultural and geographical proximity within Europe, as the majority of the services provided by the centers target end customers who are located in Europe. 10 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

About the report

The purpose of this Chapter is to provide a comprehensive profile of the business centers in the Czech Republic. The important source of the data and information that are published in this report was the survey conducted by ABSL among the business service centers that operate in the Czech Republic. The survey has been completed by 33 respondents representing investors from 15 countries and employing 12.000 people. The data and information collected through the survey enhances the ABSL database on the sector and provides the statistical study published in this report. 33 the number of companies that took part in this year’s ABSL survey 12 000 the number of people employed by respondents of the ABSL research in the business service centers in the Czech Republic

The Chapter is divided into five parts. The first part provides summary information about the business services sector in the Czech Republic. A broad definition of the industry has been adopted here where business services centers are typically internal units on mother companies (SSC), companies providing business process outsourcing (BPO) and IT outsourcing (ITO) as well as research and development centers (R&D). The following part present the structure of the sector in terms of the size and future potential growth, geographical spread in the country and investors information. The third part describes the range of services that are provided by the centers as well as what industries and geographies are supported from the Czech Republic. The next Chapter is especially interesting as it shows the development of the sector and captures also the trends and directions of the industry. The last part of the chapter present the current structure of employment including benefits and training typically provided by the centers. Business services sector in the Czech Republic 11 Profile of the business services sector in the Czech Republic

SUMMARY INFORMATION OF THE BUSINESS SERVICE SECTOR IN THE CR 65.000 employment in the business services sector 180+ the number of business service centers

30% employment growth in the sector during last two years 361 average number of employees in the business service centers $3b annual revenue generated by the business services sector which is 1.5% of the total Czech GDP 5% employment of Czech workforce in 25-30 age group in in the business services sector 100.000 projected employment in the sector by the year 2020

Table 1 Size of the Business Services Sector in the Czech Republic that includes SSCs, BPOs, ITOs and R&Ds 12 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

Accenture Services Regus Business Centre Atento Adobe SAP BSCE Laird Technologies ADP Scanservice Amazon Siemens Anheuser-Busch InBev SITA Ariba Skype Atento T Systems AXA Assistance Tesco Barclays TMF Group Liberec Blue-Infinity UniCredit Bank BlueLink Xerox Ústí nad Labem Bodycote CA Technologies Johnson Controls Carrier CDK Global Clearstream / Deutsche Borse Cleverlance Comdata Procter&Gamble Commerzbank Covidien Roztoky u Prahy CSC Rakovník DHL Praha eBay EDITEL Edwards Lifesciences EPAM ESET ExxonMobil Plzeň Google

GTS Praha HayGroup Honeywell Hewlett Packard ICON ICZ Intel Písek International SOS Interoute J&T Services Czech Cloud Cluster Jarden BSG ADP Johnson&Johnson Aimtec Komerční banka HayGroup České Budějovice LUKOIL Kerio Mallinckrodt PDM Technology Microsoft Sony DADC Monster Worldwide NESS NNIT Novartis Novell Oracle E.ON Panalpina UniCredit Bank Pfizer Process Solutions

Table 2 List of centers in the Czech republic Business services sector in the Czech Republic 13 Profile of the business services sector in the Czech Republic

Member of ABSL

Eaton

AXA Assistance Comdata ČEZ Korporátní služby DHL Kingspan GE Money Genpact

Roztoky u Prahy O2 OKIN GROUP RWE Siemens StoraEnso Tieto Hradec Králové Xerox

Pardubice

Ostrava Foxconn NonStop Recruitment

Olomouc

MANN + HUMMEL EXL Service Honeywell Okříšky ICON u Jihlavy Brno John Crane Sigma

ABB Fabory Lear Corporation Acer FEI Lufthansa in Touch AT&T FNZ MediClinic Atento Gardner Denver Monster Worldwide AVG Home Credit NetSuite CGI IBM Pixmania Cleverlance ICON PPG Industries Deloitte IMI Norgren Red Hat Dixons Retail Infosys BPO Seznam.cz Edwards Services John Crane Sigma Ysoft EmbedIT KBC Group ZEBRA Technologies 14 Business services sector in the Czech Republic

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Structure of the business services sector in the CR

Currently there are more than 180 business service centers in the Czech Republic. The centers are located in the country in three main hubs: Praha, Brno and Ostrava. These three locations cover about 90% of the market. The other popular locations are Olomouc, Pardubice and Plzen with 5% of the share. The rest of the centers are spread in the country in many locations very often connected to other business activities of their mother companies such as production plants, logistic centers, etc.

0,5%

1% 1%

4% 4% Share of locations Praha 48,3% Brno 22% Ostrava 21% 21% Plzeň 3,7% Pardubice 100% = 12.000 0,8% people 48% Olomouc 0,5% Liberec 0,4%

Hradec Králové 22% 0,1% Ústí nad Labem 0% České Budějovice 0%

Other cities Praha Pardubice 3,1%

Brno Olomouc 0 10% 20% 30% 40% 50% Ostrava Liberec

Plzeň Other cities

Figure 1 Share of individual business service locations in overall employment / in # of centers 16 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

In the last two years the employment in the sector in the Czech Republic has increased by 30% from 50.000 in 2013 to 65.000 employees in 2015. The growth was driven by establishing new centers as well as by the growth of existing centers. We estimate that the sector will continue growing also in the next years and reach employment of 100.000 employees in the next 4-5 years.

120,000 97.500

100,000

80,000 60.500 50.000 55.000 60,000

40,000

20,000

0 2013 2014 2015 2020

Figure 2 Employment growth in business service centers in CR

The typical business service center in the Czech Republic on average employs 362 employees. This number has not changed in the last two years, as the growth of the existing centers is covered with the small number of employees in newly opened centers. Almost half of the centers (46%) are centers with up to 200 employees. According to the ABSL study 10% of centers have more than 1000 employees.

18% 362 average employment in all centers 100% = 33 46% centers

36% > to 200 employees 200-500 employees

< than 500 employees

Figure 3 Size of the centers according to the number of employees Business services sector in the Czech Republic 17 Profile of the business services sector in the Czech Republic

9% 9% 24% Industrial & Consumer Goods Technology & Telecom 12% Business and Professional Services (incl. BPO) Health Care

Energy, Utilities and Basis Materials 24% 15% Consumer Services (incl. Media, Retail, Travel & Leisure)

Banking, Insurance, Financial Services (BIFS)

Other 21% 21%

Figure 4 Structure of employment in business service centers by industries of their parent company

The biggest share of the investment in the Czech modern business service sector comes traditionally from US companies. German companies remain the largest European investors in service center numbers and employees. Other European countries follow with growing demand for near shore operations from across Western Europe.

USA

Germany 24% 30%

Switzerland Belgium 100% = 33 Czech Republic companies

Ireland 6% UK 6% Other 12% 6% 6% 9% > to 200 employees

200-500 employees

< than 500 employees Figure 5 Structure of business service centers by parent company headquarter location 18 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

3% 2% 3% 4%

4% USA

Germany

Ireland 6% 37% Italy Belgium 7% Czech Republic India

Switzerland 13% Austria Other 21%

Figure 6 Employment business service centers by parent company headquarter location

What we understand as a Business Services Center is an organizational unit responsible for the execution of specific tasks supporting the core activity of the company e.g. Finance & Accounting, IT support, Sourcing & Procurement, Human Resources and others. Such centers exist as captive centers being separate legal entities or just organizational units of the mother company. In terms of centers ran by BPO providers their Delivery Centers render various types of centralized services for multiple 3rd party clients. In the Czech Republic the great majority (around 80%) are captive Shared Services Centers. BPO providers have a higher share of employment because typically they employ a higher number of people and serve multiple clients. The survey also shows that the hybrid centers (centers that serve their mother company as well as 3rd party clients) cover the widest range of services while the BPO are more specialized on specific areas. Business services sector in the Czech Republic 19 Profile of the business services sector in the Czech Republic

6% 12% 17%

100% = 33 centers 24% 59%

82%

Internal unit / captive Service Center Internal unit / captive Service Center

Commercial provider / outsourcing Service Center Commercial provider / outsourcing Service Center

Hybrid model (both internal and external clients) Hybrid model (both internal and external clients)

Figure 7 Figure 8 The organizational structure of the sector The organizational structure of by number of business service centers the sector by employment

More than half of the service centers benefit or have benefited from the public support in the past. The most used support is EU grants for training and employment and also government grants.

Share of centers

Company did not use / do not use the public support 46%

EU training grants 27%

Government grants 24%

EU employment grants 21%

Other public grants 3%

Local tax exemptions 3%

Tax exemptions within Special 0% Economic Zone (SSE) 0 10% 20% 30% 40% 50% 60% 70% 80% 90%

Figure 9 Public support used by business service centers 20 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

Range of services the business service sector in the CR

Czech business service centers support a diverse range of global industries. The Figure 10 shows that most centers are found in Technology & Telecom plus Industrial & Consumer Goods. Both industries are supported by more than 30% of the Czech centers and health care is a fast growing industry for new investors in the country.

Share of companies

Technology & Telecom 33%

Industrial & Consumer Goods 30%

Health Care 24%

Banking, Insurance, Financial Services (BIFS) 21% Consumer Services (incl. Media, Retail, Travel & Leisure) 18% Business and Professional Services 18%

Energy, Utilities and Basis Materials 15%

Public Sector 3%

Other (please specify)* 15% 0 10% 20% 30% 40% 50% 60% 70% 80% 90%

Figure 10 Industry structure of companies supported by business service centers *Mining, Logistics and Freight Forwarding

Czech business service centers support a wide range of services. The majority of them support several type of business services and on average the centers provide a minimum of 3 types of business services.

As in previous years, Finance and Accounting services are still the largest. More than 75% of the centers report they have F&A scope which represent almost one third of employees. However, the overall share of F&A in terms of employment is going down on previous years, while newer service areas such as Customers Operations, IT and HR are rapidly on the increase across Czech centers. Business services sector in the Czech Republic 21 Profile of the business services sector in the Czech Republic

6% Finance & Accounting (F&A) Customer Operations 9% 32% IT Services (incl. software development)

HR 13% Other services Supply Chain Management

Banking, Insurance, Financial Services (BIFS) 13% 21%

Figure 11 The structure of employment in business service centers by categories of supported processes

3 average number of business processes supported by the business service centers

Share of centers Finance & Accounting (F&A) 76%

Customer Operations 58%

HR 52%

Other services 42%

IT Services (incl. software development) 33% Supply Chain Management 33%

Banking, Insurance, Financial Services (BIFS) 18% 0 10% 20% 30% 40% 50% 60% 70% 80% 90%

Figure 12 The structure of categories of supported processes in business service centers 22 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

F&A - Accounts Receivable 82%

F&A - Accounts Payable 76%

F&A - Travel & Expenses 64%

F&A - General Ledger & Reporting 76%

F&A - Business Controlling 39%

F&A - Treasury 36%

F&A - Master Data Management 64%

F&A - Billing 27%

Strategic Procurement 9%

Operational Procurement 33%

HR - Recruitment 21%

HR - Talent Management 18%

HR - Mobility 21%

HR - Payroll 36%

HR - Compensation & Benefits 30%

HR - Administration & Reporting 39%

Document Management 27%

Operational Marketing 15% Customer Operation - Sales & 36% Account Mgmt Support Customer Operation - Fulfillment 6%

Customer Operation - Customer Helpdesk 46%

Knowledge Management 15%

IT - User support / Service Desk 46% IT - Application Lifecycle Management 18% (incl. software development) IT - Infrastructure Management / Support 24%

IT - Information Security 12%

IT - Request Fulfillment / process execution (BPO) 6%

IT - Enabling Services 12% IT - Automatization / Optimization of Service Delivery (cost, quality) 24% IT - Other IT services 15%

Project Management 27%

Business Transformation 24%

Supply Chain Managemen 12%

Banking Specific Processes 9%

Insurance Processes 9%

Professional Services 6%

Other Processes * 33%

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Figure 13 The structure of individual business processes supported in business service centers * Technical Drawings for Manufacturing, Fleet management; Facility management, Logistics, Quality, Compliance & Fraud prevention Business services sector in the Czech Republic 23 Profile of the business services sector in the Czech Republic

Number of processes covered 20 18 11 15 11 average number of 9 processes supported 10 by the business service centers 5

0 Internal unit / captive Hybrid model (both internal Commercial provider / Service Center and external clients) outsourcing Service Center

Figure 14 Average number of processes covered by business service centers according to their organizational model 91% of centers support more than 1 country

76% 42% 76% CEE (excl. Czech Republic) North America Czech Republic

85%

Western Europe 30%

33% Asia Pacific

15% Middle East & Africa South America

Figure 15 Geographical structure / range 24 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

Development of the business service sector in the CR

85% of the surveyed companies have increased the range of provided processes in the past 3 years (87% of companies with fewer than 200 employees, 75% with 200-500 employees and all companies that employ more than 500 employees. 91% of the surveyed companies in past three years have increased the degree of sophistication of provided processes: in 58% of companies it has increased significantly and in 33% insignificantly. Advanced processes have increased in all companies employing more than 500 employees, in 83% of companies employing 200-500 employees and in 93% of companies with fewer number of employees than 200 employees. 85% of service centers predict an increase in employment through the end of 2016 on average of 17%. All companies employing more than 500 employees (100%) and operating in either commercial or hybrid model plan the growth.

17% average expected employment growth in business service centers

40 21% 17% 16% 17% 20

0 < 200 200-500 > 500 Total

Figure 16 Share of grow companies Business services sector in the Czech Republic 25 Profile of the business services sector in the Czech Republic

85% of business service centers expect to grow in the next 2 years

100%

100 92% 85%

73% 80

0 < 200 200-500 > 500 Total

Figure 17 Share of grow of employees

Percentage of companies Average projected that predict an increase in employment growth employment by the end of 2016

Total 85% 17%

Centers with less than 200 employees 73% 21%

Centers with 200-500 employees 92% 17%

Centers with 200-500 employees 100% 16%

Centers with more than 500 employees 100% 24%

Commercial providers 100% 10%

Hybrid model (internal and external clients) 81% 15%

Table 3 Forecast for the employment growth by the end of 2016 26 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

0% Rookie 17% > 500 (Design and initial 33% implementation in place) 50% Developing 0% (Some processes transferred, majority 0% 200-500 of processes not standardized) 83% 17% Advanced (Centralization completed as 0% planned, processes standardized, 53% < 200 47% continous improvement in place) 0% Business Partner (Optimization and Automation across 0% 27% organization, Business Outcomes Total 58% focus & Partnership with clients) 15%

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 18 Stage of development of business service centers

64% of the business service centers plan to expand their business activities in the next two years. The more people employed in a service center, the higher the likelihood that the center plans to increase their activities. Further expansion is planned by 83% of companies employing more than 500 employees, by 75% of companies with 200-500 employees and by 60% of companies with less than 200 employees. Business expansion has been planned by all companies with hybrid operation models followed by 75% of the commercial providers (75%) and 67% of the internal units / captive centers.

The expansion is mostly driven by global restructuring plans (55%) followed by increased external demand (39%). 30% of companies are expect to build the new business areas and 21% of companies expect that the expansion will be driven by new acquisitions.

Share of employment growth 40% 33% < 200 External demand increase 40% 39% 200-500 > 500 47% 58% Total Global restructuring plans 67% 55%

27% 25% New business areas 50% 30%

13% 25% Acquisition 33% 21% 0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 19 Key drivers for employment growth in business service centers by employment range Business services sector in the Czech Republic 27 Profile of the business services sector in the Czech Republic

Share of employment growth

30% 50% External demand increase 100% 39%

59% Global restructuring plans 0% 100% 55%

30% Total New business areas 0% 30% Commercial provider 50% Hybrid model (internal and external clients) 26% 0% Internal unit / captive center Acquisition 0% 21%

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 20 Key drivers for employment growth in business service centers by organizational model

Share of plans for expansion

70% Stabilization and optimization 87% of current activities 58% 50%

64% Expansion of activities – new 53% activities, same customers 75% 67%

61% Expansion of activities – new 60% activities, new customers 40% 83%

15% Expansion of activities – same 60% activities, new customers 58% 33%

15% 27% Total Reduction of activities 8% 0% < 200 200-500 12% No plans to change 20% > 500 current activities 8% 0%

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 21 Plans for expansion of business activities by employment range 28 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

Share of centers

70% Stabilization and optimization 74% of current activities 50% 50%

64% Expansion of activities – new 67% activities, same customers 50% 50%

61% Expansion of activities – new 56% activities, new customers 100% 75%

55% Expansion of activities – same 56% activities, new customers 0% 75%

15% 19% Total Reduction of activities 0% 0% Internal unit / captive centers

Hybrid model (internal and external clients) 12% No plans to change 15% Commercial providers current activities 0% 0%

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 22 Plans for expansion of business activities by organizational model

< 200

200-500

> 500

Total

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

All decisions of process changes are made within retained organization

We do not own any processes in our scope, however opinions and suggestions of SSC regarding process changes are an important input for process owners

We have full ownership of some processes in our scope and have decision power to modify them. Other processes are owned by retained organization

We have full ownership of all processes in our scope and we have decision power to modify them

Figure 23 Ownership of the processes supported by the business service centers by employment range Business services sector in the Czech Republic 29 Profile of the business services sector in the Czech Republic

Share of centers

Automation is part of the 40% 50% process (complex macros & 100% script, low end robotics) 55%

67% Limited automation 50% (small macros, etc.) 17% 52%

0% <200 Advanced automation 17% (advanced robotics) 17% 200-500 9% 500<

0% Total No automation of the process 0% 0% 0%

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 24 Level of process automation in business service centers by employment range

Share of pricing models

Time & Material (Cost-Plus) 49%

FTE based (rate card) 42%

Transaction based 42%

Fixed Price 15%

Revenue based 12%

Output based 9%

Demand based 3%

Benefit based 0%

Other 6%

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 25 Pricing models used by business service centers 30 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

Human capital in the business service sector in the CR

The Business service centers in the Czech Republic deliver services globally to almost all geographies. The majority of the services are being delivered to European countries, North America and Middle East. This creates a high requirement for knowledge of foreign languages in the business service centers. In order to support 31 languages, almost all centers employ a proportion of foreigners. The average share of foreigners in the Czech centers is 34%.

Share of centers 100% 31 90% The number of languages used 80% in business service centers

70%

60%

50%

40%

30%

20%

10%

Czech Polish Dutch Italian Greek Indian English French Slovak FinnishDanish TurkishArabic German Russian Spanish Swedish Croatian HebrewSerbian Flamish Chinese Bulgarian Ukrainian HungarianRomanian Japanese Lithuanian Portuguese Norwegian Belarusian

Figure 26 Languages supported in business service centers Business services sector in the Czech Republic 31 Profile of the business services sector in the Czech Republic

19 80% the largest number of the maximum share of languages used by one foreigners in one business business service center service center 9 34% average number of average share of foreigners languages used in business among all employees in service centers business service centers 36% 97% of business service of business service centers centers use more than employ foreigners 10 languages 85% 76% of business service centers of business service centers employ at least 10% of use more than 5 languages foreign employees

Table 4 Structure of supported languages and employment of foreigners in business service centres 32 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

27% Secondary School (or equivalent)

Master/Bachelor Degree (or equivalent)

Post graduate/Professional Cert. (ACCA, CIMA, MBA, ITIL, etc.)

68%

Figure 27 Levels of education of employees in business service centers

Share of centers Subsidizing language courses 73%

Sports entertainment 61%

Pension fund 61%

Benefit card (or other of that kind) 52%

Life insurance 49%

Subsidizing (postgraduate) studies or other professional courses 46%

Leasure trips / activities 39%

Service Center-provided mobile phone for personal use 33%

Preferential share purchase options 21% Medical pack 18% 49% Child care / infant care subsidies; Service Center kindergarten 12% Additional health insurance centers use cafeteria system (other than a medical pack) 12%

We do not offer any social benefits 6%

Other 36%

0 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 28 Non-wage benefits offered by business service centers Business services sector in the Czech Republic 33 Profile of the business services sector in the Czech Republic

Share of centers

Induction / Introduction 94%

Soft skills incl. social communication, 88% emotional Intelligence

Language competencies incl. certifications 58%

Manager coaching 52%

Other professional trainings 49%

Financial e.g. CIMA, CIA, ACCA, CFA, etc. 49%

Time management 46%

Project Management e.g. 36% PMP, Agile, Scrum, etc. Computer & Internet Technology 36% e.g. CISA, ITIL, etc.

Business Analysis e.g. 6 Sigma, CBAP, etc. 33%

Supply Chain e.g. APICS 6%

Other 15% 0 10% 20% 30% 40% 50% 60% 70% 80% 90%

Figure 29 Training offered to employees by business service centers

Employees of Czech service centers are well educated and over two thirds have a first University degree or Masters. The share of employees directly from high school is consistent with previous years and represents 27% of services employees. Continuing professional development or CPD is a growing trend in the business services sector and 5% of employees have or are studying for a postgraduate qualification. See fig 27. The importance of continuous investment in education is seen in fig 28 with the majority of centers providing additional language courses and nearly 50% investing in postgraduate or professional qualifications for their talent pool.

Training and education has become a key strategic tool for business services to attract, retain and develop the talent force that centers require as they ‘move up the value curve’ to deliver higher end reporting, analytical and front end services. Our survey shows that almost all business centers are providing induction training for new recruits see fig 29 and the vast majority have educational programs to develop the key business skills for leading teams, managing workloads and delivering complex projects.

An increasing number of Czech centers are investing in professional financial qualifications such as ACCA, together with recognized certification in project management, lean six sigma and leading IT certificates. This is clear evidence of the move within Czech business services to higher level, professional services requiring business centers to adopt sophisticated learning strategies and provide employees with international development options and qualifications. 34 Business services sector in the Czech Republic Profile of the business services sector in the Czech Republic

In the survey the leaders of Czech business service centers were asked for their opinion on the characteristic of the local market as a place for business. In the case of companies with centers in several cities, generally the respondents referred to the market in which they employed the majority of employees. The following aspects have been rated most positively: availability of modern office, the image of the city (in the opinion of investors and the quality of public transport (all were rated above 8 on a scale 1 to 10) as well as the city accessibility (average score 7.94). Investors are satisfied with the conditions of functioning that individual locations offer them. In general the average rating of the competition between business service centers in local markets was rated on 6.76 (on a scale 1 to 10).

6.76 average rating of completion between business service centers in local markets

Availability of talent pool / highly qualified staff

6,76

Cooperation with City accessibility local authorities (airport, trains) 7,94 6,19

1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 10,0

8,15 8,85 Image of the city The quality of (in the opinion public transport of investors) in the city 8,33

Availability of modern office space

Figure 30 Average scores from business service centers representatives pertaining to selected features of local markets in which the centers operate Business services sector in the Czech Republic 35 Brno The Knowledge City

Brno, the Czech Republic’s second biggest city, lies at the heart of the South Moravian Region. It borders Austria and Slovakia and it is strategically placed among Prague, Vienna and Bratislava. Brno is a constantly developing metropolis which many times in its history has proven to have something to offer the world. So internationally renowned were its local textiles, that Brno was called the “Moravian Manchester” in the 18th and 19th centuries. Later, it became one of the great engineering powers, created the largest exhibition centre in Central Europe and founded a respected technical university. It was in Brno that Gregor Johann Mendel came up with his laws of genetics, Viktor Kaplan invented his turbine, Kurt Gödel began his logical reasoning and Leos Janacek started his musical pilgrimage.

Brno is a city with great potential. A number of universities with more than 80,000 students ensures that it is a creative and dynamic city with a youthful spirit. Universities with a tradition in a number of fields oversee advanced research, especially in the biological and medical sciences, as evidenced by the presence of leading scientific research centres. Whole chapters could be devoted to the local academic and research successes in information technology, the life sciences, electron microscopy and, especially, cyber security and software development, where Brno has taken on the role of a courageous, successful and promising leader within Europe. 36 Business services sector in the Czech Republic Brno The Knowledge City

Foreign companies see the city and its surroundings as a region with prospects in which it pays to invest. Several multinational concerns have established their development centres and top production facilities there (e.g. FEI, Honeywell, IBM and Red Hat). Brno assists incoming and current investors in finding locations and provides solutions based on their individual requirements, utilising a perfect knowledge of the local environment. The city actively cooperates in developing its potential with regional institutions (the South Moravian Innovation Centre, the Regional Development Agency South Moravia, CzechInvest and the Brno Regional Chamber of Commerce). It is working to ensure that the results of innovative and daring projects become a reality. Brno also helps with the creation of more new centres and places to inspire fruitful ideas and goals (e.g. the Europoint Brno project for modernization of the rail interchange, a large ring road, the Czech Technology Park Brno, the Brno Creative Centre, the Janacek Cultural Centre and the Brno Industrial Zone – Cernovice Terrace).

Part of Brno’s long-term strategic plan is also the development of the knowledge economy, which brings with it economic development, an improvement in the quality of life, research, development, innovation and education. A key word for Brno and South Moravia is cooperation. Universities and scientists are on one side, and companies and entrepreneurs are on the other, and all of them are striving for closer connections. As well as providing an excellent background for work, this sharing of experience and information also brings with it an increase in the competitiveness of the city, as well as the region as a whole.

This is probably also a reason why ever more investors are choosing Brno as a home which offers everything necessary for the harmonious combination of working success and a fulfilling personal life. Everyone who comes there in order to build something is welcomed with open arms. Evidence of this is the constant effort to improve and perfect the region to meet the requirements of the hectic and demanding pace of our times. Ease of movement within the region is guaranteed by the sophisticated transport system, thanks to which there is nowhere that its inhabitants cannot reach whenever and however. Everything is available – culture, monuments, national institutions, an international airport, services, sports and recreational areas. The Brno Expat Centre is available to help with the integration of foreigners.

The current rankings of the respected Numbeo.com server has Brno as the city with the highest quality of life in the Czech Republic. On the worldwide rankings it is ahead of such giants as London, Los Angeles and Brussels. We take pride in this but we are aware that we cannot rest on our laurels.

City of Brno e-mail: [email protected] Business services sector in the Czech Republic 37 Chapter Content Provider: JLL

2 | Office market

The Czech Republic has continuously proved to be an attractive location for international businesses. This is largely thanks to the high quality and high technical standards of available office accommodation, coupled with highly skilled, well-educated and competitively priced labour. As of 2015, there is approximately 4 million square meters of modern office space spread throughout the country with the largest concentration located in Prague, Brno and Ostrava. Current market conditions are favourable to occupiers with more than 650,000 m2 of space currently available to lease across the country. A range of rental costs, to suit all budgets, are available with typical BPO/ SSC rental costs at between 8 -15 € / m2 / month. 38 Business services sector in the Czech Republic Office market

Prague Office Market

Stock and supply

As the capital city, Prague has the largest office stock in the Czech Republic which currently stands at approximately 3.2 million m2 of modern office space. The majority of the stock meets the requirements of A class buildings which account for ca. 69%. The remaining 31% are high quality refurbishments. The largest office districts are Prague 4, Prague 5 and Prague 1 which are regarded as the core office areas in Prague. Over the last few years however there has been a growth in importance of Prague 8 which has been the target of the majority of new developments within the inner city area. In 2015, we expect new office supply to reach approximately 187,500 m2 which would be the highest level since the record year of 2008. In 2016, office completions are expected to drop to a level of around 25,000 m2. New supply should increase again in 2017 when it is expected to reach pre-crisis levels.

m2 350,000

300,000

250,000

200,000

150,000

100,000

50,000

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 31 Prague Office Completions Business services sector in the Czech Republic 39 Office market

Availability

The level of choice in office space in Prague decreased to 16.38% which means that there is more than 520,000 m2 of office space available. A large portion of available space is currently in new office buildings which are predominantly being built on a speculative basis and therefore are usually not fully occupied by the time of their completion. The majority of available space is nevertheless in older office schemes as a result of tenants relocating from these schemes into newer, more modern premises. Due to strong speculative supply, the level of choice increased significantly in 2015 and in Q1 reached its historical maximum by exceeding the level of 17%. Despite the fact that a significant amount of the vacant space has already been leased throughout 2015, we expect the level of choice to remain relatively high. As net demand is driven mainly by relocations of existing tenants within the current stock, we can expect more second hand space to become available on the market in the forthcoming quarters. This will keep the level of choice relatively high, despite the limited office supply pipeline in 2016.

Rents

Prague is quite a stable market in terms of rental costs. In 2015, prime headline rents in the city centre remained stable, ranging between €18.0 and 19.5 m2/month. Inner city rents were between €15.0 and 16.0 m2/month in Pankrác (Prague 4) and Smíchov (Prague 5) and between €13.5 and– 15.5 m2/month in Florenc (Prague 8). Rents in the Outer City, which was historically one of the most sought after locations by companies from the SSC and BPO sector, remained between €13.0 and 14.5 m²/month.

Holešovice Prosek 12.0 - 13.5 12.0 - 13.5 Karlín Vysočany 13.5 -15.5 12.0 - 13.5 City Centre Prague 3 & 10 18.0 - 19.5 11.0 - 14.0 Prague 2 & 10 Chodov/Opatov 13.0 - 16.0 12.0- 15.0 Stodůlky Pankrác 12.0 - 14.0 14.5 - 16.0 Butovice Anděl/Smíchov 12.0 - 14.0 15.0 - 16.0

Figure 32 Prime Rental Levels in Major Office Areas 40 Business services sector in the Czech Republic Office market

All of these values refer to prime levels achieved in a limited number of prime properties. In general there are ca. 1-3 properties in each submarket which achieve these levels as they are usually brand new, above standard quality and/or very well located. Second hand products stand at approximately €1.5 below the afore-mentioned ranges.

Rents are predominantly denominated in Euro. CZK rents are available for some properties owned by local investors. Rents are paid quarterly in advance. Indexation is annually in line with European CPI. In case the contractual rent is in CZK, landlords prefer to use Czech CPI.

Demand and SSC/BPO sector

Over the last two years we have seen revived activity from both developers and tenants. Many companies, especially the larger ones, have used the opportunity of tenant favourable conditions, due to strong supply coming to the market, to relocate their offices into new and modern premises which would correspond with the highest standards of office workplaces.

Between Q1 and Q3 2015, the gross demand for office space reached almost 300,000 m2 which represents a 36% increase on the previous year. Renegotiations accounted for approximately 43.5% of that volume. Thanks to a very strong demand for offices between Q1 and Q3 and several large deals in advanced stages of negotiation, we expect 2015 to exceed the record-breaking result of last year and become the most successful year ever recorded on the Prague office market in terms of gross demand.

m2 350,000 Net take-up

Renegotiations

300,000

Net Demand: A figure representing 250,000 the total floor space known to have been let or pre-let, sold or pre-sold to tenants or owner- occupiers over a specified period 200,000 of time. Net demand includes lease extensions and subleases but excludes lease renewals. 150,000

Gross Demand (Take-up): A figure representing the total floor space 100,000 known to have been let or pre-let, sold or pre-sold to tenants or owner-occupiers over a specified 50,000 period of time. Total demand includes renegotiations.

0 2011 2012 2013 2014 Q1-Q3 2015

Figure 33 Prague Gross Demand (Take-up) 2011 – 2015 Business services sector in the Czech Republic 41 Office market

In the first three quarters of 2015, the gross demand has been driven mainly by IT and telecommunications companies which accounted for almost one third of the total take-up. These were followed by companies from the manufacturing and professional services sectors.

7% IT & Telecoms Manufacturing & Consumer Goods 9% 29% Professional Services 10% Other Pharma & Medical

Banking, Finance & Insurance

11% Construction & Transportation 17% Advertising & Media 15%

Figure 34 Demand drivers of 2015

The strong demand for offices in Prague has been also reflected in the SSC and BPO sector. Some of the key players on the market of business services decided to either relocate into newly built offices or to renegotiate their leases in the current premises. ExxonMobil, for example, has renewed its lease in its current premises in Prague 3. SAP Business Services Centre and Oracle on the other hand, have both decided to relocate into newly built buildings in the outer city of Prague 5.

The following table shows examples of the recent activity of companies from the SSC and BPO sector in Prague

Company Year Floor-space (m2) Location Type of deal

ExxonMobil 2015 9,230 Prague 3 Renegotiation

ExxonMobil 2014 8,649 Prague 3 Renegotiation

Amazon 2014 6,047 Prague 6 New occupation

JNJ Global Business Services 2014 4,356 Prague 5 Renegotiation

Accenture 2015 3,053 Prague 4 Renegotiation

Table 5 Examples of the recent activity of companies from the SSC and BPO sector in Prague 42 Business services sector in the Czech Republic Office market

Over the years, Prague has been selected as a headquarter location for a number of the largest corporations in the world and their SSC and BPO activities. One recent newcomer is e-commerce giant Amazon which opened its SSC in Prague 6 providing mostly HR shared services and remote IT support for its employees. Amazon leased approximately 6,000 m2 of office space and plans to create over 500 jobs.

Thanks to the strategic location of Prague in the centre of Europe and its highly skilled and qualified workforce, companies already present on the market are becoming more specialized and are expanding the scope of services that they provide. Recently, many companies have established their ICT and R&D centres in Prague and in other Czech cities. For example in 2014, pharmaceutical company Merck Sharp & Dohme (MSD) opened its IT centre in Prague, leasing approximately 6,200 m2 of office space in the inner city area of Prague 5.

Brno Office Market

Stock and Supply

As the second largest city in the country, Brno has the second largest modern office stock which amounts to approximately 483,000 m2. The majority of the office stock has been delivered to the market since 2005. Modern A class offices cover 80% of the total stock while the remaining 20% consists of B class projects. A very similar ratio of 77% to 23% is in favour of newly built buildings in comparison to quality refurbished schemes.

After the strong year of 2014, when ca. 45,000 m2 in 5 new office schemes and one extension was added to the Brno office market, there were no new completions in the first half of 2015. Overall in 2015, only 1,500 m2 of offices within one multifunctional project should be delivered to Brno office market. In 2016, we expect the office supply to amount to approximately 22,0002 m .

Availability and Rents

Since 2013, due to the strong demand for offices, the level of available office space in Brno has been gradually decreasing. With the subdued development activity and very limited supply coming to the market in 2015, the level of choice declined to 16.48% by the end of H1 and it is forecasted to decline further as the market absorbs more vacant space.

Prime headline rents for A class office space oscillate in the range of €12.0 to 12.5 m2/month. However, this value represents only a limited part of the stock. In general, modern offices in the Brno market are currently being offered between €8.0 and 12.0 m2/month, depending on the vicinity to the city centre and the overall quality of the project. Business services sector in the Czech Republic 43 Office market

Demand and SSC/BPO sector

Over the last decade, Brno has been very successful in attracting offshoring and shared service centre activities. This is mainly thanks to the availability of an educated, highly qualified labour force, obtainable at a significantly lower cost to Prague, combined with an above-average level of regional unemployment which includes a large proportion of higher education graduates. Over the years, Brno has attracted a wide range of businesses covering areas of software/IT development, accounting/finance or customer service centres. Demand in Brno has been driven by multinational corporations including IBM, Infosys, Lufthansa, Red Hat, KBC and Monster Worldwide, to name a few.

In 2014, the gross demand for offices reached 58,700 m2 which represented the second strongest result since 2005 and y-o-y increase of ca. 21%. The share of renegotiations reached almost 50%. In H1 2015, total demand reached ca. 26,400 m2. Due to the large renegotiation of IBM at Technologický Park Brno, the share of renegotiations reached 49%. Over the past year and a half, demand for offices was driven mainly by the manufacturing and IT sectors, accounting for ca. 35% and 27% of the total demand respectively. m2 70 000 Net take-up 60 000 Renegotiations 50 000

40 000

30 000

20 000

10 000

0 2011 2012 2013 2014 H1 2015

Figure 35 Brno - Gross Demand 2011 – 2015

In terms of the SSC and BPO sector, the most significant transactions of 2014 and 2015 included the renegotiation of IBM at Technologický Park Brno with ca. 13,000 m2 or renegotiation and a pre-lease deal of Motorola Solutions within the same business park.

Company Year Floor-space (m2) Location Type of deal

IBM 2015 12,953 Brno Renegotiation

Motorola Solutions CZ 2014 2,435 Brno Renegotiation

Motorola Solutions CZ 2014 1,207 Brno Pre-completion

Table 6 Examples of the recent activity of companies from the SSC and BPO sector in Brno 44 Business services sector in the Czech Republic Office market

On top of this, several companies have expanded their R&D and ITC activities in Brno. A great example of this is Honeywell which has recently renegotiated and expanded its premises in Brno to its current ca. 20,000 m2. The R&D centre in Brno is therefore the largest innovation centre of Honeywell where approximately 1,500 specialists are employed.

Ostrava Office Market

Stock and Supply

Ostrava has the third largest office stock in the country which exceeds 205,0002 m and consists of mainly A class, newly built office premises. A class stock currently totals ca. 147,000 m2 which represents 71.4% of the total modern stock in Ostrava.

The most active years with respect to new development, as well as demand for new premises, were between 2006 and 2009. The economic downturn and lack of available financing had subsequently put many of the development projects on hold, mainly those of a larger scale. This resulted in a limited number of completions between 2010 and 2011.

The excess of supply over demand in 2013 resulted in continued limited development activity. After the completion of one large speculative project with ca. 25,000 m2 of offices in 2013 we did not record any new completions in 2014. In 2015 we expect the delivery of ca. 7,700 m2 of offices but there are currently no projects under construction with planned completion for 2016 onwards.

Availability and Rents

The level of choice in Ostrava stands at 24%. Overall, there is more than 49,000 m2 of available office space for lease in various projects. 3 projects would be currently able to accommodate larger tenants with requirements exceeding 5,000 m2 of offices.

Prime office rents in Ostrava range between €10.0 and 11.5 m2/month, depending mainly on the location, quality and age of the building.

Some landlords, especially the local ones, are quoting and collecting rents in local currency. This trend is currently more common on the Ostrava market than in Prague or Brno, where almost all rents are denominated in Euros. Larger, international developers such as Red Group however use similar conditions to those that are common on the primary markets. Business services sector in the Czech Republic 45 Office market

Demand and SSC/BPO sector

Companies from the SSC and BPO sector have recently been seeking alternative locations in the Czech Republic to establish their centres outside of Prague and Brno. They have focused on regional cities such as Ostrava, Olomouc, Hradec Králové, Pardubice or even smaller cities. Unlike the smaller cities however, Ostrava has the advantage of a rather developed office stock.

Over the past couple of years, gross annual demand for offices in Ostrava has oscillated in the range of ca. 15,000 to 25,000 m2. In H1 2015, gross demand reached approximately 7,350 m2. The largest deal was the expansion of OKIN’s shared service centre in The Orchard by almost 4,500 m2. m2 30 000 Net take-up

Renegotiations 25 000

20 000

15 000

10 000

5 000

0 2012 2013 2014 H1 2015

Figure 36 Ostrava Gross Demand 2012 – 2015

In Ostrava there are several key players in terms of shared services and ITO centres such as Tieto, Siemens, OKIN and GE Money. These companies have also been quite active in terms of demand for office space. Examples of the major transactions from the sector are listed in the following table.

Company Year Floor-space (m2) Location Type of deal

OKIN Group 2015 4,437 Ostrava Expansion

Siemens 2013 4,093 Ostrava New occupation

Tieto Czech 2013 2,690 Ostrava Expansion

Table 7 Examples of the recent activity of companies from the SSC and BPO sector in Ostrava 46 Business services sector in the Czech Republic Office market Profile of the business services sector in the Czech Republic

CZECH REPUBLIC THE MODERN OFFICE MARKET IN NUMBERS 3 Main office markets: Prague, Brno & Ostrava

Almost… 4 000 000 m2 of modern office stock

The total m2 volume of office space due for delivery in 2015 is close to 200 000 <50 000 m2 of office premises are estimated to be under construction and due for delivery in 2016

A range of rental costs, to suit all budgets, are available across the country. Typical BPO/SSC rents are between 8 -15 € / m2 / month

Subject to individual lease negotiations, typical tenant incentives may include: Rent free periods, fit-out contributions, additional free parking spaces >650 000 m2 of estimated vacant space is available to lease across the major office markets in the Czech Republic

The estimated total vacancy rate across the major office markets in the Czech Republic is approximately 16%

Table 8 Source: JLL, Q3 2015 Business services sector in the Czech Republic 47 Chapter Content Provider: Grafton Recruitment, ABSL, CzechInvest

3 | Labor market

There are around 350,000 students enrolled within the Czech Republic’s stable environment of both public and private universities. This represents 3.5 per cent of the population and around 90,000 new graduates enter the labor market each year, many to start careers in business services.

Many students are studying fields which provide the skills required in business services. These include engineering, technical, economic, administration and IT studies.

Czech universities are well distributed across the country and provide a steady pipeline of graduates into the main cities and regions. The number of foreign students studying at Czech universities is increasing rapidly and the business services sector is growing as a first choice for young people wishing to start their working careers in the country. 48 Business services sector in the Czech Republic Labor market

No. of Universities in Czech Republic * Towns with Universities

80 69 Liberec 70 Ústí nad Labem

Hradec Králové 50 Cheb Praha Pardubice 40 Opava Ostrava 26 Plzeň 30 Olomouc

20 Jihlava Brno Zlín 10 České Budějovice 0 Total Public

Figure 37 Universities in the Czech Republic (Source: Grafton Recruitment, 2015) * Ministry of Education, www.msmt.cz

395 990 392 099 400 000 381 047 368 304 347 339 350 000

300 000

250 000

200 000

150 000

88 065 92 975 93 943 91 679 88 146 100 000

50 000

0 Students Graduates Students Graduates Students Graduates Students Graduates Students Graduates

2010 2011 2012 2013 2014

Figure 38 Student and graduate numbers in the Czech Republic (Source: Grafton Recruitment, Ministry of Education, 2015) Business services sector in the Czech Republic 49 Labor market

LABOR MARKET IN NUMBERS 350 K 95% Number of students in Academic year 2014/2015 English 90 K 70% Number of graduates in Academic year 2014/15 German 81 K 67% Number of Business Administration French students 2014/15 48% 36 K Dutch Number of IT students 2014/15 45% 74 K Italian Number of Engineering students 2014/15 39% 210 K Spanish Number of students studying foreign languages during University 2014/15 25%

Czech Republic is in the Global CENTERS BUSINESS CZECH IN SPOKEN LANGUAGES FOREIGN Nordics top 20 in respect to English language command (Education first: English Proficiency Index 2015.)

Table 9 Labor market in numbers Source ABSL 2015 survey for Source Czechinvest. Czech Ministry of Education. 2015 Czech Business Service Centres 50 Business services sector in the Czech Republic Labor market

27,4% 2010 27,7% Economics and 27,6% 2011 administration 26,9% 26,8% 2012

20,5% 2013 Engineering and 20,4% 19,8% 2014 Technical studies 20,8% 20,6%

15,9% 16,1% Humanities,Arts 16,4% and Philology 16,5% 16,7%

14,7% Pedagogics (often 14,3% 13,9% include also Philology) 13,6% 13,1% 0 5% 10% 15% 20% 25% 30% 35% 40% 45%

Figure 39 Student numbers in Czech Republic by subject (Source: Grafton Recruitment, Ministry of Education, 2015)

49 745 2010 49 485 Charles University in Prague 48 470 2011 47 798 48 115 2012 2013 39 454 39 684 2014 Masaryk University in Brno 38 937 37 309 34 822

21 546 Czech University of Life 21 598 Science in Prague 22 896 22 301 20 438

22 206 Czech Technical 22 397 21 397 University in Prague 21 524 20 866

21 933 22 362 University Palacky in Olomouc 21 717 21 305 21 063

19 266 University of Economics 18 794 18 151 in Prague 17 195 16 385

0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000

Figure 40 Student numbers at largest Czech Universities (Source: Grafton Recruitment, Ministry of Education, 2015) Business services sector in the Czech Republic 51 Labor market

Number of candidates registered by Grafton in Prague with a foreign language at C1 level or higher AND English at B2 lever or higher 2010

2011 English 24 243 German 3 545 2012 French 2 051 2013 Russian 1 513 2014 Spanish 1 329 Italian 1079 Slovak 1012 Polish 695 Dutch 441 Hungarian 342 Romanian 324 Portuguese 242 Arabic 236 Swedish 195 Turkish 170 Bulgarian 139 Ukrainian 128 Croatian 126 Serbian 97 Finnish 83 Greek 74 Norwegian 69 2010 Danish 57 2011 Chinese 43 2012 Macedonian 35

2013 Slovenian 32 Lithuanian 32 2014 Hebrew 31 Japanese 23 Hindu 23 Vietnamese 19 Albanian 17 Estonian 16 Latvian 15 African 9 Indonesian 8 Korean 5 Malaysian 4

0 2 500 5 000 7 500 10 000 12 500 15 000 17 500 20 000 22 500 25 000

Figure 41 Foreign language speakers in Prague (Source: Grafton Recruitment, 2015) 52 Business services sector in the Czech Republic Labor market

Students Prague Graduates South Moravia

Moravia - Silesia

South Bohemia

Zlin

Olomouc

Plzen

Usti nad Labem

Pardubice

Hradec Kralove

Vysocina

Liberec

Central Bohemia

Karlovy Vary

0 10 000 20 000 30 000 40 000 50 000 60 000

Figure 42 Business Administration, HR and Law student and graduate numbers in Czech Republic, academic year 2014/15. (Source: CzechInvest, 2015)

3% 0,9%

23,3% Business Administration ICT

More than 130,000 Others students are enrolled in ICT, business Law 62,5% administration, HR or HR law programmes 10,3%

Figure 43 Business, ICT, Law and HR students in the Czech Republic, academic year 2014/15 (Source: CzechInvest, 2015) Business services sector in the Czech Republic 53 Labor market

Number of Foreigners in the Czech Republic Selected Countries, According to the Languages as of 30 December 2014

German 23 711

English 14 749

Chinese 5 587

French 3 874

Italian 3 810

Dutch 2 946

Spanish 2 262

Scandinavia 1 661

Korean 1 517

Japanese 1 488 0 5 000 10 000 15 000 20 000 25 0000

Note: English - Australia, Canada, Ireland, United Kingdom, United States, South Africa; German - Austria, Germany, Switzerland; French - France, Belgium; Spanish – Spain, Mexico, Colombia, Peru, Cuba, Chile

Figure 44 Numbers of foreigners by country in the Czech Republic. (Source: CzechInvest, 2015)

Business Administration & HR Study Programmes Business Administration and HR Study Programmes at Czech Universities

100 000

84 260 Liberec Ústí nad Labem 80 000

Karlovy Vary Hradec Králové 60 0000 Praha Pardubice Ostrava Plzeň Olomouc 40 000 28 395 Jihlava Brno Zlín 20 000 České Budějovice

0 Students Graduates

Figure 45 Student and graduate numbers in Business Administration and HR (Source: CzechInvest, 2015) 54 Business services sector in the Czech Republic Labor market

Business Administration and HR Study Programmes at Czech Universities

University of Economics, Prague 13 295 3 926

Czech University of Life Sciences Prague 10 197 3 263

University of Hradec Kralove 1 512 392

Technical University of Liberec 1 780 559

VSB – Technical University of Ostrava 5 743 1 791

Silesian University Opava 3 154 1 010

University of West Bohemia, Plzen 1 426 448

VSTE Ceske Budejovice 2 143 382

Mendel university, Brno 3 947 1 438

Masaryk University of Brno 3387 843 Students

Graduates 2 176 University of Pardubice 516

2 606 Tomas Bata University in Zlin 847

0 3 000 6 000 9 000 12 000 15 000

Figure 46 Number of Students and Graduates. Selected Universities, academic year 2014/2015 (Source: CzechInvest, 2015) Business services sector in the Czech Republic 55 Labor market

Cooperation between Business Services sector and Universities

The majority of companies in business services cooperate with universities (73%) as a means to attract and secure their talent pipelines. The most popular form of cooperation for 67 % of business centers is direct recruitment of graduates. Many centers are now creating additional forms of cooperation to promote their business and attract skilled students. This includes conferences and joint educational or research projects, especially in the IT sector. A growing number of centers offer students a range of career development opportunities during their studies – eg internships, training certificates. workshops and career advice. The strategy of university cooperation is now common across the Czech Republic with most larger business services centers offering university programmes at the major universities across the country. This is expected to grow in line with the sector and increasing competition between employers to secure the best graduate talent.

Share of centers Recruiting future employees 67% Joint conferences 33% The Service Center (service Service Center) 27% Students doesn’t cooperate with universities

Graduates Joint educational projects 9% Joint training courses 6%

Joint research projects 6%

Other (give examples)* 18% 0 10% 20% 30% 40% 50% 60% 70% 80% 90%

Figure 47 Various forms of cooperation between business service centers and universities * Presentation, sponsorship, job fairs, diploma thesis, internship 56 Business services sector in the Czech Republic

WE LISTEN REACT INITIATE DELIVER YOU GROW

Poland CEE RECRUITMENT LEADER IN PERMANENT, TEMPORARY AND OUTSOURCED SOLUTIONS. 400 employees working in 25 offi ces in Europe across 20 specialisms. Czech Republic Slovakia CZECH REPUBLIC: Prague, Brno, Ostrava, Jihlava, Ústí nad Labem, České Budějovice, Plzeň, Zlín, Liberec, Olomouc, Hradec Králové, Pardubice, Kolín, Vysoké Mýto, Chomutov. HUNGARY: Budapest. Hungary POLAND: Warsaw, Cracow, Wroclaw, Lodz, Katowice, Poznan. SLOVAKIA: Bratislava, Košice, Nitra, Trenčín.

4 | Salaries in business services WE In the last year we have registered great changes in the conditions for employees in established companies. Most companies are LISTEN aware of the growing competition on the market and have initiated improvement of benefit packages, salary terms and opportunities for external training. A rise in salaries has been registered, especially REACT in jobs requiring candidates to speak German. Companies place INITIATE great emphasis on the development of their employees in general. DELIVER YOU GROW

Business Support Services Role Prague Prague Brno Brno

Min CZK Max CZK Min CZK Max CZK

Centre Head 120 000 200 000 100 000 180 000

Customer Service

Customer Service Manager with Languages 50 000 80 000 50 000 80 000

Customer Service Manager 50 000 70 000 45 000 60 000

Customer Service Team Leader with languages 40 000 50 000 35 000 45 000

Customer Service Team Leader 40 000 50 000 35 000 40 000

Customer Service Agent with English (1–3 years of experience) 28 000 35 000 25 000 30 000

Customer Service Agent with English (0–1 years of experience) 27 000 30 000 23 000 25 000

Customer Service Agent with English and core 30 000 40 000 25 000 35 000 language (1–3 years of experience)

Customer Service Agent with English and core 27 000 35 000 23 000 30 000 language (0–1 years of experience)

Customer Service Agent with English and non-core 28 000 35 000 25 000 32 000 language (1–3 years of experience)

Customer Service Agent with English and non-core 27 000 30 000 24 000 27 000 language (0–1 years of experience)

Order Entry Clerk with languages 27 000 32 000 22 000 25 000

Sales

Telesales Manager with languages 50 000 80 000 50 000 80 000

Inbound Telesales with languages 28 000 45 000 25 000 40 000

Outbound Telesales with languages 28 000 50 000 25 000 45 000

Technical Support (all platforms)

Technical Support Team Leader 45 000 60 000 40 000 50 000

Technical Support Level 3 45 000 55 000 40 000 50 000

Technical Support Level 2 35 000 45 000 30 000 40 000

Technical Support Level 1 30 000 35 000 25 000 30 000 Business services sector in the Czech Republic 59 Salaries in business services

Business Support Services Role Prague Prague Brno Brno

Min CZK Max CZK Min CZK Max CZK

Procurement

Procurement Manager 50 000 80 000 50 000 80 000

Procurement Operational Specialist 35 000 45 000 30 000 40 000

Procurement Strategic Specialist 45 000 60 000 45 000 60 000

HR Delivery Manager 120 000 150 000 80 000 130 000

HR Business Partner Team Lead 75 000 100 000 50 000 70 000

HR Business Partner 50 000 80 000 40 000 60 000

Payroll Manager 45 000 60 000 45 000 55 000

Payroll Practitioner 25 000 35 000 25 000 35 000

Learning&Development Manager 40 000 55 000 40 000 50 000

Learning&Development Specialist 30 000 40 000 25 000 40 000

HR Operations Manager 40 000 60 000 40 000 60 000

HR Administrator 28 000 35 000 23 000 28 000

Compensation&Benefit Manager 50 000 60 000 40 000 60 000

Compensation&Benefit Specialist 35 000 45 000 35 000 45 000

Recruitment Manager 50 000 70 000 40 000 60 000

Recruitment Specialist 30 000 40 000 25 000 35 000

Finance

Finance SSC Manager 120 000 150 000 100 000 150 000

AP Manager 50 000 80 000 50 000 70 000

AP Team Lead 35 000 45 000 32 000 38 000

AP Analyst 28 000 30 000 23 000 27 000

AR Manager 50 000 80 000 50 000 70 000 60 Business services sector in the Czech Republic Salaries in business services

Business Support Services Role Prague Prague Brno Brno

Min CZK Max CZK Min CZK Max CZK

AR Team Lead 35 000 45 000 32 000 38 000

AR Analyst 28 000 30 000 23 000 25 000

GL Manager 70 000 110 000 60 000 90 000

GL Team Lead 40 000 60 000 35 000 45 000

GL Accountant 30 000 45 000 25 000 35 000

Intercompany Accountant 30 000 40 000 25 000 30 000

VAT Accountant 30 000 40 000 30 000 38 000

Table 10 Source: Grafton Recruitment, Salary Survey 2015, updated as of October 2015 Business services sector in the Czech Republic 61 Chapter Content Provider: CzechInvest

5 | Investment incentives

The amendment to the Investment Incentives Act fundamentally expands the number of districts in which cash grants for job creation as well as retraining and training of new employees will be available. At present, 4 districts are supported; the amendment will make it possible to increase that number to 14. The purpose of the regional focus of cash grants is to motivate investors to implement their projects in regions with the highest rates of unemployment. This measure will stimulate the economy and thus raise the standard of living in selected regions through increased production capacities, exports and purchasing power of the local population.

Karel Kučera, CEO, CzechInvest 62 Business services sector in the Czech Republic Investment incentives

Business support services centres

Conditions for qualification

» The investment may not be initiated prior to submitting the incentives application to CzechInvest. » Fulfilment of the terms and conditions within three years following the granting of investment incentives. » Retention of assets and jobs throughout the period of drawing incentives, at least for five years.

Investments in business support services centres – specific conditions » Creation of a minimum number of new jobs (see table below). » International reach: services provided by a BSS centre must reach two other countries besides the Czech Republic.

Overview of the minimum number of newly created jobs for individual centres

Software development 20

Data centres 20

Shared-services centres 70

Repair centres 70

Call centres 500

0 100 200 300 400 500

Figure 48 Source: Grafton Salary Survey 2015, updated as of October 2015

Forms of investment incentives

» Corporate income-tax relief for a period of ten years. » Transfer of land for a discounted price. » Cash grants for job creation up to the amount of CZK 300,000. » Cash grants for retraining and training new employees up to the amount of 50% of training costs. » Property-tax exemption for a period of five years – only in special industrial zones. Business services sector in the Czech Republic 63 Investment incentives

Special industrial zones

The Government of the Czech Republic approves the special industrial zones on the basis of a proposal issued by the Ministry of Industry and Trade. More attractive investment incentives are provided in special industrial zones. The specifications of special industrial zones are available from CzechInvest upon request.

Region I *

Region A

Region B

* Region I (Special Industrial Zone) Region Job Creation Re-training 1. Ostrava-Mosnov

Region I * 300 00 CZK - 2. Most-Joseph 3. Holesov Region A 200 000 CZK 50%

Region B 100 000 CZK 25%

Figure 49 Job Creation, Training and Retraiing Grants 64 Business services sector in the Czech Republic Investment incentives

Eligible costs

A] Assets, whereas new machinery must comprise 50% of eligible costs or B] Two years’ wage costs of newly created jobs

State aid

» 25% of eligible costs for large enterprises throughout the Czech Republic, with the exception of Prague, for all types of business support services centres except data centres. » 6.25% of eligible costs in the case of data centres.

Process of applying for investment incentives

» Abridged single-round process in the case of an expansion of an investment. The Decision to Grant Investment Incentives is issued within roughly three months after submission of the application to CzechInvest. The investor can initiate the investment immediately following submission of the application; it is not necessary to wait for issuance of the aforementioned Decision. » Extended two-round process in the case of initiating a new investment. This process involves the establishment of a new Czech legal entity. The Decision to Grant Investment Incentives is issued within roughly six months following submission of the application to CzechInvest. The investor can start implementing the investment immediately after submitting the application; it is not necessary to wait for issuance of the aforementioned Decision.

Sample calculation

An investor (medium-sized enterprise) plans to start operating a repair centre in a region whose unemployment rate is 50% higher than the national average. The total investment in assets amounts to CZK 12 million comprising CZK 8 million invested in the building and CZK 4 million invested in new machinery. The investor plans to create 80 new jobs and to spend CZK 4 million on training its new employees. The average monthly wage of employees in these newly created positions will be CZK 30,000. Business services sector in the Czech Republic 65 Investment incentives

Region with unemployment 50% Calculation Notes higher than the national average

reduction by machinery, Eligible costs in assets CZK 8 mil. i.e. CZK 4 mil. x 2

This concerns a medium-sized State-aid intensity 35% enterprise

Investment-incentive ceiling CZK 2.8 mil. 2,690 CZK 8 mil. x 35%

Structured as follows:

80 jobs x 200,000; limited by Cash grants for new jobs CZK 2.8 mil. the ceiling

Tax relief CZK 0 Residual to the incentive ceiling

Plus:

Cash grants for training and retraining CZK 2 mil. CZK 4 mil. in training costs x 50%

Total investment incentive CZK 4.8 mil. incentive ceiling plus training aid

Region with unemployment 50% Calculation Notes higher than the national average

CZK 30,000 x 24 months x 80 Eligible costs in assets CZK 57.6 mil. positions

This concerns a medium-sized State-aid intensity 35% enterprise

Investment-incentive ceiling CZK 20.16 mil. CZK 57.6 mil. x 35%

Structured as follows:

Cash grants for new jobs CZK 16 mil. 80 jobs x CZK 200,000

Tax relief CZK 4.16 mil. Residual to the incentive ceiling

Plus:

Cash grants for training and retraining CZK 2 mil. CZK 4 mil. in training costs x 50%

Total investment incentive CZK 22.16 mil. incentive ceiling plus training aid

Table 11, 12 A] Eligible costs - assets B] Eligible costs – wage costs 66 Business services sector in the Czech Republic Investment incentives

Investment in a technology centre

Min. amount of Min. amount of Min. number of newly Technology centres investment in new investment in assets created jobs machinery

Investment CZK 10 mil. CZK 5 mil. 20

Strategic investment CZK 200 mil. CZK 100 mil. 100

Table 13 Overview of specific conditions

Forms of investment incentives

» Corporate income-tax relief for a period of ten years » Transfer of land for a discounted price » Cash grants for job creation up to the amount of CZK 300,000 » Cash grants for retraining and training new employees up to the amount of 50% of training costs » Property-tax exemption for a period of five years – only in special industrial zones » Cash grants for acquisition of assets – only for strategic investments

Eligible costs

C] Assets, whereas new machinery must comprise 50% of eligible costs or D] Two years’ wage costs of newly created jobs

State aid

25% of eligible costs for large enterprises throughout the Czech Republic, with the exception of Prague Business services sector in the Czech Republic 67 Chapter Content Provider: PwC

6 | Global/CEE Business Services Market overview

The Global services market continues to grow at 8-10% per year and CEE has emerged as the leading European Nearshoring destination with growth rates up to 30% across the region. This chapter explores the trends and changes in the Global and CEE services market and shows that the future promises even more opportunities – especially for those countries such as the Czech Republic that are at the forefront of the outsourcing industry. 68 Business services sector in the Czech Republic Global/CEE Business Services Market overview

CEE in the premier league of outsourcing destinations

Over the last 15 to 20 years, the centralisation of supporting processes into Shared Service Centres (SSC) and outsourcing has become very prevalent given the global economy and enhanced global competition. Businesses have been constantly looking for efficiencies in their processes, adapting best practice approaches and cost reductions. The reduced regulatory limits in setting up multinational service centres and major advancements in technology have enabled the movement of core processes to central or offshore locations with the resulting benefits on scale, cost arbitrage and enhanced control. Globally, the most popular regions for SSCs and outsourcing centres are located in Asia - India, China and Philippines, Central Eastern Europe (CEE) and Central America. Generally, these regions offer large labour pools with the right skills and very competitive costs. Therefore they are always popular when it comes to choosing the right location for a Shared Service Centre or finding an Outsourcing partner.

There is a broad variety of SSCS/Outsourcing centres that exist today. The most popular ones are: » Shared Service Centres, where businesses have centralised significant portions of their back office functions, such as: Finance and Accounting, Procurement, Supply Chain, IT, Customer Service or Human Resources. » Business Process Outsourcing companies – 3rd parties that offer delivery of a range of processes for a fee, based on service contracts. The range of functions covered are broad, similar to SSCs above. » Knowledge Process Outsourcing – organisations that offer a scope of specialised decision making processes and/or research.

More scope and services in CEE

Global trends do not differ much from those observed in the CEE region. The biggest global conglomerates familiar with the concept of SSCs, are constantly increasing the scope of their centres both in terms of serviced geographies and range of processes. As a result, the catalogue of the processes transferred to SSCs is expanding and includes such functions as: Marketing, Legal Services, “Big Data” and advanced analytics. Business services sector in the Czech Republic 69 Global/CEE Business Services Market overview

Smaller centres are on the rise

Another trend observed is an increasing number of smaller centres, often employing less than 50 employees. Despite low economies of scale, such centres prove to be financially effective and contribute to increasing operational efficiency.

For example: A relatively small SSC was recently set up in Prague by a pharmaceutical company. The scope for the SSC includes Finance and Accounting processes for 15 European countries. By focussing on centralised processes rather than multiple dispersed locations, the company has been able to achieve significant savings. In addition, the introduction of customer service provided in English and electronic documentation flow, helped in creating an effective process based organisation.

CEE leads European Nearshoring – growing at 30% per year

Even though Asian locations can offer very competitive prices for their back office services, European countries are still an attractive option for the location of SSCs/Outsourcing centres, and CEE is by far the most popular destination for Europe. The nearshore market continues to grow strongly across CEE as businesses with operations in Europe seek SSC/Outsourcing locations closer to home with the requisite language and other skills for their European operations. Recent reports show that business services in CEE have continued to grow at an average of 30% per annum. This growth rate is faster than in India and has generally been through significant growth of existing centres as well as new centre arrivals into the region. This is a strong reflection of the growth in capability and performance of Central European centres and their established reputation as Centres of Excellence. Not only the biggest corporations but also companies operating on a regional or even national level look for cost saving, process optimisation and transparency which can be achieved in SSCs/Outsourcing centres. The significant growth in size and range of processes/functions for existing centres also reinforces the original strategic decisions made by business to locate their centres in the region. 70 Business services sector in the Czech Republic Global/CEE Business Services Market overview

Czech cities are in the top league in CEE

In CEE, the main SSC/Outsourcing destinations are Poland, Czech Republic, Romania and Hungary. They continue to attract the bulk of new investors in the region for SSCs/Outsourcing. One noticeable trend in recent times regarding international rankings of SSC/BPO hot spots is that cities in these countries are generally strengthening their position whilst Western European locations which traditionally have been ranked strongly are falling down the rankings to some degree, e.g. Dublin, Ireland. For example, according to the latest “2015 Tholons Top 100 Outsourcing Destinations” Prague is ranked as number 15 in the Global list and Brno is 25th – among the highest ranked European locations for outsourcing. Compare this to the same report from 2007 where none of the CEE locations were in the top 20 and Dublin was in the top 10.

Czech Republic has the right critical combination for outsourcing success.

There are a number of critical characteristics of the CEE region which are key to the ‘location decision’ for the creation of SSC and BPO centres in CEE: » A highly skilled workforce is a key differentiator and the CEE region has developed a large skilful workforce of service professionals. Current number of SSC/BPO companies operating in the region ensures the availability of skilled employees. Additionally there is a significant pool of the working population/students speaking a foreign language. For instance, in Czech Republic 42% speak one foreign language and 24% of the population is able to speak two foreign languages. For companies with the business dispersed across Europe the availability of a range of desired languages is a crucial point when choosing the location for a potential SSC/Outsourcing centre. Generally for European based languages, cities in Asia cannot compete with the ones in CEE. » Notwithstanding a visible increase in salaries in the SSC/Outsourcing sector across CEE, the region still remains a very attractive location in terms of significantly lower operational costs. Factors impacting salaries include language proficiency as well as technical and professional experience of candidates. » A majority of the necessary infrastructure serving the SSC/Outsourcing sector in CEE has been built in the past 20 years. Accordingly, the infrastructure is generally very modern and with a large and diversified range of properties. In CEE the number of available A-class office buildings is constantly growing and the main SSC/BPO locations in the region have no issues with accommodating incoming businesses. Business services sector in the Czech Republic 71 Global/CEE Business Services Market overview

Recent trends in CEE and Czech business services

The SSC/BPO market is very dynamic. There are several new developments in recent times in the CEE region that can be observed. Two trends are particularly interesting:

(I) Robotic process automation and continuous process improvement Robotic Process Automation (RPA) is the application of technical solutions allowing employees to configure a “robot” or computer software to interpret and capture existing applications and data to process a transaction, trigger responses, manipulate data or communicate with other systems. More specifically, RPA applications may include: automatic reading and forms filling, repetitive keyboard and mouse tasks, database creations, periodic reporting and calculations. By introducing RPA, companies using labour on a large scale can benefit from increased capabilities and reduced cost. Robotic automation tools are generally at least twice as fast as human staff and can function 24/7. In addition, a robotic FTE costs on average a third of what its costs to hire an offshored FTE in an SSC/Outsourcing centre. Other reasons behind RPA deployment include a general reduction in error rates, improved compliance and flexibility, as well as the ability to replicate the solutions across various geographies and business units. The technology of RPA can be applied to a wide range of industries with repeatable processes such as: banks, IT, BPO, SSC and others. Global outsourcing service providers have already started using RPA or are in the process of testing the approach. The biggest players who have invested in RPA business solutions are: IBM, HP, TCS, Genpact, and Accenture. This list is constantly expanding and it is believed that RPA will be a crucial trend in the upcoming years. Although RPA is in the development stage and there are certain limitations to its application, the area is maturing and gaining more credibility and transparency. It is possible that in the future this system will leverage elements of artificial intelligence for more sophisticated functions, resulting in the further evolution of the SSC/Outsourcing sector.

(II) Expanding range of the processes being centralised/outsourced For the SCC/Outsourcing industry, the initial waves of centralisation/outsourcing were generally limited to transactional and regular processing with the more advanced processes remaining onshore in the local businesses. However, over the years the industry businesses started to further optimise their delivery model to the next level. This has resulted in a broader and more complex range of process/functions being centralised into SSCs and Outsourcing centres. Czech Business service centres reflect this wide range of processes and their success shows that an operating model with the support of Business Service Centres can be utilised in many different ways rather than limiting companies to centralise only certain, traditional back office functions.

72 Business services sector in the Czech Republic Global/CEE Business Services Market overview

CEE Perspectives for the future – over 1 million people in 10 years.

Considering the number of success stories and the dynamic increase of SSCs established in the region, the trend for growth of this type of business in CEE is positive. Countries like the Czech Republic, given their numerous cities with large well educated populations can offer skilled labour pools, good infrastructure and competitive salaries, will continue to be leaders in setting up new and expanding existing centres. For example, in CEE today there are approximately 335,000 people currently employed in the SSC/BPO sector. According to a recent ABSL/McKinsey report this number is expected to grow by 300% – 400% within the next 10 years to over 1,000,000 people employed in business services. However, in order to reach this level of growth and maintain/improve the excellent reputation for the industry in the region, CEE countries will need to ensure that they continue to meet the needs of current and potential new business. It is recommended that within the CEE region governments should continue to and expand support to investors whilst universities should position themselves to be able to react to the market demand to provide the number of required graduates with the relevant skills for the industry. In addition there should also be a constant focus on developing the required infrastructure. Having these secured and given the current trends, CEE and the Czech Republic should remain one of the most important destinations on the global business services map. Business services sector in the Czech Republic 73 74 Business services sector in the Czech Republic