Modern business service sector in Małopolska

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1 Modern business service sector in Małopolska

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3 3 Table of contents INTRODUCTION... 4 Report structure... 6 Information sources and analysis methods... 6 Terminology... 7 INVESTMENT ATTRACTIVENESS OF KRAKÓW FOR INVESTORS IN THE MODERN BUSINESS SERVICE SECTOR Location factors for centres and their changes Ranking of the investment attractiveness of Polish cities for investors in the modern business service sector CHARACTERISTICS OF SERVICE CENTRES IN MAŁOPOLSKA History of the modern business service sector in the Małopolska Region Employment in the sector and its changes Types of business processes supported by service centres and their geographic reach Languages in which centres provide services Service centres and country of capital origin CHARACTERISTICS OF SERVICE CENTRE EMPLOYEES Profile of employees Salaries in service centres Non-salary benefits offered by centres AVAILABILITY AND POTENTIAL OF HUMAN RESOURCES IN THE CONTEXT OF SECTOR DEVELOPMENT IN MAŁOPOLSKA EFFECTS OF SECTOR OPERATIONS Financial multiplier effects Multiplier effects of employment Corporate social responsibility CHARACTERISTICS OF THE REGIONAL PROPERTY MARKET IN THE CONTEXT OF THE NEEDS OF INVESTORS IN THE MODERN BUSINESS SERVICES SECTOR ASSESSMENT OF THE DEVELOPMENT STATE OF MODERN BUSINESS SERVICES IN MAŁOPOLSKA AND ITS FUTURE - SWOT ANALYSIS... 34

4 Introduction The purpose of this report is to profile the modern business service sector in Małopolska 1, with particular emphasis on the multiplier effects that result from it. The study adopted a broad definition of the industry, which also included research and development. Considerations for the sector were based on an analysis of service centres with foreign capital 2 : shared service centres (SSC), business process outsourcing (BPO/ITO), and research and development (R&D). Despite relatively small equity participation in foreign service centres, they play a very important role in local and regional labour markets due to the size of employment. There are 43 service centres with foreign capital operating in the Kraków agglomeration (second in Poland behind Warszawa). At the end of 2010 they employed 15,600 people (11,900 in Kraków and 3,700 in Zabierzów). 3,500 new jobs have been created in the sector since Significant quantitative and qualitative change has occurred in the Małopolska labour market due to the presence of service centres with foreign capital. It should be noted that nearly half (20) of the centres that exist in Kraków and Zabierzów today were created in the past five years, including six in Of the service centres currently operating, 17 are BPO/ITO, 14 - shared services centres (SSC), and 12 - R&D. It is worth mentioning that as many as 18 centres belonged to companies with American capital. The locations of and employment at selected service centres within the Kraków agglomeration are presented in Fig. 1. The authors wish to thank all the representatives of companies and institutions who agreed to participate in the study and gave their time to prepare the data for its authoring. 1 Due to the service centres with foreign capital being located solely in the Kraków agglomeration (Kraków and the Gmina of Zabierzów) - it is this area that becomes a spatial unit of analysis for the characteristics of service centres and their employees. 2 The study focuses on centres in which foreign investors hold at least 10% equity/share capital.

5 Fig. 1 Locations of and Employment at Service Centres in the Kraków Agglomeration in 2011 Source: own data 5

6 Report structure centres operating in the analyzed area. The introduction presents key information on the modern business service sector in Małopolska, in which the information sources and analysis methods used in the report, as well as terminology is discussed. The next chapter analyzes the attractiveness of Kraków in the context of Poland. Discussed are the opinions of industry representatives on changes in investment and location factors, along with Kraków s standings in a ranking of investment attractiveness among Polish cities for service centres. The third chapter is a comprehensive profile of selected elements of business service centres in Małopolska and the history of sector development in the area. Briefly discussed in the fourth chapter is a profile of service centre personnel in Małopolska, which incorporates a detailed description of sector salaries in selected positions. It also contains information on non-salary benefits offered by service centres. The fifth chapter focuses on the characteristics and potential availability of human resources in the Małopolska region in the context of sector development. The sixth chapter is a thorough analysis of the effects of the sector on Małopolska: the financial multiplier effects, employment effects arising from the operation of service centres, as well as the social responsibility of service centres. Contained in the next parts of the study are profiles of the property market in the context of the needs of investors in the modern business service sector. The last chapter contains a SWOT analysis, enabling one to draw conclusions about the state of development of the modern business service sector in Małopolska and identification of elements determining its future. Information sources and analysis methods The primary source of information used for analysis in this study was a database of service centres with foreign capital operating in Poland. This list has been updated continuously for over two years, using data acquired from companies, information contained in industry reports, and press queries from selected journals. It is worth adding that the publication also includes information from several in-depth interviews that were conducted with representatives of centres and industry experts, as well as excerpts from a dissertation discussing issues surrounding foreign service centres in Poland 3. An important stage in conducting the study was sending an online survey to the management staff of the service centres, and the completing of questionnaires by representatives of ten Preparation of the ranking of investment attractiveness of cities (agglomerations) in Poland for investors in the modern business service sector, in addition to gathering information from our own research (e.g. nationwide survey of service centre employees), required the use of data from the Central Statistical Office (GUS), information contained in a nationwide Social Diagnosis 4 study, and data on the property market from research conducted by Jones Lang LaSalle. To characterise issues surrounding languages used in service centres information from surveys conducted by the ASPIRE association in 2010 was used, as well as the results of an online ABSL survey. The presentation of a comprehensive review of salaries for individual service centre positions in the Kraków agglomeration was made possible by obtaining information direct from representatives of companies in the sector. Used for this were the results of recent Elan IT and Manpower studies conducted during Manager interviews were used to estimate the additional employment created in the vicinity of centres. They included the topic of the amount of demand generated by the centres for various types of services required to calculate the supply multiplier effects (according to the status at the end of 2010). Verified and updated in this way was information obtained in studies by G. Micek, J. Działek, and J. Górecki (2010). The calculated income and supply effects cannot be compared with results obtained by G. Micek et al. (2010) due to slightly different research techniques, especially for analysis of the effects on employment. In the case of income effects, less growth in the average wage occurred than expected. Also carried out was a verification of data on supply effects. To estimate the income multiplier effects in 2010, the results of an online survey were used. It was conducted among 414 employees of centres (Micek et al. 2010) and includes, among others, issues of non-salary benefits, places of residence, and disposable income. Also used in the calculation of income effects were data from a nationwide ABSL report (Górecki et al. 2011) on salaries, obtained from 32 BPO/ITo and SSC service centres, where the average salary (including allowances) amounted to 4,025 PLN. The average wages for R&D centres (6,200 PLN) were calculated on the basis of financial statements from six of Kraków s R&D centres. The consumer 3 Górecki J., 2011, Embeddedness of Foreign Service Centres in Poland and Their Relations with the Local Environment, Jagiellonian University, Kraków (work in progress) 4

7 7 expenditure structure necessary for calculating the income multiplier effects is derived from the GUS study of Household budgets in 2009 (2010). Adopted for workers in the researched sector was a typical expenditure structure for households in urban areas with over 500,000 residents. The calculation of receipts from personal income tax deductions takes into account the average amount of income tax according to the latest available information from the Ministry of Finance, which at the time the report was written, was available for 2009 only (Information Relating to the Settlement of Income Tax ). To assess the size of self-governments share of corporation tax (as of 2009), the financial reports of individual companies were used. Please note that due to the unavailability of data for some companies, corporate tax receipts were estimated according to their 2009 status. The analysis of the Małopolska property market was completed on the basis of research conducted by Jones Lang LaSalle. To characterize the state and identification of elements that determine the future of the modern business service sector in Małopolska, a universal strategic analysis tool was used SWOT analysis. research and development on behalf of other companies or separate units of companies operating in the area of research and development. Due to the adoption of a broad definition of research and development, this type was also classified as technical and engineering centres and centres in which the dominant activities are software development work. It is worth adding that some centres support both parent companies and external clients. This is a so-called hybrid services provisioning model. The database does not isolate separate, mixed-type BPO/SSC centres, but assigns various entities to basic types (BPO/ITO, SSC, R&D) based on their dominant business profile. The process of blurring the differences between the above-mentioned types of centres, however, forces precautions to be taken during analysis. It seems that the most appropriate approach to this issue is to simply analyze the centres collectively, without detailing the information for their particular types. Such a solution was adopted in this study (with a few exceptions). Terminology The report defines a service as a separate entity, dedicated to the performance of business processes (or parts thereof) for companies employing over 25 people and realizing at least one, minimum one-year long contract for the provisioning of services. Taking into account the scope of business conducted, three types of service centres were identified: 1. Business Process Outsourcing Centres specialized companies or their organizational units, which on behalf of other companies take over the implementation of selected, non-productive business processes Shared Service Centres separate service units of a company or individual economic units that operate under a parent organization and its branches, supporting business processes assigned to them. 3. R&D Centres specialized companies, which conduct 5 IT outsourcing (ITO) was treated as a component of BPO.

8 Local impacts of modern businesses on surrounding areas are usually multidimensional. One of the visible manifestations of this kind of impact are self-government property tax receipts and the share in corporate income tax (CIT) and personal income tax (PIT) among gminas, poviats and regions for the purposes of this study, they were called financial multiplier effects. Another measurable result of the operation of companies are newly created jobs. They are created in the: analyzed business entities themselves (direct effects), sectors that supply workers to the analyzed service companies (income multiplier effects), companies supplying products and services to service centres (supply multiplier effects). Multiplier effects on income and supplies as well as the employment effects in the tourism business, therefore, are included in the multiplier effects on employment. Presented in this report are conservative, minimum estimates of the multiplier effects. The research methods for multiplier effects are also outlined in the publication by B. Domański and K. Gwosdz (2008). Due to the nature of the modern business service sector (BPO/ ITO, SSC, and R&D), activities conducted in service centres cannot be assigned only to section PKD The majority of them operate in line with the characteristics of section M (professional, scientific, and technical), but the business processes in the other centres are also classified as activities belonging to section K (financial and insurance) and J (information and communication). Particularly important in this last section is section PKD 62 - that is, software and consultancy and related activities under which includes some software development centres and ITO centres (IT outsourcing). Moreover, included in section N (administration and support services activities) are processes performed in call and contact centres.

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10 Investment attractiveness of Kraków for investors in the modern business service sector Location factors for centres and their changes Characteristic features of particular places that affect their selection as the most attractive locations for investors has already been the subject of several sector studies and many press releases, so in this report they are not addressed in detail. It is worth recalling, however, that the distribution of centres is contingent upon often multi-stage investment processes, in which a significant role is played by, among others, the following features of a given location: availability and quality of skilled workers with knowledge of foreign languages, representatives of centres operating in Małopolska did not differ significantly from those of respondents from other centres. But it is worth noting that depending on the strategy and the related specific location preferences, companies can place special attention on their choice of factors. This report focuses on the opinions of representatives of centres on changes to selected location factors. Analysis of this issue was based on an online survey. Its results indicate that the largest number of representatives of centres in the Kraków agglomeration did not notice significant changes in the context of an overall assessment of the location from the moment centre activities commenced. costs of doing business in a particular place, accessibility to transport (location on major transportation routes, airport operating nearby with a wide network of connections to major European air hubs, or the ability to quickly reach such an airport in a reasonable time), adequate infrastructure (e.g. availability of office space), quality of investor services in the city, city image (success stories of companies in the sector in a given place, presence on international rankings on investment attractiveness), opportunity to take advantage of available investment incentives, quality of life in particular cities. A combination of these factors allows an investor to choose the most attractive location. Most important from the investor standpoint is to provide through a given location a suitable combination of accessibility and quality personnel, costs of conducting business, and access to infrastructure. Generally, the above-mentioned location factors for centres are important for general sector investors. The opinions of Interesting conclusions result from the analysis of the opinions of representatives of centres on changes to particular location factors from the moment the investment decision was made. It turns out that most positively evaluated were changes in the availability of modern office space. Very different were the views of representatives of centres on the availability of qualified staff. Significantly, more people from Kraków rated changes in this regard as negative rather than positive. This points to some clear problems at centres in the recruitment of candidates who meet certain requirements. Nationally, the response of representatives of centres in this area are also very diverse, but unlike Kraków, mostly positive feedback. The highest percentage of indicators to the lack of change in analyzed location factors concerned transport availability. Almost all of the analyzed centres saw no change in this respect, indicating a clear stagnation in the state of the situation with regard to this factor. Rated quite positively were changes in terms of Kraków s image among investors in the sector. It should be noted that most respondents saw no change in this area since the commencement of centre activities. Generally, Kraków is evaluated lower in this respect to competing locations in Poland. The only location factor in which changes have been assessed clearly negative, as in other sites analyzed, is the cost of doing business.

11 11 Ranking of the investment attractiveness of Polish cities for investors in the modern business service sector In this section, a synthetic assessment is made on the attractiveness of selected locations in Poland for investors in the modern business service sector. Preparation of the ranking required the analysis of dozens of variables and identification of the seven most important factors for the location of service centres, most commonly exchanged by representatives of companies from the sector. They were each assigned an appropriate weight resulting from an analysis of respondents opinions on the subject. Then fourteen indicators were specified, and each assigned a partial weight composed of the total weight of the relevant location factors. Data for various centres were subjected to standardization, resulting in standardized values in order to allow for their mutual comparison and further analysis. After summing up the individual values and taking into account the appropriate weights, obtained was a synthetic indicator of investment attractiveness for the analysis of selected Polish cities for investors in the modern business service sector. Each of the centres studied was given due weight resulting from the synthetic index values (Tab. 1). Kraków holds first place in the ranking (synthetic index value was 0.29), with a slight advantage over both Wrocław (0.26) and Warszawa (0.25). The three leading locations are far ahead of fourth placed Łódź in the ranking (0.11). Kraków owes its position mainly to very good performance in terms of: availability of skilled personnel, recognition in the international arena thanks to its presence in the Tholons (2010) ranking, and a high value in the quality of life index. Weak synthetic indicator values for Kraków were influenced mainly by: high competition for workers between firms in the sector, poor assessment of cooperation with local authorities by centre representatives (compared to other centres), and an above average nationwide price for renting office space. Tab. 1. Ranking of the investment attractiveness of cities (agglomerations) in poland for investors in the modern business service sector Investment attractiveness factor Availability of qualified staff Cost of doing business Availability of modern office space Transport accessibility City image Competition for personnel Factor weight Partial indicator weight Indicator Employment in the service centres in 2010 Number of graduates in 2009 Active knowledge of English Seniority of service centre employees Average salary in the services market Rental price per m 2 of office space Supply of office space Number of office rental options with an area of > 1000 m 2 Number of flight connections Journey time from airport to city centre Presence in the Global Services ranking - Tholons 2010 Opinion of centres on collaboration with local authorities Degree of saturation of centre employees Quality of life Quality of life index value SYNTHETIC INDICATOR VALUE RANK Kraków Wrocław Warszawa Łódź Bydgoszcz Tricity Katowice Lublin Poznań Szczecin Note: All facilities presented in the table above were analyzed as agglomerations Source: Górecki J Embeddedness of foreign service centres in Poland and their relations with the local environment. Jagiellonian University. Kraków (PhD thesis. work in progress).

12 Characteristics of service centres in Małopolska History of the Modern Business Service Sector in Małopolska The average service centre with foreign capital has been operating in Małopolska since 2006, which is similar on a national scale. Early investors already appeared in the 90s, but the vast majority of centres (65%) were established between It is worth noting that in , as in all of Poland, there was a smaller inflow of new investments in the sector, largely due to the global economic slowdown. At that time only four centres were created in the Kraków agglomeration. But already in 2010 there was a marked increase in the number of new investments (six service centres were established). Among the most important factors that contributed to the significant increase in the number of new investments in the sector from 2005 onwards, was certainly the positive response of investors to Poland s accession to the European Union. The accession has helped to increase the political credibility of the country and changes in the functioning of business legal requirements. Of clear importance in the context of the investment boom after 2004, however, was the development of the sector on a global scale and the related need to seek new markets to meet the demand for the provisioning of modern business services (Górecki et al., 2011). It is worth adding that in the early years of sector development in Małopolska (to 2000 inclusive) among the types of centres discussed in the report, only R&D centres were created. Such a large predominance of R&D centres over others is characteristic of the Kraków agglomeration. Nationally, it was in fact not so clear. Employment in the Sector and its Changes Kraków (along with the Gmina of Zabierzów) holds second place in Poland (after Warszawa) in terms of number of service centres and first place in regards to employment size in the sector. In the period since 2008, the Kraków agglomeration saw 3,500 new jobs created, which was second among absolute increases in employment in the country (behind Wrocław). Analysis of the dynamics of changes in employment, however, shows that this value represents an increase of 29% compared to 2008, which is one of the lowest results among the analyzed groups of centres (Fig. 2). Kraków ranks far behind the leader Wrocław, who in the analyzed period saw a marked rise in employment of over 100%, as well as below average growth when compared to the whole country. One may therefore believe that the modern business service sector in Kraków has a considerable degree of maturity, not excluding any further employment growth, but based on the development of existing centres and the introduction of more advanced activities that do not require involvement of a large amount of human resources. Generally, the share of total sector employment in Kraków on a national scale fell from 26.1% in 2008 to 22.6% in The 3.5 percentage points decline was the highest among analyzed locations. Centre plans assume that at the end of 2011 the Kraków sector will employ nearly 16,500 people. This value does not include jobs in centres that have not yet announced the commencement of operations. Interestingly, the average service centre in Poland employs 245 people. A comparison of individual centres clearly shows higher average employment in Kraków (363 people).

13 13 specialized group that typical financial services centres are found (i.e. those in which services provisioned are mainly financial). Most of the entities involved in financial services are shared service centres. Predominate among these centres are banking institutions. Supply management services are performed in four centres. Other, not previously mentioned services (e.g. document management), are provided in seven centres (Fig. 3). All of the nine analyzed centres that responded to the question on geographical coverage of supported business processes provide services to companies from Western Europe. Of course, this applies to both external and internal (parent corporation) clients. Almost all centres (eight) support companies in Central and Eastern Europe. Seven of the nine centres analyzed are operating for entities in Poland. Other geographical scopes of services were characterized by no more than four centres. Fig. 2. Changes in employment in the modern business service sector during Source: Górecki et al., 2011, modern business services sector in Poland, ABSL Report, association of business service leaders, Warszawa. Types of business processes supported by service centres and their geographic reach An analysis of the structure of services provisioned by SSC, BPO/ITO and R&D centres 6 has shown that the business processes supported in the largest number of centres in the Kraków agglomeration are IT services (22 centres), and finance and accounting (18). Another item in the list of processes is research and development, which is performed not only in R&D centres, but also in some units that provide more advanced IT outsourcing services. Conducted in 11 centres are processes related to human resources management and nine centres are involved in customer service (excluding IT support). Services in the fields of Decision Support and Knowledge Process Outsourcing are performed in six centres. Financial services are provided in five service centres. It is in this The geographical scope of services provided by Kraków centres comprises mostly of two or three of the analyzed areas. For the vast majority of centres, the main area for their provisioned services is Western Europe. No. of centres IT Services 2 - Finance & accounting 3 - Research & development (including software developlemnt) 4 - HR 5 - Customer service (excl. IT support) 6 - Decision support & knowledge process outsourcing 7 - Financial services 8 - Procurement 9 - Other Fig. 3. Types of services provided by centres in the Kraków agglomeration Source: own data 6 It should be noted that the estimates concerning the number of centres providing various services in Figure 3 are minimum values. This means that in reality they can be higher values. The estimates presented in the figure do not sum to the total number of centres, because many of them provision several types of services.

14 Languages in which centres provide services Service centres in the Kraków agglomeration provide services in 30 languages, mostly European. Seven of them (English, German, French, Polish, Italian, Russian, and Spanish) are used in more than half of the 23 analyzed centres (Aspire Languages Survey Summary Report, June 2010). The first three positions in terms of number of languages services are provided in are held by: Capgemini, IBM BTO, and Amway. In each of them more than 25 languages are used. It should be noted that a larger number of languages are spoken mainly at large centres, which provide a wide range of services. Clearly less languages (mainly English or German) are used in the majority of highly specialized centres, mostly in the ITO or R&D profiles. Service centres and country of capital origin Companies from 14 countries 7 have invested in Małopolska service centres; moreover the ownership structure of one of the centres is characterized by the dominance of international capital. In contrast to the situation nationwide, the majority of centres (almost 60%) are owned by companies outside the European Union, mainly the United Sates (slightly more than 40% of centres). The situation has not changed significantly over the past few years. Only less than 40% of service centres with foreign capital investments in Małopolska are companies from European Union countries (17 centres). Among them, five centres have British capital and three French. The share of European Union states in the employment structure is a few percentage points higher than in the case of share in the number of centres, which amounts to 47%. A similar percentage is characterized by employment in companies with American capital. Approximately 17% of sector workers are employed in centres in which investors are companies with French capital. Less than 16% of employees are working in the British centres. Other employees in the sector are working in centres owned by investors from other countries, and characterized by a majority of international capital. 7 In the analysis the investor s country of origin is the country from which the capital actually comes from, not the parent company s country of registration regarding the Polish subsidiary.

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16 Characteristics of service centre employees Profile of employees The vast majority of workers in the modern business services sector in Małopolska are people with higher education (90%). This proportion is slightly higher for employees in R&D centres than in other centres. According to studies conducted by Micek et al. (2010), the employment structure in BPO/ITO and SSC centres in the Kraków agglomeration is dominated by women, who constitute more than 2/3 of employees. A completely different situation takes place in R&D centres, where over 80% of workers are men. In the R&D centres analyzed, however, efforts are being made to increase employment of, among others, female programmers. The average age of sector employees is 29, and is characterized by an upward trend. Based on the results of internal research conducted at service centres this year, it is expected to reach 30 by next year. It is worth adding that at R&D centres more older people with many years of experience are employed than at other types of centres. Analysis of the age of employees at centres confirms the attitude of investors to search for young candidates, usually fresh graduates of Małopolska universities. This confirms the fact that their numbers and skills are considered a major factor in the location of the centres. However, as the sector develops and introduces more advanced services, people with extensive experience in service centres and specialist expertise acquired during previous work are increasingly being sought out for on the labour market. In this respect, the Kraków agglomeration very positively stands out in the nationwide context. The degree of sector development in this location has contributed to a broadly educated (compared to other centres) group of experienced specialists, valued in the labour market. The average seniority of employees is about 3 years, and it must be added that there is a noticeable upward trend. Additionally, based on the results of a survey conducted by Micek et al. (2010), it can be concluded that nearly 1/3 of sector employees in the Kraków agglomeration have previous work experience in other service centres. Another interesting indicator that serves, among others, to determine the embeddedness of service centres with foreign capital, is the share of foreigners amongst management staff. The results of the analysis indicate that the vast majority of entities in the analyzed group of Kraków agglomeration centres employ foreign managers, but none of them form a majority of managers. This reflects the maturity of the Kraków sector, which has developed a group of qualified Polish managers with experience working in service centres. Observations in the area of foreign language knowledge among employees of centres suggest that the vast majority of them speak English at an advanced level. A smaller group of people, highly valued by employers, use two or more foreign languages. Most often these are: English and German, English and French, or English and Spanish. Noteworthy is the fact that more and more people can boast good knowledge of more than one foreign language. The detailed reasoning on foreign languages knowledge of employees of service centres is hampered due to a lack of adequate research in this field. Salaries in service centres Salaries offered in the modern business service sector depend on various factors including the size of and activities conducted by centres, employee experience, number of subordinates, foreign languages, and non-salary benefits offered by employers. Generally, the average monthly salary in service centres nationwide, including bonuses and allowances arising from employment in 2010 amounted to 4,025 PLN gross (excluding the salaries of R&D centres). Salaries in R&D centres are much larger and their average value stands at over 6,000 PLN gross. Presented in the tables below (Tab. 2, 3, 4, 5 and 6) are the remunerations of employees of service centres in the Kraków

17 17 agglomeration, broken down by position and the types of services provided. These values refer to the third and fourth quarter of 2010 as well as the first quarter of Tab. 2. Salaries in service centres customer service Job title Average gross monthly wage (PLN) customer service clerk 2,300 3,200 customer service specialist 2,600 4,500 customer service team leader 3,200 5,500 customer service manager 4,500 7,000 Source: Manpower, 2011 Tab. 3. Wages in service centres human resources management (HR) Job title Average gross monthly wage (PLN) human resources specialist 3,000 5,500 recruitment specialist 2,500 4,300 training and development specialist 3,000 5,500 payroll specialist 3,200 7,000 human resources supervisor 4,600 8,000 human resources director (manager) 8,000 18,000 Source: Manpower, 2011 Tab. 4. Wages in service centres finance and accounting Job title Average gross monthly wage (PLN) junior accountant 2,300 2,800 accountant 2,500 5,000 senior accountant 3,000 6,000 payroll specialist 3,200 5,000 financial analyst 4,500 8,000 finance controller 8,000 15,000 internal auditor 6,000 10,500 finance manager 9,500 19,000 CFO 16,000 25,000 Source: Manpower, 2011

18 Tab. 5. Wages in service centres IT services Job title Associate Solution Architects (SAS) /Solutions Architect Job experience (in years) Average gross monthly wage (PLN) 0-1 Up to 4, ,300 7, ,500 10,000 CCare Manager ,000 15,000 Technical Support Engineer (with English) Technical Support Engineer (with German) Technical Support Engineer (with French, Spanish, Italian) Customer Solutions Engineer (with English) Customer Solutions Engineer (with German) Customer Solutions Engineer (with French, Spanish, Italian) Source: Elan IT, ,200 7, ,200 9, ,500 7, ,500 10, ,800 7, ,800 10, ,000 7, ,000 8, ,200 7, ,300 9, ,600 7, ,600 10,000 Non-salary benefits offered by centres Almost all of the centres analyzed in the Kraków agglomeration offer their employees non-salary benefits. In most, employees have an opportunity to take advantage of several benefits of their choice. In centres that declared the possibility of nonsalary benefits packages, most often offered were medical (in private medical facilities). In a dominant majority of centres employees can also benefit from the funding of sport activities. Over half of the centres offer their employees life insurance. Less popular non-salary related privileges include: trips, share purchases, additional health insurance, or pension funds. Several centres offered benefits not already mentioned above which include, among others: subsidized meals, cinema or theatre tickets, social events, and company cars. It should be emphasized that the possibility of taking advantage of some non-salary benefits in some cases depends on the positions occupied by employees. Tab. 6. Wages in service centres software development Job title Average gross monthly wage (PLN) Java Developer 3,500 10,000 C++ Developer 3,000 9,000 NET Developer 3,300 10,000 SQL Developer 3,000 9,000 Systems Administrator 3,500 10,000 Database Administrator 3,500 9,000 Network Administrator 3,000 7,500 Systems Analyst 3,500 9,000 Project Manager 5,500 15,000 IT Manager/Director 8,000 25,000 SAP Consultant 6,000 22,000 Web Designer 3,000 8,000 Source: Elan IT, 2011

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20 Availability and potential of human resources in the context of sector development in Małopolska Analyzing the availability of qualified staff and human resources potential in this area, sector investors look for issues in terms of both quantity and quality. Thus, it is necessary to consider the following metrics (Micek et al. 2010): 1. Size of local resources: number of students and graduates, essential. Kraków s position in a nationwide context is very strong because it is one of Poland s three academic centres (along with Warszawa and Poznań), which educates philologists in all five major European languages (English, German, French, Spanish, and Italian). On the other hand, it seems important that students in other specializations (particularly technical) receive language training, rather than just philologists. number of current sector employees, 2. Quality of local resources: majors useful for service centres (number of students, graduates in these majors), foreign language knowledge English, other important European languages (German, French, Spanish) and rare languages, availability of management staff familiar with the specificities of the sector, ability to attract employees from other cities and countries, which is also related to the attractiveness of the location. Małopolska holds second place in Poland (behind the Masovia Region) in terms of number of students and graduates. During 2010 more than 200,000 students studied in (more than 1/10 of all students in Poland) and 50,000 graduated from Małopolska universities (GUS Local Data Bank). Particularly important in the context of sector development are the groups of people educated in areas required by centres and have good knowledge of foreign languages. Good language education is important, especially given the fact that a significant portion of current sector employees were educated in fields not related to their current workplace. Some processes supported by them are manageable after several months of training in which a foreign language is The significantly higher potential for sector employees that large cities have enables recruiting the best candidates, as well as finding people who speak rare languages. This creates a huge disparity in the investment potential of Kraków and sub-regional centres in Małopolska (Tarnów, Nowy Sącz). Some centres in the Kraków agglomeration, operating in over 25 languages, usually need at least several people with knowledge of Romanian, Greek, Hungarian, Lithuanian, etc. Moreover, Kraków as a renowned academic centre attracts foreign students in exchange programs. Some of them remain in Kraków after they graduate, such as when they find employment at service centres. A less frequent case is the conducting of recruitment campaigns abroad, e.g. in Portugal or Greece. The attractiveness of the city can attract employees from abroad, but also from other Polish cities. This is particularly evident in the centres with IT services activities (IT support, software development), which are relatively more inclined to take on employees from other cities or from abroad (Micek et al. 2010). Generally, it must be assumed that whentaking into consideration similar potential candidates for employment, an investor of the business services sector might find a location where the sector has already reached a certain critical mass and where the environment already has experienced employees and managers more attractive. One should agree with the Micek et al. (2010) statement that the larger the pool of experienced staff familiar with the sector, the better the environment for the development of existing and attracting of new companies. Małopolska (seen in this context through the prism of the Kraków agglomeration) is therefore in a very

21 21 strong position, occupying first place in the country in terms of sector employment. It should also be added that within the next few years, the future of the sector in developed service offshore centres like Kraków, will be based more and more on developed human skills and not the lower costs of doing business.

22 Effects of sector operations Financial multiplier effects Apart from employment, another very important effect of centres is increased incomes for local budgets. Estimates include the value of corporate income tax (CIT), personal income tax (PIT), and property tax. In the analysis of financial multiplier effects omitted were the relatively small receipts of gminas for tax on civil-legal transactions, stamp duty, and transport means tax on corporations. Also not taken into account in the multiplier effects were the budgets of selfgovernments under the CIT paid by companies that cooperate with business service centres (and therefore the financial effects of the second and subsequent orders). Receipts from shares of corporate income tax Receipts from income tax paid by business service centres are directly and decisively the most visible to local and regional self-governments. In 2009, gmina budgets received 6.71% of CIT receipts from such companies operating on their terrain, poviats only 1.4%, and regions - as much as 14.0%. Total revenues from CIT to Małopolska regional and local budgets in 2009 amounted to at least 8.2 million PLN (Tab. 7). This constitutes an increase in the value of receipts of over 49% compared to 2007 (Micek et al. 2010). The largest relative increase was recorded in Kraków, where the value of tax paid by business service centres increased from 1.1 to over 2.1 million PLN. When compared with 2007, profits increased at half of the companies and thus income tax paid, and at only slightly more than 20% of centres the value of the tax decreased. Remaining centres did not pay tax, which resulted largely from losses that naturally occur in start-up companies. among all local self-government units analyzed in 2009 and amounted to 13% of the total receipts from the corporation tax. A highly significant value (5.3 million PLN) are regional budget receipts, which are almost 2% of total CIT receipts also noted in this area was a significant increase in receipts (about 1.6 million PLN) relative to CIT receipts per employee increased from 445 PLN in 2007 to nearly 600 PLN in The Poviat of Kraków and Małopolska region also saw an increase in the share of income tax paid by centres in their general CIT receipts. In Kraków, the share of corporate tax revenues amounted to more than 2% of total revenues from this tax paid by companies operating in Kraków and in that time rose by almost 2/3. This increase stems from the fact that many companies only just started operations in 2007, and often could not demonstrate high profits. A twofold increase in CIT paid has been noted in the Poviat of Kraków, where revenues from corporate taxes paid by centres exceeded 5% of total poviat revenues from CIT. In Małopolska region the same indicator reached 1.9%, and in Zabierzów 13.7%. Tab. 7. Receipts from CIT to local budgets in the years 2007 and 2009 Administrative unit Average gross monthly wage (PLN) Share of service centres in CIT tax receipts City of Kraków 1, , % Gmina of Zabierzów % Poviat of Kraków % Małopolska Region 3, , % Total local revenue 5, ,179.8 x Source: own research. Receipts from shares of income tax from individuals Absolute cash receipts to the Gmina of Zabierzów are relatively low and did not exceed the 2009 amount of 0.6 million PLN. The relatively low local incomes result from the use of corporate tax exemptions for companies operating within a Special Economic Zone. On the other hand, the percentage of receipts from CIT paid by centres is the largest Employment in service centres also generates tax receipts from individuals. In 2010 gmina budgets saw 36.94% of income tax receipts come from individuals. In the case of poviats and regions, the rate was 10.25% and 1.60% respectively for PIT receipts. In the case of Kraków, which is a city with poviat rights, these shares added up 47.19% of the city budget

23 23 receipts came from this tax in An act specifies that it concerns shares of personal income tax receipts from taxpayers residing in the territory of the gmina (poviat or region). Place of residence is indicated by the taxpayer, who submits a declaration in the appropriate city s tax office. Research by G. Micek et al. (2010) showed that many workers pay taxes where they have permanent residence, not where you actually live. Although nearly 9 out of 10 sector employees permanently live in Kraków, slightly more than half of them took this status into account in their tax returns. It is worth mentioning that similar proportions were obtained in a national survey (Górecki 2011) on employees of service centres in Wrocław and Poznań. An even worse situation from the perspective of gminas in which centres operate is the case of Warszawa among people living in the city where a service centre is located, only 44% of them paid tax there. At the other extreme was Łódź in those service centres only slightly more than 10% of workers paid income tax to a place other than the one where they resided. In 2010 Polish self-governments received 27.2 million PLN in taxes from workers in Kraków service centres. The biggest beneficiary was the City of Kraków, to which half of these receipts should go: 13.8 million PLN in Budgets of other gminas in the Małopolska region should receive almost 3.2 million PLN, remaining poviats in the region almost 900,000 PLN, and the Małopolska regional government budget about 600,000 PLN. Large amounts of cash, however, reached gminas, poviats, and regions located in other parts of the country. They amounted to about 9.1 million PLN and are approximately 1/3 of the total amount of taxes that employees of the analyzed sector generate. Tab. 8. Receipts from CIT to local budgets in the years 2007 and 2009 Area Potential receipts (in thousands of PLN) a Actual receipts (in thousands of PLN) Difference (in thousands of PLN) Kraków 23,903 13,798 10,105 Remaining gminas in Małopolska Region Remaining poviats in Małopolska Region 2,121 3,184-1, Małopolska Region Remaining regions b 311 9,355-9,044 a potential receipts to the budgets of local self-government units under the assumption that service centre employees submit their PIT declarations at their real place of residence b total receipts to the budgets of gminas, poviats, and regions outside Małopolska Source: own research. A simulation of tax receipts from individuals was performed in a similar to the work of Micek G. et al. (2010). Based on data about employees, who pay taxes in a different place than where they actually live, it was identified how the budget situation would look for Małopolska self-government budgets if centre employees paid taxes in the place where they actually reside. Simulation of such a division of tax is very beneficial to the provincial capital. It turns out that for 2010 Kraków would receive revenues as much as 10.1 million PLN more. This would result in nearly three-quarters more revenue than at present. The Małopolska budget would potentially gain one half more. For such a change, remaining gminas would lose out (losses reaching nearly a million PLN) along with poviats of the Małopolska region. The biggest loss would be borne by governments outside Małopolska, whose budgets would be depleted in amounts reaching 9 million PLN.

24 Property tax Property tax is an important source of income for gminas. Selfgovernments have a direct impact on influencing its amount in their budget - on the one hand, by setting rates, on the other hand - granting of concessions and exemptions. In 2010, the corporate tax rates in Kraków were 0.67 PLN per m² of land and PLN per m² of usable floor space of buildings intended for business activities. In the Gmina of Zabierzów these rates were similar and amounted to 0.68 PLN per m² of land and PLN per m² of building space. Service centres, the vast majority of which rent office space, are not direct payers of this tax. However, the fee payable by the estate administrator must be regarded as an important effect of the development of this sector. It is service centres that have to the greatest extent contributed to the rapid development of the office market in Kraków and in recent years, taking from 125,000 to 156,000 square meters of modern office space in the urban agglomeration. In 2010, property tax receipts from business service centres in Kraków reached from 1.9 million to 2.3 million PLN, and in Zabierzów from 520,000 to 660,000 PLN. In 2010 it constituted just over 1% of planned receipts in the Kraków budget and 8% in the Gmina of Zabierzów budget. In 2011, due to an increase in office space area, these receipts will increase up to 2.4 million PLN in Kraków and 720,000 PLN in Zabierzów. The study shows that the revenues of local self-government budgets in the immediate vicinity of the largest centres are part of the income tax paid by workers, which constitute almost 60% of the total income from centre operations. In second place are corporate tax revenues, and third property tax. The largest share (nearly 6%) of service centres bring into the Gmina of Zabierzów budget (Tab. 9). Approximately 1.5% of total revenues are from shares in income taxes and property taxes resulting from centres and their employees in Kraków and Małopolska. Tab. 9. Direct revenues from property tax and local government budget shares of income tax (million PLN) Area CIT (2009) PIT (2010) Property tax (2010) Total Estimated share of taxes paid by centres* City of Kraków % Gmina of Zabierzów Poviat of Kraków Małopolska Region % x 0,3 0.8% x % Total % * The share in total revenues from property tax and the share in revenues from income taxes for self-government units, according to budgets for Source: own work based on own calculations and budgets of individual self-government units. Summary The estimated amount that was received by self-government unit budgets in 2010 as a result of the direct activities of business service centres totalled at least 26 million PLN. It should be noted that an additional approximately 3.3 million PLN remains in the budgets of Małopolska gminas and poviats, in which service centres are not located. This gives a total of more than 29 million PLN income for Małopolska selfgovernments. Next, nearly 9.5 million PLN is transferred out of Małopolska.

25 25 Multiplier effects of employment Income effects Income multiplier effects are expressed through the impact of spending by centre workers salaries on the labour market. As Micek et al. (2010) wrote, opening new business service centres and growth in employment at existing centres increases household purchasing power and results in the development of other companies that address their needs as consumers. Part of the income of employees is devoted to consumer goods and services and goes to different sectors of the economy (multiplier effects of the first order). These new jobs and related worker revenues generate continued, though significantly lower, demand for consumer goods and services (the effects of second and subsequent orders). Summing all these jobs enables us to determine the total income multiplier effect resulting from the activities of business service centres. It is worth noting that in the case of service centres the income effects generate a bit more extra jobs in the environment than the supply effects. This is due to the specificity of the analyzed sector, where in comparison to industrial plants supply plays a minor role. There is a significant influx of cash to the consumer goods and services market resulting from the spending of wages by employees of centres. In 2010, sector employees spent, including outside the Małopolska region, approximately million PLN. Most of them, almost 40%, of those jobs in the surrounding areas of service centres were in retail outlets. Nearly every fifth one in transport services and telecommunications, sixth - in the recreation and culture, and every tenth - in housing support and energy, gas, and water supply. It should also be noted that almost 95% of these jobs were created in Kraków. Estimating the value of the income multiplier effects requires knowledge of the following components (Domański, Gwosdz 2008): determining the size of employment in the analyzed company or sector, determining the net income of workers, knowing the structure of their consumer spending, and determining where their consumer needs are satisfied. This enables calculating the amount that goes to each sector of the local and regional economies. Knowledge of the share of employment costs in a given industry s revenues will enable the calculation of the number of jobs created thanks to consumer demand from employees of service centres. As a result of multiplier effects on income in 2010, thanks to the wages and salaries of employees in the sector there were about 1,700 jobs 8 (Tab. 10), from this directly (as a result of the effects of the first order), nearly 1,600. On average, 1,000 jobs at existing service centres created nearly 110 jobs in commerce and services for the population. Note that results cannot be compared with those obtained in the work of Micek et al. (2010), as in this study it was possible to get a more reliable verification of the degree of use of most services. Tab. 10. Estimated number of jobs that exist due to income effects from various service centres in 2010 Total jobs 1,701 per 1000 jobs in service centres 109 Jobs were created in the following locations: Kraków 1,602 in Małopolska Region outside Kraków 76 outside Małopolska Region 23 Jobs were created in the following industries: sales 638 transport and communications 328 recreation and culture 271 housing and energy, gas, and water supply 156 hotels and restaurants 125 medical services 104 education 80 Source: own research. 8 Results should be treated as estimates.

26 Supply multiplier effects These multiplier effects are the result of the supply of products or services to centres. Accepted as supply effects are jobs created directly from suppliers, including those generated by non-salary benefits offered by employers (e.g. in medical services, education, and recreation). Also calculated were subsequent multiplier effects arising from employment created at companies that provide services to centres. employer shall provide the employee on days that are work days for employees. Training leave is now six days per year for an employee completing extramural examinations, the highschool leaving certificate examination, and vocational qualification examinations, and 21 days for an employee in the last year of study to write a thesis and to prepare for and take a diploma exam. Moreover, the policy regarding language training has also changed, as some centres have begun to depart from the principle of 100% co-financing of costs. As often as possible, estimation of the supply multiplier effects were conducted as follows; the value of money flowing into the industry every month was calculated, followed by GUS data being used to further process the calculation: cost of jobs in different industries and share of labour costs in the revenue of companies in 2010 in Poland. This enabled determining the number of jobs that exist thanks to services that supply to centres. Given the availability of the data obtained in the online survey, realizing such an algorithm calculation was possible in particular for services funded by centres for their employees, such as the health services, recreation, and culture, etc. An additional database of employees in their respective industries was developed on the basis of information on the frequency of use of the supplier, acquired by interviews. Thanks to medical subscriptions purchased by most service centres, close to 120 people work in medical services. Such a large number of employees is due to the prevalence of medical care offered to employees of centres: in 2009 more than 90% of them benefited from this provision (Micek et al. 2010). Basic security and cleaning services are most often provided by local external companies employed by office building managers. Thanks to centres a total of more than 210 people are employed in those areas. Many (nearly 85) jobs were created in culture and recreation. To a high degree the employment is due to funding by employers for visits to the cinema, theatre, and sports and recreation packages. Based on interviews it be concluded that almost every employee has access to the so-called Benefit cards, and at least 50% are using it. The supply effects strongly depend on the industry in which employment is created. A wide range of training courses funded in part or in whole by service centres has large multiplier effects in the form of approximately 180 employees 9 in training activities. Educational services that employees benefit from, thanks to employer funding, can be divided into two groups: specialized and language. Local closure indicators of multiplier effects are particularly high in the latter case, resulting in approximately 90 jobs. The average number of days spent on external specialist training is 5 days. Specialized training is often carried out by internal HR departments of companies, thus the multiplier effect they generate is smaller. It should not be forgotten that by mid-2010 a few jobs were operating in higher education about 10% of the employees pursued postgraduate or master s degrees funded by the employer (Micek et al. 2010). Unfortunately, with the amendment of the Labour Code (Journal of Laws of 2010 No 105, pos. 655), which entered into force on 16 July 2010, and the introduction of new regulations on training leave, the vast majority of centres withdrew from such funding. The changes consisted in clarifying how many days educational leave an employee has to raise their professional qualifications, which is leave the Another, more periodic type of employment is those created in the construction sector and in companies involved in the finishing of office space. Some rapidly growing centres employ such companies to perform various types of interior and finishing work, sometimes twice a year. Thanks to the activities of centres, on average around 100 people can work in the construction-finishing sector. This number, however, strongly varies depending on the scale of construction activity in the period. Used during office work hours are large amounts of material (in terms of expensive costs in particular is the purchase of toner). Employed in companies involved in the sales of office supplies and office equipment are 70 people. In most cases they are branches of foreign companies located in Małopolska. The subsidizing 10 of meals covers only about 20% of the workforce of centres (Micek et al. 2010). A large group of companies have a pool of funds for integration meetings in smaller groups. In this way, the catering sector has seen over 55 jobs created. 9 Results should be treated as estimates. 10 Sometimes this subsidy includes a system of discounts at restaurants, and less often the traditional funding of employee meals.

27 27 Transportation services are largely generated in the form of taxi transport. The operation of certain centres during night-time hours creates demand for the transport of employees. Due to this, around 55 jobs have been created in Kraków. In the transport field, one cannot forget the several people working at the Balice Airport thanks to the arrival of centre employees by air. In the area of technical services approximately 100 jobs have been created in IT services and the supply of equipment, telecommunications, and the archiving and scanning of documents. In business services jobs were created in employment agencies, law firms, as well as advertising and branding, and finance and accounting services (a total of about 70 jobs). In addition to passenger transportation, transport services include courier companies and fleet leasing (a total of 25 jobs). Other services include, among others, the supply of food and vending services for providing drinks and snacks. Tab. 11. Estimated number of jobs that exist as a result of supply effects Type of activity Number of jobs (1st order) Training (including language courses) * 180 Medical services * 119 Cleaning*** 106 Property protection*** 105 Culture and recreation * 84 Construction office construction *** 80 Trade in office equipment and stationery ** 70 Catering* 57 Transport*** 55 IT Services and hardware supply** 47 Telecommunication services*** 30 Employee Recruitment *** 23 Office finishing** 20 Legal services*** 20 Archiving and scanning** 20 Administration of Office Buildings *** 20 Courier services** 16 Advertising (including branding) and promotion ** 15 Accounting and finance services ** 12 Automobile fleet leasing ** 10 Other services and trade*** 7 Total 1,096 Note: * - calculations based on online survey results (Micek et al. 2010), corrections based on information obtained in interviews **- estimates based on information from interviews at centres *** - own estimates Source: own research.

28 After knowing the size of the multiplier effects of the first order, you can estimate the size of the second wave of multiplier effects. In this regard, calculated on the basis of company annual reports are: the value of the average cost of a job in service centres and the share of labor costs in these companies. Based on the above information, the total amount of revenue generated by centres due to supply effects of centres, is calculated to be 35.2 million PLN. Calculated next is the share of supply in supplier revenues to obtain the final value of 1,469 jobs created through direct and indirect supply to service centres (including fourth order multiplier effects). This gives a multiplier of 1.09 jobs generated through cooperation with companies in the analyzed sector per 1,000 employees of centres, 94 jobs are created at cooperating companies. These values cannot be compared with the work by G. Micek et al. (2010). Assuming a minimum value of the closure indicator of regional services 11 of 0.6, it can be estimated that in Małopolska over 880 people are employed as a result of supply multiplier effects generated by service centres. Employment effects on the tourism business An important element of the impact of centres is employment in ser vices generated by centre visitors: customers and representatives of corporations. Most of the jobs are created in the hotel, catering services, retail gift (often luxurious), culture (museums), and tourists services (guides, etc.) Based on data obtained from managers and staff of centres, the amount of jobs that were created thanks to spending by centre visitors was calculated. Corporate social responsibility Results from a study conducted in Kraków during 2010 (Micek et al. 2010) indicate that among the 19 service centres analyzed, the majority (twelve of them) take on community initiatives, involved in sponsorship or charity. Of those 12, five of them are isolated activities, usually not subject to continuation. Often they result from the initiative of employees. Six of the analyzed companies engaged in significant activities, resulting from the assumptions of CSR strategies characterized by a high degree of social involvement. Typically, activities are conducted with participation/financial support of projects organized by NGOs and social institutions but also the individual philanthropic activities of companies. A common form of involvement of companies in the local community is voluntary work that occurs in most centres with a high degree of social engagement (so-called Volunteers Day). As Micek et al. (2010) wrote, social engagement of centres is often manifested on the activities of social groups at risk of marginalization (e.g. by supporting orphanages, feeding children from poorer families, and organizing leisure time). The analyzed companies treat their actions in this field as an activity of good heartedness, while accepting that this is an expression of commitment to local issues, which will contribute to the formation of positive image in close proximity. Corporate social responsibility has a definite spatial dimension. Analyzed centres generally engage in activities at a local level. Some managers clearly emphasized that their companies are only interested in local initiatives. As stated, the average centre visitor (a potential customer, client, employee of the parent corporation) spent 2 days in Kraków, using an average of 1.5 nights of accommodation. Based on information obtained from companies it can be argued that all visitors use about 19,500 hotel nights per year. After the adoption of additional assumptions about the average price of accommodations, it was calculated that 400,000 PLN of monthly revenue goes to the hotel sector. According to a further calculation (the same as for the supply multipliers) it can be stated that through the operation of service centres at least 50 jobs are maintained in hotels. The sector in which 30 jobs were created is catering. It receives a little over 160,000 PLN per month from guests visiting the centres. Other activities related to transport, trade, and culture bring a total of 6 jobs. In conclusion, despite having elements of CSR in their mission, the majority of analyzed companies in most cases had not yet developed long-term strategies of social engagement, which lead to lasting partnerships with selected organizations. 11 The regional closure indicator is the share of jobs created in the region in relation to the total number of jobs operating through multiplier effects.

29 29

30 Characteristics of the regional property market in the context of the needs of investors in the modern business services sector The market for modern office space in the Małopolska region is mainly concentrated in Kraków 12. The capital of Małopolska, is the only city in this region that offers high quality offices that meet the requirements of customers in the modern business services sector. These companies are accustomed to class B + and A standards, which gives them the opportunity to operate in an optimized way. This applies to systems in which the building is equipped and has flexible floor surfaces, thanks to which tenants are able to properly arrange office space to meet their requirements. Other cities of the region, such as Nowy Sącz and Tarnów, have almost no office infrastructure that could meet the requirements of customers in this sector. In these cities, virtually the only modern office buildings are the headquarters of companies that constructed buildings for their own needs. Characteristics of the property market in the Kraków agglomeration Kraków currently offers approximately 455,000 m 2 of modern office space of a satisfactory quality to service centres. In terms of supply, the Małopolska capital is the second largest office market in Poland and leader among regional markets in terms of dynamic development. 500, , , , , , , , ,000 50,000 0 Supply in m 2 do Existing supply New supply Fig. 4. Supply of modern office space in the Kraków agglomeration Source: Jones Lang LaSalle, 2011 Currently in the process of being constructed in Kraków is approximately 59,000 m 2 of modern office space. The relatively high vacancy rate, which is about 12% and very high developer activity creates very favourable conditions for new businesses looking for offices in Kraków. Tenants have many offices to choose from, both in terms of location and standard. High availability of course brings with it the possibility to obtain favourable financial conditions. This is essentially why functions such as BPO/ITO and SSC are relocated to countries other than the one the company originates from. The historic character of the city centre does not allow for dynamic development of office properties in the heart of Kraków. Only a few modern office buildings were built on plots available in this area. Kraków can be divided into several areas where office buildings are concentrated. Modern office buildings built in the northwest part of Kraków (around al. Armii Krajowej), north-east (ul. Jana Pawła II and ul. Lublańska), and south, as well as the Gmina of Zabierzów, situated to the north-west of Kraków. Fig. 5. Availability* of modern office space (to the end of June 2011) Source: Jones Lang LaSalle, It should be emphasized that Kraków is analyzed in this section together with the Gmina of Zabierzów.

31 31 Kraków is one of the most popular locations in Poland for companies in the analyzed sector. This is confirmed by data on the renting of space in modern office buildings. Demand in the Małopolska capital is generated mainly by service centres. Last year companies leased about 85,000 m 2 of office space in Kraków in class A and B buildings. Registered in 2009 were transactions for only 19,000 m 2. The significant difference in the levels of demand demonstrates a positive attitude to business expansion and also confirms the attractiveness of Kraków to new investors. The largest leases were concluded last year by companies already operating in the Kraków market. These include, among others, Motorola and Capgemini. The first company decided to rent 8,300 m 2 of office space in the Green Office building and the other 10,000 m 2 in the Quattro Business Park. It can be assumed that demand in Kraków will maintain a high level and be generated by both new companies and those already operating in the city. During , Kraków experienced very dynamic growth through companies in the sector. New investors appeared in the city that made their demands for office space known. High demand contributed to the decline in vacancy rates, which hovered around 0%. This meant that tenants did not have the ability to quickly enter the city and were forced to sign pre-let leases, which were contracted before or during the construction of an office building. Low vacancy rates led to an increase in rental rates, which in 2008 reached up to 17 /m 2 / month for space in top office buildings. Warszawa Centrum Poznań Kraków During the economic slowdown that occurred in late 2008 and 2009, rents decreased considerably. This was due to weakening demand and an increase to the vacancy rate in the city. Tenants accepted the position of waiting for developments in the market situation and decided not to sign new leases. This situation led to a reduction in rent rates to the level of / m 2 /month in the best office buildings. Characteristics of the property market in Tarnów The supply of office space in Tarnów is very limited. Buildings, which can be considered as modern are headquarters of companies, who constructed the facilities for their own needs. A good example is the Karpackiej Spółki Gazownictwa (Carpathian Gas Company) office. The only building offering affordable quality office space is Krakus, which offers a total of 2,500 m 2 that can be defined as class B/C. The office building is located on ul. Krakowskiej and currently offers 2,000 m 2 of office space at the price of 30 PLN/ m 2 / month, or approximately 7.50 /m 2 /month. Office space of an even lower standard is located in old buildings that have been adopted as offices. These locations do not meet the requirements of customers looking for modern office space. Offices are divided into rooms, offering very low technical standards and are not suitable for customers in the modern business services sector. The developing Tarnów Industrial Cluster can be a force for modern office space to support manufacturing companies operating within it. Warszawa Wrocław Trójmiasto Katowice Łódź Fig. 6. Highest rent transactions in major Polish cities ( / m 2 / month) Source: Jones Lang LaSalle, 2011

32 Characteristics of the property market in Nowy Sącz Nowy Sącz is another city in the Malopolska region that has a very underdeveloped office space market. In the city there are two buildings that can be considered as class B real estate. The first is a fully leased building with an area of about 1,300 m 2 along ul. Magazynowej. It was completed in Another offering a relatively good standard of finishing is the office building developed by PetPol. The building was completed in 2010 and offers 3,000 m 2 for lease. Its location, ul. Węgierskiej 146a, is relatively far from the city centre. Initial rent is 32 PLN/ m 2 /month, or about 8 /m 2 /month. Other office space in the city includes old buildings from 1970/80 that have been converted into offices. Rents for such offices are in the area of 20 PLN/ m 2 /month (about 5 / m 2 /month). The only building that would be able to meet the needs of modern business services sector tenants is the PetPol project. Summary The modern office space market in Małopolska is concentrated in Kraków. The city is a monopolist in the region in terms of supply as well as inquiries of companies that Jones Lang LaSalle serves. In other cities in the region, there is of course potential to build modern office building with large floor space areas and adapted to the needs of companies in the BPO/SSC sectors. However, we believe that local developers see their target customers more as small businesses within the city and they will adapt their product offering to small office buildings and space divided into rooms at a relatively low B standard.

33 Fig. 7. Largest modern office buildings in the Kraków agglomeration Source: Jones Lang LaSalle,

34 Assessment of the development state of modern business services in Małopolska and its future - SWOT analysis Strengths A large number of young and educated workers with extensive experience in working in service centres Kraków s first place position in the category of emerging locations in the global ranking of investment attractiveness of cities for outsourcing business services (Tholons 2010) Good availability of skilled professionals who know foreign languages (other than English) Above-average knowledge of English compared to competing centres in Poland Cost attractiveness compared to Warszawa and other capitals of Central and Eastern Europe, that are direct competitors in the struggle for investors providing more advanced services Kraków - nation s leading academic centre Well-developed infrastructure for business, primarily office space Good transport accessibility to the Kraków agglomeration (a leading regional airport in Poland and the region of Central and Eastern Europe with a wide network of connections, A4 highway) High ratio of graduates that fit the needs of employers in the sector Kraków s high quality of life index Efficient functioning of the Business in Małopolska Centre as initiatives to provide support for investment and economic promotion of the region Membership of sector companies in trade organizations representing the sector in dealing with authorities (ASPIRE, ABSL) Weaknesses Low assessed Kraków pro-investment activity in the context of potential investors from the sector Inadequate level of post-investment care in Kraków compared to other cities in Poland Low awareness of the needs of the sector among Kraków city officials in comparison to other centres in Poland Limited cooperation in the field of pro-investment activities between Kraków City Council and the Business in Małopolska Centre Problems related to the operation of public transport in the Kraków agglomeration in the context of the needs of employers in the sector Limited cooperation of universities (mainly the Jagiellonian University) with sector companies Insufficient availability of adequate human resources, limiting the development potential of Tarnów and Nowy Sącz in the context of the modern business services sector Poor quality of infrastructure capital in sub-regional centres: Tarnów and Nowy Sącz, prevents development of the sector in these locations for the next few years Migration of young, potential sector employees from Tarnów and Nowy Sącz to the provincial capital Increasing labour costs Difficulties in finding qualified staff with rare languages Opportunities Threats Dynamic development of knowledge-based services (Knowledge Process Outsourcing) Growing interest of companies from Western Europe using a nearshoring strategy Kraków s image in the international arena as a strong, dynamic centre for the offshoring of business services and one of the leaders in this part of Europe, which can boast numerous success stories of existing investors in the sector Competition from other cities in the region of Central and Eastern Europe, which provide services for European clients Limiting of the availability of government grants to support investments in the large agglomerations (Kraków) Migration of skilled workers to Western European countries (particularly those with information technology education and industry experience in research and development) Situation in the global foreign exchange market, which may affect the substantial strengthening of the PLN

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38 Literature Aspire Languages Survey Summary Report, June 2010 [na:] aspire-languages-survey-summary-report/ Household Budgets in 2009, 2010, GUS, Warszawa. Business Process Offshoring and Shared Services Centres in Poland, 2008, PAIiIZ. Domański B., Gwosdz K., 2008, Multiplier effects in local and regional development, J.J. Parysek, T. Stryjakiewicz (ed.), Socio-Economic Region and Regional Development, Bogucki Wydawnictwo Naukowe, Poznań, Górecki J., Bartoszewicz-Wnuk A., Karpiesiuk Ł., Kijonka R., 2011, Modern Business Services Sector in Poland, ABSL Report, Association of Business Service Leaders in Poland, Warszawa. Górecki J., 2011, Roots of foreign service centres in Poland and their relations with the local environment, Jagiellonian University, Kraków (PhD thesis, work in progress). Information relating to the deduction of personal income for the year 2009, 2010, Ministry of Finance, Warszawa, Micek G., Działek J., Górecki J., 2010, Service centres in Krakow and their relationships with the local environment, Wydawnictwo Uniwersytetu Jagiellońskiego, Kraków. Tholons, 2010, Tholons Top 100 Outsourcing Destinations.

39 Prepared by: Janusz Górecki Ekspert Związku Liderów Sektora Usług Biznesowych (ABSL) Anna Bartoszewicz-Wnuk Dyrektor Działu Badań Rynku i Doradztwa w Jones Lang LaSalle [email protected] Mateusz Polkowski Starszy Analityk w Jones Lang LaSalle [email protected] Rafał Kijonka Dyrektor ds. Rozwoju Biznesu w Manpower Polska [email protected] Związek Liderów Sektora Usług Biznesowych (ABSL) Rondo ONZ 1, Warszawa tel.: , fax [email protected], Free copy Report prepared for the Małopolska Regional Development Agency S.A. by the Association of Business Service Leaders (ABSL)

40 Project co-financed by the European Union under the Małopolska Regional Operational Programme