The Discourse and Realities of Offshore Business Services to Kraków

Abstract

This paper examines the scale and the scope of foreign-owned subsidiaries' local impact measured mainly by multiplier effects. Criticizing the political economy of offshoring from a host country perspective and the notion of “cathedrals in the desert”, the authors attempt to compare and contrast the perceived effects with the real contribution of foreign direct investment in business process outsourcing and shared service centres in Kraków. The empirical research is based on an in-depth research project looking at qualitative and quantitative impacts of foreign-owned subsidiaries on the local economy of Kraków. It draws on extensive primary and secondary data, including financial and employment data, press releases, interviews and an employee survey. The paper draws the conclusion that discourses presented by policy-makers, business organizations and companies differ significantly from the real local impacts and multiplier effects.

Notes

Due to the fact that this article is meant to analyse the effects of the sector's operation in a reliable manner, cautious minimum estimates regarding the size of employment and income multiplier effects were presented.

In the light of the above three researches, indirect effects (up to 1.5) are higher from induced effects (approximately 1.1) in manufacturing in Poland.

Local closure of multiplier effects is defined here as the share of jobs generated locally (within the commune and county) in the total number of jobs generated by business service centres.

All the financial data were given in euro using the yearly average exchange rate for 2008 (EUR 1.00 = PLN 3.52).

These calculations take into account only jobs created as a result of income of service centres' employees, both directly in services and supply for these industries. Second and third rank multiplier effects were also taken into account. On the other hand, induced effects generated by employment in industries directly supplying service centres (they may constitute approximately 1% to 3% of induced multiplier effects) were not taken into account, as well as jobs in medical services, education and recreation which are created thanks to non-payroll benefits offered by employers. Furthermore, jobs created in residential construction were also not taken into account.

In Poland, income tax is known as personal income tax and corporation tax as corporate income tax.

The Polish Ministry of Finance attitude towards subsidizing BPO centres/SSC has recently changed and it is debatable whether these companies will be further subsidized.

The Programme Innovative Economy is the Polish scheme, which is co-financed from European Regional Development Fund and the State budget.

Expenses on support in long-term programmes are incurred by national authorities and by the end of 2008 they amounted to EUR 3.4 million, whereas investment obligations of BPO/SSC companies exceeded EUR 22 million by 2009. These values give a leverage ratio of over 6.5 times.

For instance, CEO of Shell SSC, who is married to a Pole and obtained Polish nationality, was elected as the member of Kraków's City Council in 2010.

Until recently, many companies do not subsidize post-graduate studies.

So far, within this initiative, that was meant to promote various sector within the city's economy, there was only one idea implemented—the one to promote BPO/SSC sector.