Offshoring and Outsourcing Business Services to Central and Eastern Europe: Some Empirical and Conceptual Considerations

Abstract

The global structural shift towards service-based foreign direct investment (FDI) across the world is a relatively recent phenomenon resulting from the increased tradability of services. Although India and Ireland have traditionally been viewed as the main receiver countries, the Central and Eastern European (CEE) region is becoming an increasingly popular destination for business service offshoring and outsourcing. The article focuses first on the empirical and conceptual challenges to understanding the offshoring and outsourcing of business services in the context of significant difficulties with their definition, categorization and classification. It discusses the shortcomings of quantitative data and provides a theoretical framework needed to understand the specific patterns of service sector FDI in the context of CEE. Second, the article outlines the current position of CEE countries as destinations for service sector FDI: it analyses the patterns of service sector investment and discusses the reasons for its emergence as a receiver region. The empirical material is drawn from 30 interviews conducted with senior managers in business service foreign investment in the Czech Republic, Hungary, Poland and Slovakia. The article concludes that the composition of services FDI flows is changing, reflecting the growth of resource seeking vertical investment in the region. The share of CEE countries in the global flows of this type of investments is still low, but the region shows a growing potential. Its attractiveness is based on a number of factors, like availability of skilled labour with strong language skills, low costs, favourable business and stable political environment, well-developed infrastructure and geographical and cultural proximity to Western Europe.

Acknowledgements

This research was supported by the Visegrád Fund. Magdolna Sass's research received additional financial support from the Hungarian research fund OTKA (no. 68435).

Notes

The Visegrád economies (V4) comprise the Czech Republic, Hungary, Poland and Slovakia. These are generally regarded as the leaders of the transformation process and were admitted to membership of the European Union in 2004. The V4 economies are a sub-set of the wider region of Central and Eastern Europe.

The interviews were carried out as part of the project of Economy and Society Trust: “Foreign Direct Investment in Central and Eastern Europe: What Kind of Competitiveness for the Visegrad Four”.

Mirror statistics are bilateral comparisons of two basic measures of a trade flow. This is a traditional tool for detecting the causes of asymmetries in statistics.

More recently, EUROSTAT (2009) carried out an enterprise survey in 12 EU member countries and Norway, on the basis of which realized and planned international sourcing could be analysed in terms of its frequency, employment impact geographical orientation and barriers, among others.