COVID-19 will change the structure of the Czech economy, services will be the driving force

13.10.2020

By 2025, business services will be one of the most important sectors of the Czech economy in terms of employment and economic performance. Thanks to the ability to operate in a fully digital environment and bring innovation to all areas of business, the field will continue to grow. In five years, 180,000 employees will work in more than 500 business, innovation, and IT service centers in the Czech Republic. The field thus has the potential to significantly contribute to the transformation and growth of the Czech economy.

“The impact of the COVID-19 virus on the Czech economy is a major challenge. Individual sectors will have to transform and adapt to the new model of functioning and changes in the world economy. We should rely on fields that work in a digital environment, provide high added value of work and are able to quickly adapt to new conditions, “says Michal Čermák, a partner in the consulting company McKinsey & Company.

According to him, for example, business services have the potential to transform the Czech Republic from a traditional manufacturing economy with cheap labor to a model focused on modern and innovative services with high added value. In addition to traditional financial, personnel and marketing services, the business services industry includes increasingly popular IT development and support services, robotic automation and data analytics. The industry is fully digitized and provides all services to customers around the world via the Internet. Thanks to this, business service centers can function even in emergencies and crises.

“The goal of the future focus of the Czech economy is to reduce its vulnerability and increase its competitiveness. We are a macroeconomically stable country, we have a functioning infrastructure and an educated workforce. We must use this for the future. At the moment, international companies are restructuring their operating models and looking at business service centers, in which to move IT, innovation, digital skills and other services with high added value, “says Michal Čermák, adding:” This is an interesting opportunity for us.”

A study entitled The Future Now: A Leaders’ Vision for Business Services in the New Digital Era, published by ABSL with McKinsey & Company, predicts that the business services in the Czech Republic will continue to grow over the next five years. Today, there are 310 business service centers in the Czech Republic, employing 120,000 people. By 2025, however, the number of local centers will increase to 500, and the number of employees in this field will be 180,000. “The nature of the field will also change. The local centers will play a greater role in the main business of parent companies, will function as knowledge centers, provide added value, participate in digitization and other transformation processes,” says Jonathan Appleton, Managing Director of ABSL, stating that the Czech business services centers operate mainly multinational companies based in the EU, however, customers from all over the world are served from the Czech Republic.

IT centers are growing the fastest

Originally, the outsourcing of operations and transaction activities, from accounting through logistics to human resources, predominated in the Czech business service centers. Gradually, the emphasis shifts to IT, typically infrastructure management, deployment of robotic automation, digitization, or development, testing and deployment of new products and services, cyber security. At present, 37% of Czech business services employees work in IT, which is 18 percentage points more than in 2019.

Overall, the industry is growing at a rate of 5% in 2020. Its double-digit growth in recent years has been slowed for a while by the spring period of uncertainty across the world economy. Even so, more than half of the centers report growth, and a third do not increase or decrease the number of employees. For 2021, 58% of Czech centers predict further expansion, and new investors are expected to arrive at the same time. Despite the covid slowdown in the economy, several new centers are planned to open in Prague, Brno and even Ostrava. In total, they will create 10,000 new jobs.

“The sector is growing not only in terms of employees, but also in terms of robots. The most modern technologies of robotic automation and artificial intelligence are gaining ground in our sector. Today, they work as 8,750 full-time employees, ”says Jonathan Appleton.

The pandemic has shown the industry’s resilience to crises

The fact that the field of business services is a sure bet is also proved by how he managed to cope with an unexpected state of emergency in the spring. “The centers practically transferred the vast majority of their employees to work from home practically from day to day, thus ensuring uninterrupted and smooth operation. According to 7 out of 10 Czech centers, employees at the home office were able to maintain the same or even higher productivity. The good condition of the field is also evidenced by the fact that 84% of Czech business service centers do not plan to apply for help under coronavirus government programs to support the economy, “says Jonathan Appleton.

Almost two thirds (60%) of the centers continued to recruit new staff in the spring, and more than half (56%) of the centers gained new business opportunities during the crisis. Some centers took over processes from their sister organizations in Asia, where the infrastructure did not allow all people to be transferred to work from home and there was a temporary slowdown, others expanded their regional reach or began to provide new services such as IT support for home workers, consolidation data, digitization projects or the introduction of robotic automation.

About the study

The study entitled The Future Now: A Leaders’ Vision for Business Services in the New Digital Era was created in collaboration with ABSL, McKinsey & Company and 28 Czech leaders. business services, which spent more than 1000 hours of work analyzing the sector, its potential and opportunities during the months of June to September 2020. The study will be presented in detail at the ABSL Digital Conference on 10-12. November 2020. More information at https://www.absl.cz/conference/.

About ABSL

ABSL (Association of Business Service Leaders in the Czech Republic) is an organization of companies operating in the segment of shared business services, which represents a strong source of employment in the Czech Republic. ABSL was established in 2013 with the aim of supporting companies in the field of business services, sharing best practices and helping to develop the activities of its members and other entities operating in this segment. At the same time, ABSL provides support to foreign investors who want to set up their business service centers in the Czech Republic. At present, there are more than 310 centers in the Czech Republic employing 120,000 people. You can find more information at www.absl.cz.

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