Weekly Briefing, Vol. 26, No. 1 (LVA), February 2020
LATVIA AS THE CENTER OF THE GLOBAL BUSINESS SERVICES
The Global Business Services sector in Latvia is growing. In 2019, the sector formed around 1.9% of gross domestic product and 2% of total exports.[1] Increasingly, internationally recognized companies choose to centralise the company’s administrative functions in Latvia, replacing it with the performance of functions in each country individually. Global Business Service is developing widely in Latvia – approximately 9,000 jobs places have been created in this service sector.[2] As well as 100 new jobs are offered monthly in the Global Services sector.[3] Around 50 companies are currently registered in Latvia in the field of Global Services.[4]
Latvia’s attractiveness as a Global Business Service center is shown by the A.T.Kearney index, which examines which countries provide the most favourable outsourcing offer. The Global Service Location Index consists of four factors: financial benefits, human resources, business environment, and digital resonance. In 2019, Latvia took 21st place in the Global Services Location Index, outperforming countries such as the United Arab Emirates, Canada, and Poland.[5] According to index data, mainly companies choose to create a global service center in Latvia due to financial attractiveness and the business environment.
Meanwhile, the Association of Business Services Leaders, which represents the interests of the Global Business Service companies in order to strengthen the development of this growing sector in Latvia, refers to the main reasons for Latvia’s attractiveness, such as a favourable location, a stable, growing economy, supporting infrastructure, access to modern spaces, convenient transport opportunities, financial benefits, educated labour.
Mainly, international companies choose to set up global service centers in Latvia because of the financial benefits. First, Latvia’s salary level is below the average level in the European Union.[6] The employer will, therefore, make savings by hiring the employee from Latvia. Secondly, the overall price level for different expenditure is lower in the European Union.[7] Services such as rental of premises, electricity, water in Latvia are approximately 40% lower than average in the European Union. Spending on communication services – Internet connection, telephone calls – is about a third cheaper than in the European Union on average.[8]
One of the reasons why international companies choose to build global service centers in Latvia is the labor level of knowledge of the official languages. Approximately 96% of Latvian residents know at least one or more foreign languages.[9] In general, Latvians are most familiar with both English and Russian, so global service centres in Latvia can work with both the East Market and the Western Market. Data shows that overall 16 different languages are used in Latvia’s Global Business Service centers, most often English, Russian and Latvian.[10] Around 18% of all companies in the sector use Danish, Spanish, German, Italian, French, Swedish, less often – Japanese, Lithuanian, Estonian.
The development of the Global Business Service industry and the interest of investors in setting up administrative departments in Latvia, by which they are available to promote the company’s growth, demonstrate that Latvia is able to adapt to business trends by providing a competitive business environment for growth. Along with the advantages of geographic and transportation services, Latvia demonstrates itself as a trusted outsourcing partner for the development of international companies.
In order to promote the development of the Global Business Service sector in Latvia, a joint memorandum was signed in 2018 between Riga Municipality, Investment and Development Agency of Latvia, the Ministry of Economy and others, with a view to taking additional activities in promoting the sector. Within the framework of the Memorandum, an association was founded, which deals with informing the public about job opportunities in the international business sector in Latvia, forms a dialogue with Latvian universities in order to develop the skills, which are needed in the sector, in students . Association and university cooperation have a key role to play in the development of the Global Business Sector in Latvia, it is the most common choice to work in this sector for employees who have recently graduated from university because of the opportunities for international career growth. The association represents several dozen global enterprise service companies in Latvia.
The growth of the Global Service sector has contributed greatly to Latvia. When investing in the creation of new centers in Latvia, international companies not only make savings themselves but also contribute to the Latvian economy. First, global services companies offer higher wages than average in Latvia.[11] Thus increasing the level of welfare, as well as increasing the total revenue of the Latvian Government. It is worth noting that the international business services sector provides health insurance, a modern working environment, career growth opportunities for its employees. Secondly, international experience acquired by employees while working in Global Business Service companies increases the added value of Latvian employees. Third, Latvia’s higher education system is being built in a way that is allowing students to compete internationally. Global Business Services representatives have met with representatives of higher education institutes to discuss the integration of the necessary skills into the Global Business Service industry already in the study process with methods such as case studies, bachelor’s works in the field of Global Business Services, guest lectures and others.
Latvia’s success in the Global Business Services sector has already gained international recognition. During the CEE Shared Services & Outsourcing Summit & Awards 2019, Latvia won several nominations. Riga City won the title “The Rising Global Service Sector Centre in Europe”. The Tele2 Shared Service Center Latvia nominated the “Social Company of the Year” for its campaign, which inspired women to improve themselves in the IT field. Meanwhile, Cognizant Latvia, part of the international company Cognizant, was founded in India and entered Latvia in 2018, currently employing 300 IT specialists, won the title “The digital services company of the year”.
The Circle K Business Center, which won the nomination “Global Business Services Company in the Baltic of the Year”, is currently the largest international service center in Latvia.
Currently, the Investment and Development Agency of Latvia is actively working with representatives of this perspective sector, inviting them to expand their administrative departments in Riga. The received ratings and nominations so far show that Latvia has a high potential for developing the Global Business Services sector, providing an attractive industry operating environment for already existing and new companies.
In total, there are around 50 global service centres are currently in Latvia, such as the Tieto Global Shared Service Centre, Tele2 Billing, Atea Global Services, Circle K Business Center and others. Administrative services centres in Latvia most often provide services such as IT finance, customer service, logistics, personnel management.
One of the most recognizable centers of Global Business Service in Latvia is currently SEB Global Services, where approximately 700 people are employed. The Centre in Riga provides a number of functions – handling all payments by SEB Group, processing of financial instruments such as shares, bonds. As well as in Latvia, the various financial processes offered by SEB Grupa are being examined whether the customers have received payments or the depositary has entered the required account. In addition, the SEB Group Business Service Office in Riga regulates if the international control requirements are met in money laundering, risk management, provision of IT systems. It should be stressed that SEB Group is the largest and most valuable bank in Scandinavia, and therefore the business services center in Riga plays an important role.
Cabot Corporation is the leading company in the world, specializing in solutions related to various chemicals and materials, in cooperation with the transport, infrastructure, environmental sectors. The Cabot Latvia Business Service Centre manages administrative tasks such as customer support, data management, digital support, accounting services, and others. After 5 years of successful activity in Riga, the number of service center employees was increased by half to boost the growth of Cabot Corporation.[12]
Chinese businessmen have also shown an active interest in expanding their activities in Latvia. Company “BGI” has officially launched new research, development, and production center in Riga to create a Chinese-European life science innovation center. The company has already set up three research, development, and production centers in China — Sheng, Shaun, and Qingdao — and San Jose, U.S. The new 7000 m2 large “BGI” center is located at the airport park in Riga. The company based its decision of building its expansion in Riga primarily due to the geographical reasons because MGI is planning to export its production to Europe, Africa, and Eastern countries.
At the premises of “BGI Latvia” in Riga, a product production center, a high-throughput sequencing center, training, as well as a logistics center will be provided. The company’s role here is to strengthen innovation-related cooperation between China and Europe in the fields of life sciences research, industrial use, and technical standards. This means that cooperation on transnational genomics projects, as well as the exchange of experience and information between companies in China and Europe, will continue through this center.[13]
“Given current biotechnology bases in Latvia, “BGI” feels safe when creating a gene-based life-sciences innovation platform in Europe. Here we will be using the company’s main products and technologies. This will help to advance the equipment needed to research higher-level life sciences in China on the global market by creating a system of technical support and a product supply chain that would meet customers’ needs and allow a deeper understanding of the European market, says “BGI” President Duncan Yu.
Thus, Latvia and Riga have always been and is open to creating new, dynamic and well-rewarded jobs, which is exactly what the global service sector gives our state.
[1]https://www.la.lv/strauji-augosi-but-unknowable
[2]Association of Business Service Leaders in Latvia
[3]UAA
[4]Association of Business Service Leaders in Latvia
[5]https://www.atkearney.com/digital-transformation/gsli/2019-full-report
[6]https://ec.europa.eu/eurostat/statistics-explained/index.php/Wages_and_labour_costs
[7]https://ec.europa.eu/eurostat/statistics-explained/index.php/Comparative_price_levels_of_consumer_goods_and_services
[8]https://ec.europa.eu/eurostat/news/themes-in-the-spotlight/price-levels-2018
[9]https://ec.europa.eu/eurostat/statistics-explained/index.php/Foreign_language_skills_statistics
[10]Association of Business Service Leaders in Latvia
[11]Research on employed staff cost and foreign language skills in most competitive sectors of economy in Latvia by “Institute of Economics of the Latvian Academy of Sciences and CREATURA”
[12]Association of Business Service Leaders in Latvia
[13] https://labsoflatvia.com/aktuali/mgi-centrs-riga