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The Dimensions of Territorial Embeddedness of the Business Services Sector in Central and Eastern Europe

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Geodecki T.

Zarządzanie Publiczne / Public Governance

2021

issue 2(56)

15-31

The business services sector (BSS) is gaining an increasingly important position in the employment structure of Central and Eastern European (CEE) cities. With the emergence of global value chains, the demand for externally provided shared services for subsidiaries spread across the world, including accounting and IT services has grown. In recent decades, leading companies have recognised that thanks to remote communication, some services can be provided in places where labour costs are significantly lower. Even before the 2004 enlargement of the European Union, multinational corporations began to move the labour-intensive links of their value chains to the CEE countries. In the debate about the future of the BSS in these low-cost economies two challenges have been identified. The first one is the threat of relocation. The other one is associated with weaker linkages between service companies and local customers/suppliers than in Western Europe. These two challenges can be addressed by tackling the third one, namely increasing process efficiency. In consequence, even an increased share of foreign contractors does not have to reduce the scale of cooperation with local entities. The aim of this paper is first to propose a range of measures of territorial embeddedness to describe the phenomenon in question and the above-mentioned challenges, and second, to use these measures to determine the level and dynamics of embeddedness of the BSS in CEE economies. In the empirical part of the paper, changes in these three areas that make up territorial embeddedness are explored in depth. Eight divisions covering the BSS in CEE-11 countries were compared with their Western European counterparts at two points in time: in 2000 and 2014. The study relies on basic statistical data and calculations using input-output tables. It was found that due to productivity growth, the cost competitiveness of the BSS in the CEE countries was maintained in the period of interest, moreover, despite the growing internationalisation of the sector, the scale of cooperation of the BSS with local actors increased. The rapidly improving skills of employees in the Central European BSS as well as the growing importance of knowledge-intensive services in the structure of value added may further contribute to the importance of CEE as a location for business services in Europe.

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1 Zarządzanie Publiczne / Public Governance

1 Geodecki T.

1 2021

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The Dimensions of Territorial Embeddedness of the Business Services Sector in Central and Eastern Europe