Moving the headquarters of a captive finance company to central
Europe can reap rewards, as IBM Global Financing has discovered

Moving headquarters, while a big upheaval, can provide enormous
benefits. In February 2005 IBM Global Financing established a new
base for its European operations in Budapest. Arguably it was a
courageous move as Hungary, as well as being a relatively immature
country both economically and politically, had only joined the
European Community just nine months earlier. Its legal and
accountancy systems were, and remain, a shadow of those in place in
western European countries, and generally, while a fast growing
economy, Hungary has a limited risk checking system, and credit
levels remain low. Furthermore, IBM, an American company, has had
to fit in with a new culture and language, and also find its way in
a very different labour market.
 
Despite these challenges, it appears that it is making a success of
things after it shunted its headquarters from Paris to the heart of
central Europe over two years ago. Costs are roughly half of what
they are in London, according to John White, IBM Global Financing’s
head of worldwide business support, the process of integration has
taken place surprisingly well, and efficiently, and most back
office facilities for the entire of Europe – in which it has
operations in 22 countries – are in Budapest.
 
With the whole of Europe to play with, the decision to choose
Budapest was no easy one to make. White, who helped spearhead the
operation, approached the issue by drawing up a list of priorities.
Costs, of course, were high on the list, particularly those
relating to real estate, electricity, tax and labour, all of which
he found, unsurprisingly, to be comparatively low. Other key ones
included access to a university qualified labour pool capable of
speaking several languages, and also to a decent international
airport, first class public transport facilities, and reliable
telecommunications and electricity supplies. Keen to ensure staff
maintain a good living environment, access to good schools and
healthcare were also important. Economic and political stability,
existence of a well regulated and ethical business community were
among the other prerequisites. Ultimately, about a dozen cities
were looked at, but only Budapest ticked all the boxes.
 
Almost all of the backroom operations for both IBM Global Financing
as well as IBM for the whole of Europe, Middle East and Africa
(their business volumes in the latter two regions are tiny by
comparison to those in Europe) were established in the Budapest
office. These include finance, planning, pricing, billing,
procurement, accounting and, according to White, “business process
outsourcing for large external customers”, which refers to the
contracting of back office functions to a third party vendor, like
IBM, to run more efficiently and at a cost savings.
 
The majority of credit handling is dealt with through Budapest,
largely through its automation system, which deals with 42 per cent
of total business requests, although in France, Germany and Italy
they are handled locally because of rules in these countries
requiring this to happen. There is also credit support in Russia
and Poland. Some pricing breakdowns are also provided to customers
by IT systems rather than manually. This back office function,
according to John White, is capable of handling growth in business.
By all accounts this is happening with plans to set up additional
operations in countries further to the east, including Ukraine, and
move into a new building in Budapest by November this year.
 
Sales teams are centred in each country for ease of access to
customers and are organised according to a particular account, or
part of a product division, such as IBM Global Finance’s PC and
project financing division.
 
According to John White, since the centralised HQ was set up,
replacing the previous system in which, in addition to the Paris
HQ, there were regional bases in Madrid and Zurich, improvements
have been far-reaching. “The centre in Budapest provides economies
of scale, and enables us to quickly change a system or a process so
much faster and more efficiently than you would do if you were
using more than one location.”
 
He added: “The technology works well with instant messaging,
billing and collaborative
software all existing out of one office. It is amazing how much
more we can get done. Also, we have managers’ meetings from one
location, and these gives us all of us insights into each others’
businesses.”
 
On the staffing front, IBM Global Financing has managed to
integrate a large number of employees with different backgrounds
into one location. While 90 per cent of the 400 IBM Global
Financing employees in the Budapest office are Hungarian, the
office still reflects a mix of over 30 different nationalities, and
altogether speak a total of 15 different languages. Systems have
been put in place to encourage leadership and facilitate promotion.
Today 15 managers are Hungarian, against zero last year. Junior
staff now shadow senior ones, and employees are encouraged to
reduce time spent in meetings.
 
It will not be all plain sailing though. Income tax has been raised
recently in Hungary, a result of the country’s efforts to fall in
line with practice elsewhere in the EC. White expects, however,
says this will probably be reduced within two years. The Budapest
outlet is still “young and growing”, White said, but as a business
it is increasing in confidence. “As the Budapest business matures
we find other ways of being more efficient,” he added, pointing out
that this applies to general claims processing, as well as in
smaller areas such as billing and pricing.

Sensitivity is also required at all levels to succeed. White
explained that Hungary should not be referred to as being in
Eastern Europe, but rather central Europe. Taking oneself out of
ones’ normal ways of thinking, and approaching issues in a
different way, might well prove to be recipes for success, even in
less advanced markets.