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FRIDAY
September 17th 2010
YEAR 2 | No 14
Vision for Shared Services and Outsourcing Asia By: Bryan Camoens Shared Services & Outsourcing Network
Our experts look at some of the most common errors companies make when transferring work overseas
Top Ten Mistakes Made When Offshoring By: Jamie Liddell ssonetwork.com
Sending work offshore can be a valuable tool for firms looking to enjoy the benefits of labor arbitrage, increased geographical penetration and strengthening ties with national governments. It can also be a nightmare. Done incorrectly, offshoring can undermine the very foundations of a company with bills that could draw tears from a stone. It’s amazing, then, how often it all goes pear-shaped… page 1
Bharat Sampat, CFO of Development Credit Bank discusses the growth of shared services and outsourcing throughout Asia with SSON. page 5
Setting Up an Offshore Shared Services Center By: Frank Holz ssonetwork.com
A look at the pros and cons of the leading offshoring locations worldwide. page 6
Shared Service Centres Continue Growth in Hungary sharedserviceslink.com
After the rapid expansion during the past decade, Hungary’s shared services industry is growing into one of the country’s largest employers with 30,000 jobs. page 9
Top Ten Mistakes Made When Offshoring By: Jamie Liddell ssonetwork.com
Sending work offshore can be a valuable tool for firms looking to enjoy the benefits of labor arbitrage, increased geographical penetration and strengthening ties with national governments. It can also be a nightmare. Done incorrectly, offshoring can undermine the very foundations of a company with bills that could draw tears from a stone. It’s amazing, then, how often it all goes pear-shaped… The Shared Services & Outsourcing Network asked a number of experts for their thoughts on the most common, and the most potentially dangerous, mistakes companies make when sending work offshore. So here it is: the SSON guide to the Top Ten Mistakes Made When Offshoring. Recognise anything? 1. Not allocating sufficient time and resources to transition Especially when cost-savings are a primary driver, there’s an understandable impulse to get an offshoring move completed as quickly as possible. The organization’s biggest cheeses not to mention the shareholders - may find it hard to resist the temptation to push hard for a speedy transition so the big move can start demonstrating cold hard gains speedily (as cash spent on the transition - especially to a new captive center - tends to be seen as dead money). However, that way lies if not madness then at least the risk of creating significant, and potentially very costly, difficulties in the longer term. “Oftentimes companies consider offshoring as part of a cost -cutting exercise,” says Steve Reynolds, MD North America at WNS. “Savings needs to be substantial and delivered as soon as possible. Unfortunately, this results in an accelerated time for transition which can short cut the required processes for moving complex work offshore. The average tenure in a shared services center should not be ignored and process mapping and documentation cannot capture every detail of a process. Gaps are filled by sending the right number of staff for the right amount of time to observe the processes in the SSC location. In addition, subject matter experts from the company should plan on spending a substantial amount of time in the offshore location insuring that training is done accurately and be available for escalation during ramp-up and production cut over.” 2. Not making the appropriate choice between outsource and captive Offshoring work can be done whilst keeping it within the
organization, or of course as part of an outsourcing deal. There are pros and cons to either solution (and indeed to the hybrid model as well). However, companies sometimes make the mistake of looking at offshoring itself as the key to solving the particular problems they’re addressing, without looking fully into all the options as to who might be bestplaced to carry out that work once it’s been sent overseas. There might be overwhelming advantages for some firms in retaining the work within a captive set-up; similarly, outsourcing might be a preferred option for others. The critical issue is that in many circumstances the outsource/ captive decision might well be a more important one than the onshore/offshore debate; simply voting for “India” or “Malaysia” over onshore locations isn’t taking a sufficiently big-picture perspective. “The threshold issue is, of course,” says Peter Brudenalll, partner at Hunton & Wiilliams, “whether to ‘go it alone’ and establish a captive or to use a third-party outsourcing vendor. Clearly, if a company is a large, well-known organization with intellectual property or data too core to the business to be outsourced then there is a very good chance it will be able to succeed in running a captive in an offshore location. However, captives can struggle to succeed where there is a lack of management expertise on the ground and a high attrition rate among employees. Attrition rates can be extremely high in places such as India where there is always a wealth of opportunities for talented individuals to change companies. If a company is not well-known, or is not able to provide its staff with a distinct career path, then attrition rates can start to become a big issue. It should also be recognized that salary costs have risen in India over the last few years so establishing and running a captive may not necessarily generate the cost savings anticipated in the original business plan.” 3. Having insufficient disaster-recovery plans and backup It’s a dangerous world out there - and with climate change and associated socio-political instability looming, it’s probably only going to get more so - and moving work and resources to a new location means having to prepare for new dangers. Even over the past few weeks we’ve seen catastrophic natural calamities in the Asia-Pacific region (including devastating floods in the offshoring hot spot of the Philippines) damaging infrastructure and placing serious obstacles in the way of beleaguered workforces. Failing to plan correctly for negative phenomena is an unforgivable sin that tends to be uncovered only when it’s too late to be redeemed. Don’t be a sinner. “Earthquakes happen. Flooding occurs. Underwater cables get knocked out. Water disputes on regional borders can cause strikes. Ageing thespians can die. Be prepared for the unexpected. Items like this can strike, and have in our
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experience struck, when you least expect them. Make sure that you can quickly leverage resource elsewhere to another center or back up SSC location or move to a backup plan at a fast turnaround time. Ensure your key local employees in the new offshore operations have laptops and can work remotely if required. You do not want to be the one having to explain to your CFO at a month- or quarter-end, that you cannot close the books or process key transactions, just because you have not thought of adequate business continuity.” cautions Chris Gunning, Director Global Shared Services, Europe, Bangalore and Asia Pacific regions at Unisys. 4. Skimping on the due diligence There’s no excuse for this one. Whether investing bundles of precious cash in an offshore center or handing over key processes (and more precious cash) to an outsource provider, failing to carry out the requisite due diligence isn’t just asking for trouble, it’s walking up to the counter, slamming your fist down and demanding it. An organization needs to be as diligent as possible even at the expense of a delay in implementation. No matter how close the relationship between buyer and provider, or how confident an organization might be in the integrity and stability of a proposed new location, the due diligence must be seen as an indispensable part of any offshoring process. “In offshore arrangements, particularly when outsourcing to a third party, the importance of due diligence on the vendor cannot be underestimated. We always advise clients that they must visit offshore sites so that they fully understand where the services will be provided from, and what security arrangements are in place. [When outsourcing] nterest from a senior level in the customer’s organization is essential to this process, and will also assist in getting the contract negotiations concluded, rather than both the vendor and customer beating each other up to obtain small wins while the big picture gets lost,” says Hunton & Williams’ Peter Brudenall. 5. Lacking a corporate offshoring strategy Offshoring is a major proposition with major consequences. A failure to look at this proposition holistically across the organization means some of these consequences could impact negatively on areas which might have been off the radar for those behind the drive to offshore who might have their own horizons limited by their own responsibilities. A corporate offshoring strategy will allow the company to make the very most of their offshoring while preparing everyone within the organization for the changes which are about to take place. “Companies can no longer allow every process manager to determine their own strategy when outsourcing,” warns WNS’ Steve Reynolds. “The complexity of multiple agreements, minimum volume commitments, disparate terms, multiple locations, lack of BCP, etc. quickly erodes the expected savings. A company quickly becomes frozen trying
to manage and meet commitments across too many suppliers. A much better approach is for senior management to think through a high level strategy of what is to be outsourced, what can go offshore, an ideal set of vendors to utilize, optimal locations, and expected results. Once this strategy is in place, procurement can then determine the appropriate set of suppliers.” 6. Letting advisors and attorneys lead the negotiations It’s a common problem when outsourcing, particularly when work is to be sent to locations into which the organization doesn’t already have commercial penetration: allowing the legal eagles to drive the conversation during negotiations. Now, it’s obvious that legal representation at negotiations is indispensable (and having a good stable of experienced advisors on your side is increasingly de rigeur): but it’s imperative that negotiations proceed according to the interests of the organization - and that means the organization leading negotiations and being supported by its advisory team, not the other way round. “During the negotiation of the agreement between a vendor and a client, all too often, the customer takes a back seat during the discussions allowing the advisor and/or attorney to take the lead. Many times, the customer isn’t even present. The result of this style of negotiation is a substantial increase in the amount of time to negotiate an agreement due to battles being fought over every term and condition whether big or small. One would assume that a client would get a better agreement but in reality it’s the opposite. The spirit of partnership is typically lost as both sides dig in their heels. Attorneys and advisors should give advice and/or an opinion then get out of the way and let the customer and vendor figure it out,” advises WNS’ Reynolds. 7. Not creating sufficient visibility around offshore operations Sending work offshore isn’t getting rid of responsibility especially if you’re operating a captive center. The adage “out of sight, out of mind” when applied to offshore work is a recipe for the kind of disaster that leaves hardened professionals weeping into their whiskies. Offshore operations need to be highly visible - to encourage engagement among many other reasons - and must not at all costs be seen as anything other than an indispensable aspect of global operations. Keeping your offshore work and employees in the dark could mean you’ll be blind to potentially destabilizing events down the line. “Just because you have moved work offshore, does not mean that you can hope to disconnect yourself from the new offshore operations. If anything, the opposite must apply. Be visible. Our captive offshore Global SSC in Bangalore is an integral and key part of our overall Finance operations. They have the same access to employee development and training as every other Finance employee in our company. Being seen is important. Visit them as often as you can. Hold regular All
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Hands Meetings. Leverage other forms of communications on a daily and weekly basis. Invite and encourage your CEO, CFO and regional Finance Vice Presidents down to meet the new offshore teams. Get your customers out to meet them. Stay connected with them. Invite the key members to your own strategy meetings. Engage. Communicate. Remember, they are ‘the finance of your future’ so nurture and develop your key leaders and team members, as you would with staff in Corporate or Regional HQs, or in your retained captive organizations onshore,” says Unisys’ Chris Gunning. 8. Insufficient ongoing management Just as you can’t hide your offshore operations out of sight, you can’t take your hands all the way off the controls - even if you’ve outsourced the work that’s gone offshore. Ongoing management is essential - after all it’s still your organization that is affected by the work being done, even if it’s someone else doing it. The management of the work itself might be out of your hands to a certain extent - but the management of the contract and its terms, and the management of the relationship itself, shouldn’t be considered any less crucial simply because work’s now being done a few thousand miles away. “This is a typical mistake in many outsourcing arrangements, but it becomes particularly bad when made in an offshoring context. Customers need to understand that any outsourcing arrangement will require them to provide on-going direction and management - not only to ensure that they are actively engaged in the outsourced services but so that they understand how the services are being performed in case they need to very quickly transition those services to another vendor. In the event of a vendor suffering an event such as that experienced by Satyam earlier this year, or running into financial difficulties, many customers will quickly evaluate the potential reputational and service delivery issues and decide that they would feel more comfortable with another vendor. Assuming that the legal basis for terminating the agreement is there, only those customers who have a very good understanding of the way in which the services have been delivered will find it possible (let alone easy) to quickly transfer the services to another vendor. When services are being provided from an offshore location, it can often be even more difficult to quickly transition services to a replacement vendor unless the customer has been actively engaged with the vendor,” says Hunton & Williams’ Peter Brudenall.
ends unless people are certain of their own responsibilities. “This goes much beyond the need of simple Service Level Agreements (SLAs) or Statements of Work (SOWs),” says Unisys’ Chris Gunning. “Ensure that each of your key team members, including managers and those responsible for delivery of services as well as your process owners, have cleared defined roles and responsibilities. And for that matter, encourage your customer to do the same for his or her organization. No matter how much governance you have in place, or how wonderful and detailed your SLA and KPI metric structure looks like, if you take your eye off the ball on simple things such as clear role descriptions, and who is actually responsible for the delivery and meeting of those metrics and services, then you will forever be embedded a series of finger-pointing and looking the other way, when trying to make people internally accountable and responsible for their actions, as well as trying to explain to dysfunctional customers, that their C-Sat issue really starts and end with them, and not shared services.” 10. Not achieving a level of partnership with a vendor A successful outsourcing relationship requires both parties to work together. This is just as true - in fact more so when work is transferred to another country. The buyer organization must trust the vendor to work successfully within a social and legislative environment with which the buyer may have no experience; the vendor needs the buyer to give sufficient support to enable it to take on processes and activities smoothly and successfully. Failing to develop the requisite level of partnership can destroy any outsourcing relationship, let alone one that involves crossing oceans, timezones and international boundaries. “Outsourcing has matured to achieve a new level of relationship between a customer and vendor. With many customers, the relationship has gone way beyond a typical customer/vendor arrangement. For those clients that are able to achieve this level, their satisfaction with outsourcing and offshoring is significantly higher than most. Both parties are in the game together. Strategies are shared and the offshore provider is an extension of the clients operation. Too often, this level of relationship is not achieved resulting in a commoditization of work and inability to achieve the expected transform of the operation,” says Steve Reynolds of WNS.
9. Not having clearly defined roles and responsibilities Offshoring is complicated enough without the added confusion of people not knowing specifically what they’re going to be doing, where and when. Obviously during the transition period it’s critical that everyone adheres to a well-defined timetable; even beyond that, though, the usual need for shared services staff to enjoy clear role-definitions becomes extra-crucial once distance is placed between the SSO and other areas of the organization - even something as simple as changing time zones can lead to problems at both
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Vision for Shared Services and Outsourcing Asia By: Bryan Camoens Shared Services & Outsourcing Network
Bharat Sampat, CFO of Development Credit Bank reflects on how shared services are evolving throughout Asia and considers how the current economic climate in Europe and North America could affect the shared services sector there. SSON: Who is driving Shared Services and Outsourcing growth in the Asian Continent - large Western multinationals, Asian Governments or local Asian firms? Bharat Sampat: I would like to answer that in three parts. In the past, Shared Services was being driven by large Western multinationals who wanted to lower their cost base. These Shared Service centers have matured over a period of time and have started offering higher value-add services, for some of which, the skillset required is not available in the home countries. Secondly, the coming together of various services in a separate specialized Shared Service Center has resulted in synergies which are not possible to obtain in home locations, e.g. product control is a very specialized activity specific to the banking sector. The function is a critical risk management function which was performed by small teams in home locations. Even within such a small team, individual members specialize in different products. These skill sets are difficult to replace in home countries. As compared, the activity performed in a Shared Services Center diminishes this risk as the concentration of activity for different geographies into fewer locations provides critical mass of skill sets. Thus higher value-add services and availability of specialized skillsets will continue to attract large Western multinational organizations to the Asian continent. Asian governments of emerging economies like India do not have resources available to deliver the superior services which are being increasingly demanded. To give one example, in my home city of Mumbai, college admission was a manually intensive process which required paper applications being lodged where students wanted to apply for admissions. This resulted in a mad rush for application forms and a concentrated crisscross commute across the city to lodge them within announced timelines during the peak monsoon season. At the end results were sub-optimal. In my own case, three months after the close of the 1996 admission cycle I discovered that my eldest daughter could have been admitted to a different college which was higher in her order of preference. But we lived with a sub-optimal choice. For
the last two years, the process has been outsourced to a private vendor. After initial hiccups last year, the process is running fairly smoothly this year (my younger daughter is seeking admission, so I speak from first-hand experience). This is a demonstration of the effects of successful service delivery - a demand from a population exposed to superior service via exposure overseas with media scoops highlighting wastage and poor services etc. are driving Federal and State governments in India to embrace technology like never before. The scale is breathtaking in terms of volume as well as diversity. The challenge is in the last-mile delivery to a diverse population with different access and exposure to technology. It’s a great opportunity in the making. I do not think local Asian firms will drive growth in outsourcing. They have access to the same talent pool as the Western multinationals and local governments - at the same cost. Thus, there is neither a cost saving opportunity nor any compulsion to seek another resource pool. Instead, they will selectively poach talent from Shared and Outsourced Service providers to fill their skill gaps. They can afford to pay a small premium to the right resources unlike Shared and Outsourced Service providers who would need to maintain a degree of wage parity across their internal larger teams. SSON: So are we creating sub-employment or opportunities for the development of local citizens? BS: In my opinion, we are creating a huge opportunity for local citizens to obtain gainful employment and improve their skills. As mentioned above, these skillsets are permeating into local businesses which tap into this talent pool. While there appears to be a big pool of local citizens engaged in repetitive low skill requirement tasks, there is a steady growth up the value chain as mentioned in response to your prior question. As offshore centers gain critical mass, convergence of activities of different divisions from various geographies into a single center initially provides scale and growth opportunities, so a team member of geography A can be the next team leader for a similar process coming from geography B. At the next level, and here, the senior management has a critical role to play, linkages at hand-off points across various functions can generate synergies for businesses and opportunities for growth. Inter-entity reconciliations is a head office based finance activity which has a high level of dependence on local finance functions across the globe. With significant convergence of accounting activity from across the globe into a single center, inter-entity reconciliation can be efficiently delivered from the offshore center. The scaling up of individual functions and integration of diverse functions creates tremendous growth opportunities for local citizens. In my team, I have had employees moving up from the accounts payable staff to Basel II analysis and reporting functions in a short period of time.
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SSON: Given the current economic climate and volatility in the European and North American markets, what are some of the factors that will lead to growth in the Asian shared services and outsourcing landscape? BS: Consumer demand is likely to remain muted for an extended period across the European and North American markets. Pace of withdrawal of stimulus, expiry of unemployment benefits and fragile growth will continue to generate volatility in this already muted demand. These conditions will, to some extent, reduce the wage gap between these markets and Asia. Higher growth rates in Asia will also contribute to this. Local political compulsions will result in direct and indirect barriers to offshoring. The recent increase in H1B visa fees by the USA is an example. On the positive side, reduced purchasing power in the hands of customers will fuel the demand for delivering goods and services at a much lower cost. Frugal engineering practices of Asia in the manufacturing sector and the ability to deliver efficient low cost services on a large scale will intensify the need for European and North American markets to seek lower cost bases. While there will be ups and downs, on a secular basis, this will lead to very strong growth of the Shared Services and Outsourcing industry in Asia. SSON: How do you see Shared Services and Outsourcing evolving and what can we expect from the sector over the next decade or so? BS: Shared Services and Outsourcing is fast evolving into an industry with a global outlook driving business and a local cost delivery base fulfilling the business promise. Economies of scale and cross functional integration will continue to provide significant business leverage on the service delivery side. Over the last few years the industry has exposed local leaders to global cultures and best practices. It is this generation of leaders, who are as comfortable working with, say a consensus based business culture of Amsterdam, as they are with a direct business approach of Americans. Local economies are also growing at a very fast pace. These will compete with offshore talent for a scarce resource pool. Offshore centers which are able to provide internal growth opportunities will be the winners. SSON: In what way will cloud computing change the face of the Shared Services and Outsourcing sector in Asia and can you identify some current examples? BS: Cloud computing will generate direct service opportunities to the IT sector. In addition, these will offer offshore IT centers to provide SAAS opportunities. Service providers will spread across wider geographies more easily. This will enable offshore centers to expand to cheaper locations and tap an expanded labor pool driving further cost efficiencies.
SSON: What are some of the key challenges that you see the Shared Services industry facing in the short term? BS: Direct and indirect barriers to offshoring driven by local political compulsions is the biggest challenge in the immediate future. Ability to retain key staff at an affordable salary will be the next big challenge as growth of local economies and expansion of local government services into the outsourced space will be drivers of attrition and wage inflation. Global restructuring of international businesses by way of mergers, demergers and business unit sell offs will continue until Western economies stabilize – this could take years. Service providers who are able to manage these transitions well will generate significant brand equity. Value of this capability was blindsided in the years of growth but has been in focus over the past couple of years. SSON: On that point, as China and India become more affluent, where do you see the next outsourcing hotspot? BS: I feel both these countries still have enough resources to compete successfully in offshore markets in the foreseeable future. Speaking as an accountant, I see Sri Lanka as the next outsourcing hotspot in Asia. It has a good number of qualified accountants, it can attract managerial talent from India to complement local resources to quickly scale up. It also has size to generate sufficiently large offshore centers. From a distance, Malaysia seems to be focused on the IT sector, but I see it having huge potential in the business processing segment as well. It is in an unique position to attract core talent from both – India and China.
Setting Up an Offshore shared services center By: Holz, CEO Outsource2Philippines ssonetwork.com
We have heard it all before: What are the three most important ingredients of success when setting up a new business?: LOCATION, LOCATION, LOCATION!! Well, granted that shared services centers (SSCs) are not a retail business… but the premise that location is supremely important to the success of the venture is as true of shared services as it is of retail activities. The difference is, of course, that location
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in the case of shared services refers oftentimes to a distant country, while that of a retail activity usually refers to a particular address in a familiar city. This first part of this article considers some of the factors that affect the country location decision for shared services centers; the second part looks at the strengths and weaknesses of various country locations (for the second part of this article, click here). Many readers have been making these important decisions for some time, and have built your own models and criteria for analyzing the various options available to your organizations. The author would welcome your feedback regarding the points made below. Developing an approach to the offshore site selection process involves thorough research, and a willingness to suspend judgement regarding foreign cultures and customs. One of the great enemies can be first impressions and gross generalizations. It is important to note the more subjective criteria for country selection, that don’t always appear on the mandatory checklists. Building a Checklist for Evaluating Country Location Options Within any given country, there are many options, from wellestablished outsourcing centers, to areas that have not yet developed the infrastructure requirements to support the growth of IT-enabled companies. While the latter present more challenges to companies seeking to set-up, they also offer opportunities, such as first access to the labor pool, lower cost of office space, more responsive government
bodies, greater financial incentives to locate, etc. Here are some checklist items that are relevant in the decision process: 1.Compensation costs What is the wage scale for the different levels of staff to be hired? What benefits are mandated by law (e.g., 13th month)? What is the projected impact of inflation on wages and benefits? How competitive is the market for the required skills? What are the hiring costs? Are there any hidden costs of employment, mandatory or discretionary, that should be identified? 2. Staff availability and turnover Are the skills available to meet company requirements? Does the education system produce qualified graduates? Are there a sufficient number of qualified staff at the different levels? What is the expected turnover rate? What are the regulations regarding contractual workers? Does the labor code in the country restrict employment in any way? Are there tax incentives for training of staff ? Are visas an issue if overseas training is anticipated? 3. Infrastructure costs What are typical rental costs in different locations within the country? Is it feasible to construct a purpose-built facility? How much are projected electricity and telecommunication costs? Are there possibilities for expansion of the facility? What is the status of telecommunication links and is adequate redundancy built into the system? Is the electricity supply reliable and sufficient? Is there a need for back-up power? Do weather conditions play a role?
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4. Tax and regulatory costs Are there tax incentives or trade agreements that can benefit the potential investment? What are the differences in incentives being offered at the local government level to attract investment and employment? How will the company be affected by fluctuating exchange rates? What corporate structure is most advantageous to the company? Is it necessary to have a local partner in the country, or can equity be held 100% by the locating company? What are the costs of setting-up in the country? 5. Government support and the political climate Aside from the matter of tax incentives and concessions offered by the national and local government, there are other areas of concern. What support is provided by the Government to help facilitate the growth and development shared services centers in the country? Is the Government stable and can it be relied upon for consistency of policies, rules and regulations? Can the judicial system be relied upon to provide equitable and objective judgement in the case of disputes? Is the economy stable, and is labor unrest an issue? Are unions prevalent in the industry? Are local subsidiaries of foreign companies welcomed? 6. Labor pool and educational system How large is the total workforce in locations being considered? How many college graduates are produced every year (or term)? Of these, how many have majored in IT, engineering, math, science, or other related specializations? How supportive are educational institutions of the IT and BPO industries in the location? 7. Language proficiency and cultural affinity How proficient are locals in the language of the center? What structures are available to rapidly enhance language skills? Is English the primary language in the country’s school/ university system? How closely related are the cultures of the country’s involved? Are the legal, accounting and educational systems similar? To what degree would cultural issues need to be addressed? 8. Physical proximity and time zones Is the facility to be operated on a 24/7 basis? What is the time zone difference between the shared services company and the source of the business being processed? To what extent is real-time contact between the two important to efficient operation of the center? How much travel will there be between the locations? Do courier services exist that can ensure secure transmittal of hard-copy documents, if required? 9. Experience and maturity in the industry What is the existing IT and BPO market size? How many companies have invested in a shared service center in the country? How established is the location in related fields? Are the required support sevices (lawyers, accountants, placement firms, security firms, etc.) available?
10. Security and data protection What are the anti-piracy laws in the country? What are the investor ratings of intellectual property protection? How is the government ensuring compliance with laws? Is there a way to determine the trustworthiness of potential employees? Are security concerns taken seriously, and adhered to on a general basis? 11. The comfort factor If expats will be assigned to work at the SSC, is the living/ working environment receptive to their needs (safety, schools, social life, housing, etc.)? In the case of visitors to the center, does the location offer first-class hotels, restaurants, and a safe and secure environment in which to operate? Are flight schedules convenient and is the airport close by? Onshore vs. Nearshore vs. Offshore Deciding on a location for your SSC requires weighing each issue against your organization’s own objectives. Three business strategies should also be examined. 1. Onshore Onshore means that the shared services provider is located in the same country as the mother organization, and allows close physical monitoring. However, in onshore engagements, the cost of operations (i.e. average wages, infrastructure costs and tax burdens) would be very similar to current expenses. Hence, the objectives of shared services may only be attained if the service provider has these specific capabilities: •A niche domain expertise •A common infrastructure or IT system that may reduce cost of operations •Operational superiority compared to the company’s internal standards 2. Nearshore Nearshore operations usually mean that the location of the shared services provider has a common border with the head organization. If the nature of the business requires constant interaction between the SSO and the principal company, then the nearshore business model might be considered. Such operations are seen as both complementary and alternative options to onshore or offshore operations. Advantages include relative cost advantage over local services, as well as significant language and cultural affinity. In addition, nearshore arrangements could benefit from trade agreements that may exist between the company’s location and the shared services destination. Also, there could be a resemblance in the business structures and legal structures, which is useful in daily operations. 3. Offshore Offshoring is the use of a foreign location to deliver benefits or achieve goals that may not necessarily be available to local providers. This strategy aims to manage the different offshore locations’ competencies in relation to the company’s goals
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and objectives. One direct advantage of this business model is the significant cost savings, in manpower, technology and overall operations. In addition, an offshoring strategy provides an organization with such unique benefits as the ability to have round-the-clock operations with the 12-hour time zone differences. It also gives a company access to talent and technology not necessarily available within their locality.
Shared Service Centres Continue Growth in Hungary sharedserviceslink.com
This survey is the first comprehensive study about this industry. Today, there are more than 80 SSCs in Hungary, providing a range of centralised business services at primarily a regional, but in some cases at a global level. Typical services include finance and accounting, procurement, logistics, IT and human resources and involve transactional roles as well as complex, high-end, value-add activities. SSCs primarily employ graduates with strong language skills. Further to being a significant employer, the shared services industry accounts for approximately 1.2% of the 2010 central state budget in terms of employee related taxes, duties and VAT payment. The PwC survey’s key finding was that 80% of assessed shared service centres are currently in the expansion phase of their life cycle, with their well-established operations enabling them to shift focus towards high-end value add activities. This expansion presents Hungary with a valuable and rather unique opportunity given the current economic conditions. Forecasts show that the SSC sector is expected to create more than 2,000 jobs in the next 2 years which means a current 10% expansion extrapolating from known, committed plans in an industry that is seen as key to building a knowledge based economy. The recently released survey is one of a kind in providing the most complete sector overview available in Hungary together with an analysis of the strengths, risks and opportunities of the industry. PwC is planning to conduct a similar global survey in the summer as a part of the company’s on-going work to improve best practice in management and operation of SSCs. Chris Davies, managing director of Diageo Business Services said: “Diageo operates one of the oldest and most mature shared service centres in Hungary and our strategy is very much shared by many players in the market: shifting from standardised, transactional activities to higher complexity
areas that leverage the local talent and expertise. With 80% of shared service centres still in expansion phase, our industry presents Hungary with a unique opportunity.” The survey also confirmed that Hungary is still seen as an attractive option for locating shared services. As the key attribute of that attractiveness, respondents named highly qualified labour with strong language skills, excellent infrastructure and ‘Class A’ real estate. “Hungary is competing well for further shared services investment; however this competition is strong, with countries and specific regions coming forward with great offerings and incentives. Certain countries have a dedicated strategy for the shared services industry and a framework in place that helps attract and retain investment – such dedicated focus would hugely contribute to Hungary’s long-term success in building its knowledge based industry” – highlighted Gyula Bunna, director of advisory services at PwC. Mike Colicchio, managing director of Celanese Corporation’s Budapest Business Services Centre said: “One important aspect of a country’s ability to maintain a leadership position in the SSC marketplace is the development of secondary locations outside the primary city. The talent is available in major cities across Hungary, but substantial investment is needed in infrastructure and a focus should be placed on awareness of career opportunities in SSC’s. The capital is becoming more competitive due to new entrants and the expansion of existing SSCs; however, in-country alternatives need to be explored if Hungary wants to continue to attract new SSC investment.”
Editores Rodrigo Lang Vanessa Saavedra Conselho Editorial Caio Fiuza Eduardo Saggioro Vitor Marques Contato: pesquisas@visagio.com.br
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