by Lávio Carvalho
The implementation of the Shared Services model aims at achieving benefits through the activities consolidation, the standardization and optimization of processes and their consumption by internal customers.
However, in the current scenario where the high operating costs and the macroeconomic indicators hinder the perpetuity of businesses, an extension of the model has become necessary: implementation of the Global Shared Services model.
This movement searches for more accessible labor and infrastructure costs but it might increase the complexity of operations when compared to the traditional models.
Where to go?
In Latin America, locations considered mature for Shared Services implementation – such as Sao Paulo, Rio de Janeiro and Curitiba in Brazil, and Buenos Aires in Argentina – start to loose competitiveness considering their high labor costs, greater wage inflation and economic instability.
On the other hand, Montevideo in Uruguay emerges as an interesting location considering the existing service free zone, the political stability and the high qualification of the population. Similarly, the cities of Cali and Bogota in Colombia have also become attractive due to operating costs that are 30% lower than in Brazil, stable inflation rate, better fluency of the Spanish language and strong government incentives.
Regions of Eastern Europe, such as Krakow in Poland, and Kosice in Slovakia appear on the list of possibilities due to operating costs that are 20% lower within the continent with lower and stable inflation rates. In the case of Kosice, the attractiveness of recent years already drives the establishment of centers of excellence for manpower training in administrative services with strong process and application background.
In China, new locations can be found in the south central region of the country where cities like Qingdao and Hefei stand out for considerably cheaper costs when compared to Beijing and Shanghai. However, the recurring changes on the legislation and the unpredictability of the economic environment reduce the sustainability of benefits in the country. Therefore, China does not remain the exclusive option in Asia and other regions such as the Philippines are emerging, or returning to the charts, as is the case of Malaysia, where it is possible to balance the cost and quality trade-off more efficiently.
How to select the best location?
The selection of locations, however, involves not only the financial aspect. The decision also relies on parameters of quality and availability of workforce, adequate infrastructure – vacancy rate, commercial space under construction, and public transportation system – and the level of foreign direct investment. Besides, two other criteria are critical to decision-making: barriers to communication and tax incidence.
First, offshoring the model would introduce the language barrier and depending on the company’s footprint, the time zone would also increase the complexity of services provision. Processes such as customer care and human resources management, which require interaction with the public, would be directly impacted by the change.
Second, because of the international taxes that might be added to the charge-back model. In some cases, there would have double-taxation among countries that would throttle the Business Case. In Brazil, for example, depending on the adopted model and the countries to be serviced, taxation can rate up to 60% of the service cost. Some solutions promote the use of a single cost center whose expenses would be allocated and the transfers would be controlled managerially, or through cost-sharing contracts.
The tax issue, however, can be treated as a positive factor. Normally, it seeks to establish the model in countries with the lowestncome tax rate in order to reduce the tax incidence. However, if an organization concentrates its expenses in countries where the rate is higher, the greater would be the discount on the tax calculation basis. I.e. discounts on the tax calculation basis in countries with higher tax rate would be more attractive than the tax paid in countries with lower tax rate.
But what processes to enroll?
Mature processes for this type of movement would be those wherein:
– The presence of process executors at the same location as the internal clients is not required;
– The interfaces with internal customers and information suppliers are supported by efficient IT systems and tools for communication and information sharing;
– The processes standardization and controlling are such that assure compliance.
Considering these conditions, some examples of common processes for this type of movement are listed below:
Understanding the economic environment of the regions, the organizational context and the technological and process constraints is fundamental to ensure a sustainable model migration, allowing it to achieve the offshoring benefits.
The success of this change essentially depends on the full support of the top leadership, recommendations from legal experts regarding the best charge-back model, a detailed change management plan that minimizes the concerns and risks and ensures the necessary alignment within the organization, a constant focus on training and continuous improvement and strong accountability for the change to prevent speculations and ensure commitment from the beginning to the end.