Global Location: Shared Services Becoming Smarter

IBM publishes an annual Global Location Trends report which each year outlines the key trends in corporate location selection and foreign investment decisions. Their latest report indicates that the global landscape for foreign direct investment is constantly evolving, as companies are adapting their global footprints to rapidly changing operating conditions and new opportunities around the world. As a result, we are witnessing a marked reconfiguration of where foreign direct investment is going. While the United States is seeing greater near-shoring, China is experiencing a transformation of its role in the global economy, and other emerging economies are positioning themselves as new key investment destinations. In this context, companies need to embrace strategic footprint planning and structure their global operations into agile and integrated enterprises that are able to adapt to changing conditions and opportunities across the world. As also highlighted in IBM’s Integrated Business Services Report, the most successful corporations are those that can rely on efficient, cost-optimized processes, and quick access to information that is relevant for business management. Support functions play a central role in this respect, as the organizational structure of individual areas clearly has a significant impact on the success of the business. High performing companies cross-link their areas of operation along the entire value-added chain throughout the company. This means that units in new markets can receive intensive support through predefined service packages, where integrated Shared Services platforms help to ensure that information processes and services are provided globally. The study also highlights that Shared Services are on the path of becoming increasingly Smart. They are growing more multi-tower and cross-functional, and the traditional process scope is expanding towards functional core competences. [eventpdf] Shared Services Organizations continue to benefit from a demonstrable advantage in achieving cost and efficiency benefits. Despite this, the number of Shared Services related investment announcements and associated jobs involved has been declining several years in a row, to reach the lowest level in the past decade. This trend may be linked to the fact that many companies have already implemented large-size transactional shared services centers in the past 15-20 years, and that more recent establishments are often smaller size centers with higher-end functions, or expansions of existing sites where more complex processes are being added to achieve a more end-to-end process focus. Figure 1 - General trends in announced Shared Services / BPO projects and jobs (2003-2012) This shift from the transactional processes, moving up the value chain towards more highly skilled services, has also translated in a demand for more experienced staffing profiles. Finding the right location to accommodate these requirements therefore is critical to the success of a Shared Services organization. Shared Services not only need to be cost efficient, they often need access to a mixture of high quality and specialized talent. In its 2013 World's Most Competitive Cities Report, IBM-PLI ranked 100 cities around the world based on their competitiveness for attracting international (Greenfield) investment projects from several types of operations, one of which being Shared Services. The center type that was selected for the competitive positioning provides internal (captive) support across multiple functions in the areas of Finance, HR, Customer Support and IT in a wider region (continent) with a headcount of some 250 FTE. It is a more complex "middle office," rather than a "lower end back office" that focuses mainly on transactional activities. In that sense, it nicely fits the Smart Shared Services profile highlighted above. The entity operates as a cost-center within the wider organization, and does not generate any direct revenues. Instead, the entity runs according to a standard cost-plus model. The Competitive Cities report focuses on major metropolitan areas, and ranks 100 cities on cost related considerations as well as on various qualitative factors, measuring Business Environment, Regulations, Talent, Sector Specialization, Infrastructure and Connectivity and Living Environment, as for successful location selection of Shared Services, a delicate balance between talent and cost is key. When looking purely at quality, and purely at cost, the top 10 cities for a Smart type of Shared Services Center are: On quality, London is the leading city in the world, closely followed by Singapore. While both of these cities are among the higher cost locations, their operating costs are only moderately above average, making them key contenders for higher value and smaller scale Shared Services Centers that are less cost driven and require different skill sets than the very centers focused on more basic activities and operational support. On the other hand, the most cost attractive locations for Shared Services Centers globally, i.e. Dhaka, Karachi and Ho Chi Minh City, suffer from markedly lower quality, to the extent that they may be considered less competitive than more expensive options. It is only when cost and quality considerations are combined that the most successful Shared Services locations become apparent. For the analyzed multi-functional Shared Services Center, the locations that have managed to position themselves as cost attractive locations with good quality environments, placing them in the top-right corner of the cost-quality map include: Figure 3 – Cost-Quality assessment for Shared Services For the analyzed type of Smart Shared Service Center, there are a number of cities that have managed to position themselves as cost attractive locations with good quality environments, such as Kuala Lumpur, Manila and a number of Indian cities within the Asia-Pacific region. In Europe, Prague, Budapest, Birmingham and Manchester stand out with their attractive propositions to investors, while San Jose (Costa Rica) is an example of a strong competitor in Latin America. These cities are all cost attractive in their regional contexts, whilst offering large relevant talent pools and good quality business environments for Shared Services Organizations. It is however important to stress that the competitive positioning of 100 locations was performed for a high-end Shared Services establishment and that the study focuses on large and often capital city areas around the world. For more traditional types of shared services, many countries of course host other location options in second tier cities that were not part of the above mentioned study, given its focus on Smart Centers requiring highly experienced talent pools. Recent investment decisions for Shared Services & BPO centers in the past 3 years indeed demonstrate this wider geographical diversification in all regions of the world, with some of the most frequent destinations illustrated below. Figure 4 – Recent investment decisions for Shared Services / BPO by number of projects (2010-2012) – EMEA Figure 5 – Recent investment decisions for Shared Services / BPO by number of projects (2010-2012) – Asia Pacific Figure 6 – Recent investment decisions for Shared Services / BPO by number of projects (2010-2012) – Latin America Conclusion While 2012 overall marked a clear dip in global Shared Services projects and associated jobs, various destinations – both mature and emerging – have been successful in significantly boosting their share of inward investment in this type of activities. Mature capital city areas continue to be contenders for higher value and smaller scale Shared Services, while multiple second tier destinations are positioning themselves for back-office and operational support functions that are more cost sensitive. Many options in all corners of the world remain to be further explored. [1] This report is based on IBM’s proprietary Global Investment Locations Database (GILD). GILD records investment project announcements around the world on an ongoing basis, allowing detailed analysis on global trends in corporate location decision making. [2] Integrated Business Services - How Shared Services are making companies more successful, report on Smarter Shared Services by IBM Global Business Services, 2013 [3] IBM’s World Most Competitive Cities report assesses the competitiveness of 100 cities for a diversity of sectors and business functions and demonstrates that cities have varying propositions for different types of investment projects. Note Plant Location International (PLI) is a global service of IBM Global Business Services Strategy & Transformation practice, specialized in corporate location and economic development strategies. Operating as a fully globally integrated service — with a global center of excellence in Brussels, Belgium, supported by industry and functional subject matter experts in key markets around the world — IBM-PLI provides expert services to corporate clients for analyzing international business locations for expanding or consolidating companies to select the optimal location (country/city). IBM-PLI has extensive expertise in global Shared Services network strategies, having advised on over 300 Shared Services establishments in the past decade. Over the past five decades, IBM-PLI has developed various tools and techniques for corporate location analysis and foreign investment monitoring that have become industry standards. These include: Global Investment Locations Database (GILD): a database developed in 2002 to track corporate location decisions around the world for new establishments and expansions by companies making cross border investment. The GILD database forms the basis for IBM’s annual Global Location Trends report. Cost-quality location screening: a methodology developed by PLI in the mid ’90s to assess the cost-quality trade off for a variety of location options for individual business operations, based on the unique location requirements for the operations. IBM-PLI’s Location Benchmarking Tool: an analytical tool developed by PLI in 2000 based on the above cost-quality approach. This tool allows companies and economic development organizations to assess the attractiveness/competitiveness of locations based on tailored location requirements. IBM's Global Location Trends Report, and the new detailed Facts and Figures report provide information on global location trends. The full Global Location Trends report can be downloaded at www.ibm.com/gbs/pli . The data underpinning the trends and summarized in a detailed report titled "Global Location Trends. Facts & Figures", can be purchased via the same link. IBM’s complete 2013 World's Most Competitive Cities Report can also be accessed through the same webpage. For more information, contact Patsy VAN HOVE, Senior Manager IBM-PLI, patsy.van.hove@be.ibm.com

Global Location: Shared Services Becoming Smarter

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