Partnering to Develop a Global Footprint
Although many shared services organizations are today servicing global customers – and thereby mirroring their corporations’ global operations – few opt for developing a full-blown global SSO themselves. The time, investment, and governance demands are such that corporations are increasingly turning to a more obvious route: developing partnerships with provider companies to leverage the global networks, resources and capacities the latter have already developed in key markets.
The main advantage to such partnering hinges on "access" – namely, to an experienced project-management team, to talent, and to competitive cost structures, in regions that best serve such needs.
Putting aside outsourcing options for a moment, global services is an often misunderstood, indeed frequently ill-defined term. Many visualize a single global center, under one roof, with armies of multi-lingual, multi-functional staffers rotating cheerily through swinging doors, 24/7. Not quite so. Today, few practitioners actually believe in the veracity of such a model. Limitations in terms of available labor pools with requisite skills, language, culture, time zones (yes, this is still a big issue!) and to some extent functional expertise make this model fairly untenable.
More logical is to aim for global services by leveraging the best resources today’s global markets have on offer: filling staffing requirements across countries; shifting "pure" transactional work to low cost labor markets while moving expertise work to areas supplying a higher caliber university graduate; accounting for near-shore requirements where necessary; and making the most of cultural affinities and language where more direct interactions are required. Seen at this level, globalization is a highly complex scenario, relying – for maximum advantage – on a corporation’s ability to choose the best global resources to fit the range of services supplied.
One SSO cannot easily research and develop the global sites to source the best on offer from global markets in terms of time zones, quality, cost, local expertise, language and culture. This is the stage at which many organizations take a closer look at global BPO partnering options.
GE Capital is one organization that did, in 1997, set its sights on – and deliver – global shared services operations. Over the course of seven and a half years, it successfully established centers in India, China and Budapest – operating as one global operation but from a number of regional centers. In 2005, the entity was spun off into what is today Genpact – providing global BPO services via a world-wide network of centers.
Partnering for leverage
Tiger Tyagarajan, executive vice president of Genpact and previously CEO of GE Capital’s International Services, sees the emergence of the global provider market as offering an opportunity for corporations to step up global services provision with a significantly shorter time span and significantly lower risk.
"Such partnerships between global organizations make good business sense," he says. "Some of the most interesting relationships we have been developing over the past years are those where the customer wants to leverage our networks and capabilities beyond national or regional operations, to every part of the globe.
"A key factor here is ‘market presence,’ or perceived strength in the markets where services are to be provided from. This translates to brand recognition, careers, and connections to governments and universities. Partnering allows corporations access to 10 or so years of heritage in a developing economy.
"If the objective is to have one global shared services organization offering one face to all customers, then the challenge is how to make processes similar and standardize across regions," explains Tiger. "This requires two things: first, a global process governance methodology; and second, you need to take each business unit or customer down the paths of change. That change can take two to three years. An advantage of working with a partner is to leverage a team that has done this before."
Providers, essentially, offer corporations the benefi ts of experienced global process owners who drive the operation.
"A lot of the transfer to global services involves heavy lifting at the front end of the process," says Tiger. "You need strong project management leadership and skills. Additionally, most processes require redesigning prior to standardization; so you need full time, skilled resources. Inhouse, this is often tacked onto an existing job spec. But you’ve got to consider: Should something as significant as re-engineering a process be a part time job?"
Labor markets of choice
As new labor markets open, and existing ones heat up, the challenge is to remain one step ahead of the curve, in terms of tapping new resources. The pressure on provider institutions, therefore, is to identify – from a cost, quality, and delivery perspective – the next "important" location before the need has arisen. Such market opportunities are always changing, says Tiger.
In 2002, GE Capital established Budapest for the delivery of non-English language in Europe. By 2005, it had become clear that Budapest would not remain competitive – under pressure from an influx in service centers, the labor market was getting tight. By early 2004, the group had already carried out intense studies across Europe, meeting with governments and universities, and scoping real estate. As a result, in 2005, Bucharest, Romania was established as an additional center. Before recruiting had even started for that operation, however, the group was already looking for the next Romanian site.
Explains Tiger: "By staying ahead of the curve in terms of anticipating market needs, and by building in scalable options, we are developing the flexibility to service corporate needs using the best resources of the day."
In terms of what the market offers today, Genpact believes that India, in terms of sheer size of English-speaking population, still offers the deepest supplies.
"For English, India is an obvious choice, and given the size of the population we believe the advantage will be there for many years to come. However, considering wage inflation and being an employer of choice in an increasingly competitive landscape, it is clear you need to keep moving to tier two and tier three cities to maintain your edge. Genpact currently operates about 15 centers in India, distributed across seven or eight cities, and is adding a city a year to this footprint.
China offers everything India does, says Tiger: a large population and deep talent pools. Again, these require training in processing, analytics and IT. English language is not a key strength. Instead, China is able to service other Asian languages, such as Japanese and Korean, well.
"Our first center in China was Dalian," explains Tiger, "to serve Japan." Genpact’s strategy for China is the same as for India. Currently, there are three operations in China. Again, Genpact is looking to expand to tier two and three locations.
The Philippines offer excellent English language skills with the added advantage that, culturally and in terms of language, many aspects are closer to the U.S.
"When work requires customer interaction, the Philippines have a great advantage over other Asian locations," says Tiger. In Latin America the two main languages required are Spanish and Portuguese. Mexico and Guatemala serve Spanish, and Brazil is the best resource for Portuguese services.
When it comes to Europe, Eastern Europe is where shared services have typically established their regional operations. Although no other country offers a workforce as deep as that of India or China, says Tiger, when it comes to multiple languages some of the East European cities lead: Budapest, Hungary; Bucharest, Romania; and Wroclaw, Poland, are all good examples. Other regions are interesting for their monolingual skills.
"If you are looking for reliable French language skills, for example, the French side of Romaniais a good base," explains Tiger. "Similarly, the parts of Poland or Romania nearest to Germany offer strong German language."
"The provider market is continually looking for the ‘next’ hot location – following a proven strategy of, first, sourcing a country with excellent potential; and second, pursuing tier two and three cities after the first venture has proven a success. We believe it is likely, and are indeed researching this at present, that some of the mono-lingual skills for Europe may be served out of North Africa in the near future – Tunisia and Morocco for French, for example."
Such resource strategies cover the needs of global customers, with the advantage of staying ahead of the curve on wages, inflation, attrition, and retention.
Given significant differences in labor markets what should the selection process look like? In other words: Where in the world should you source your process expertise? Genpact’s view, based on 11+ years of
experience is that – barring some exceptions – most markets can offer the full spectrum of services.
"The reality is that there is great raw material available in all these locations," says Tiger, "so when you look at process capability, you are almost location agnostic." Many of these markets are only now emerging, or even underdeveloped, so they are not familiar with financial services common to more developed economies.
"When we started in India, only a few understood how a mortgage was done," explains Tiger. "so we needed to train them. Similarly, many English speakers in India and elsewhere learned language from a translation perspective – not as an IT specialist. That is changing now."
However, there are exceptions to every rule. As you move to higher value added processes, requiring judgment, decision making and data modeling (e.g., for financial services) people need to be able to migrate from transaction processing to more complex work. This means you need staff with strong skills in statistics and maths. India is able to offer this, as is China – but the latter will need a few more years to mature. When you look at transactional work, any location will work. Call centers, however, require greater cultural affinity – hence, India’s good, but Manila may be better. Mexico becomes important for work requiring the capturing of information and documents, or if the center needs to be close to U.S. customers, for example.
Much is written about technology and the impact it has on services success. But technology is not the key factor, according to Genpact – process is. Given Genpact’s GE background, it is not surprising that the company considers "process" to be where the battle is won or lost.
"Technology is only as good as the process the technology is meant to serve," says Tiger. "It’s all about the 'Power of Process'." Most processes have defects and require rework, is the premise. Technology will not fix this. "If you fix all the breakpoints in a process first, the leakages, cycle time extensions… then you can go further by bringing in a technology to automate what is already fixed."
However, it’s not just the "big technology" that is relevant, says Tiger.
"Automation tools are of real value: Who is not following the travel policy; exceptions and reports; tracking compliance to procurement policies; identifying maverick buying. Many of these tools can be developed and bolted on to ERP systems. That is where we think technology is headed," says Tiger. "The core platforms, whether SAP, Oracle, or Peoplesoft, do not solve everything. It is the process improvement or the bolt on that takes it to the next level."
Scale is important to this market, so it is not surprising that Genpact foresees a certain amount of consolidation in the marketplace. Much of this will be driven via capability acquisition, says Tiger. Genpact has itself made four acquisitions in the last three years – building specialized capabilities to complete the range of services offered in areas such as SOX compliance, controllership audit, and augmentation of internal audit …
"Things you’d expect either an internal audit team, or a "big four" firm to do. That capability complements our F&A practice," explains Tiger.
Finally, Genpact foresees a trend of providers acquiring captive shared services, as more and more corporations realize that it makes good business sense for them to concentrate on developing, selling to, and buying from new markets, while letting a third party focus on supporting its non-core needs in that market. Many organizations are able to grow faster and easier in China as a result of such strategies than they would otherwise have been able to grow. Genpact’s takeover of GE Money's shared services operations in Guatemala City this year is one such example; another is Infosys’s acquisition of Philips’s F&A shared services.
Particularly in today’s economy characterized by a credit crunch, taking costs out, and standardization, management teams are finding themselves thinly stretched. Handing back office operations to experts, and focusing on products, markets and growth, may prove a winning strategy.
Tiger Tyagarajan is executive vice president of Genpact, a former GE unit that manages processes for global companies. Tyagarajan began his career with the Unilever Group in Bombay and later joined Citibank as Vice President, Global Consumer Banking. He joined GE in 1994 as general manager for risk at Countrywide and went on to become CEO for GE Capitalís Global Consumer Finance and Auto Financial Services operations in India. In 1999 he became CEO of GE Capital International Services, the forerunner to Genpact.