Setting Up an Offshore Shared Services Center - Location, Location, Location (Part 2)

Frank Holz

Call Center Attrition Rates

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 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 first 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.

A Review of Possible SSC Locations

While each business strategy has its own drivers, there are still many facets that a company has to examine when choosing a location. Here, we give a brief analysis of a number of possible locations, with the proviso that it is a broadbrush review, and not a definitive analysis of the pros and cons of each potential offshore location.


Asia is at present home to most of the IT-enabled services activity.


India has been viewed as the most attractive location for companies looking to offshore their shared services – and with good reason. One weakness, though, lies in the overall business environment of the location. Concerns include infrastructure weakness and certain human factors.


  • India offers the deepest business process outsourcing experience, as it has been a large-scale offshore destination for more than a decade. There are a multitude of processing centers that can handle high volume and varied technology requirements
  • The country's government is extremely supportive of the industry, offering tax incentives and exemptions to investors. In fact, the IT industry is so critical to India's economy, that the country has appointed its own Minister specifically for that sector
  • The Indian labor force is one of the largest and is second only to China. Its education system releases over two million graduates yearly, many of whom are proficient English speakers, with strong technical and quantitative skills. Average wages range from US$6,000 to $12,000 annually for programmers; and US$5,500 to $7,000 for professionals with about 2-3 years experience. Because of competition for skilled people, these amounts are likely to increase more rapidly than the general population


  • Designated IT parks and business districts provide excellent telecommunications systems; however, outside such districts, electricity and telecommunications systems are not dependable and thus may cause interruptions in service
  • Cultural affinity and language proficiency may become an issue in remote areas, where BPO and IT enterprises are cropping up, but language and culture may not necessarily be keeping up
  • High attrition levels are common, ranging from 25% to 100%, depending on the area. Employee retention is a key factor for service providers

Key companies with shared services centers in India include: GE, Citigroup, American Express, Thomson Financial, HSBC, AOL, AT&T, Compaq, Amazon, Yahoo, Marriott, British Airways, Lucent and Cigna.


China's entry into the global market has caused waves in a number of industries. The BPO and IT industries are no exception, as China promises to become a major player within the next few years. At present, there are certain growth issues that come into play, such as trade policies, regulations and censorship. However, these may disappear as China eases itself into the WTO.


  • The government is serious about creating a first-class, high-tech labor force; in fact, the IT & management training is excellent, and the quality of its IT and contact center operations is reinforced by international Metrocertifications. To facilitate this, local governments are assisting local enterprises in covering the costs of acquiring such certifications
  • In universities and training centers, there is a strong emphasis on technical skills, particularly in software development and application
  • China's large, low-cost labor pool (about US$5,500 to $9,000/year for a programmer with 2-3 years experience) is particularly enticing to companies that require high-volume, transaction-based business processes. At present, 200,000 professionals work in the IT profession, with about 50,000 new graduates joining the workforce every year
  • China generally has low real estate and power costs, with good telecoms infrastructure in the major IT centers (i.e. Shanghai and Beijing)


  • There is still an economic and political risk, since China has been growing very rapidly and there are concerns about the impact of this growth on the political system
  • Language and cultural compatibility are clearly an issue. Although there are pronouncements regarding the Government's intention to promote English language language training, there is still a long way to go; however given the centrist nature of the Chinese system, and the priority that is being given to English training, it is likely that there will be a significant improvement in this area

Multinationals present in the country include Microsoft, HSBC, Motorola, BEA and GE.


English fluency and compatibility with Western cultures are two underlying factors behind the success of the Philippines in the BPO and IT industries, making the country a prime location for voice-based services (e.g. customer service and contact centers) and data capture operations.


  • The government has been supportive of this sector, appointing a task force to focus on development of the industry. Tax incentives and tax holidays are available, as well as duty-free imports of materials related to the provision of export services
  • Philippine universities produce more than 350,000 graduates per year, many of whom have English fluency, and have majored in an IT-related specialization
  • The Philippines has a solid telecommunications infrastructure (one of the best in Asia) that enables companies to consider locating their operations outside of metro-Manila.
  • It is the 3rd-largest English-speaking country in the world, and its financial and legal systems are similar to those of the United States
  • Average salaries for IT professionals with 2- 3 years work experience ranges from US$6,500 to $11,000/ year. Average salaries for BPO professionals with similar work experience ranges from US$3,500 to $6,000/ year
  • The 12-15 hour time zone difference from North America works well in providing fast turnaround


  • Although there are a number of companies with ISO 9000 certification, the country needs to accelerate the process, to ensure competitiveness in the world market
  • While its labor force is talented and highly trained, it is not as large as that of India or China
  • To date, most of the IT-enabled services activity has been centered on the Manila area. There is a need to encourage growth to other areas of the country

International presence in the BPO and IT sectors include AIG, Procter & Gamble, American Express, Barnes & Noble, Caltex, Shell, Citibank, Thomson Financial, and Time Warner.


Malaysia may not be the top-of-mind choice for a shared services location, but it nonetheless possesses benefits for the investor. A report by Datamonitor confirms that Malaysia is among the countries that may pose a threat to India's dominant position in the business process outsourcing sector in the next five years.


  • Excellent, low-cost infrastructure, especially in and around Kuala Lumpur, due to government efforts
  • Cyberjaya and Putrajaya are being developed as "intelligent cities", a further enticement for foreign investors
  • Core competencies include application development, application maintenance, ebusiness, multimedia and animation and data processing


  • With a population of only 22 million, scaling up may prove difficult for local firms
  • Piracy and data security may continue to be a major drawback for investors

Clients include: Motorola, Ericsson, IBM, Shell, DHL, HSBC and BMW.


Singapore is one of the leading locations for Asian headquarters for many multinational firms. It may not have the cost advantages that its neighboring countries have, but Singapore remains a viable, niche-market competitor.


  • The security of intellectual property (IP) is a key advantage that Singapore has against its lower-cost competitors. Agreements with the United States and the European Union ensure the protection and awareness of intellectual property. Singapore has an aggressive Intellectual Property office tasked with creating and enforcing laws on the security and creation of Intellectual Property
  • Singapore has excellent economic and political stability, as well as superb education and infrastructure


  • Companies looking to cut costs by offshoring may not achieve this goal as per capita income levels are high


Strong technical skills, multilingual proficiency and cultural familiarity make the Czech Republic, and Poland feasible locations for European countries looking to establish nearshore shared services operations.



  • Strong government support enables the growth of the business sector. The Ministry of Industry & Trade particularly supports IT and BPO companies. With a flexible foreign investment policy, tax incentives for investments in the IT sector, and subsidies up to 50% on business expenses, the Czech Republic could mean savings in indirect costs for companies looking to relocate their shared services
  • Labor costs are not as competitive as that of Asia, but companies can still save, relative to the costs in the more advanced Western European nations
  • The Czechs are culturally and linguistically compatible with the UK and Germany. Companies with customers or operations in these locations might consider the Czech Republic as a practical nearshore location
  • Excellent telecommunications infrastructure
  • Strong, fully developed educational system, churning out 20,000 graduates each year, specializing in Math, Engineering and IT


  • IP security may become an issue, as very little has been done to assure the creation and protection of intellectual property
  • The relatively small population of the country could hamper the growth of the industry in the long run

International clients include IBM, Honeywell, Logica, CMG, Boeing, EDS, IDS Sheer, Intel, Sun Microsystems, Accenture, DHL, Philips, etc.



  • Its large workforce (about 18 million), compared to that of the Czech Republic or Hungary, could spark growth for the industry. The university system graduates about 40,000 IT students every year
  • A well-developed infrastructure and a liberalized telecom policy
  • English is widely spoken, and a large portion of the labor pool is skilled in German. Spanish, Italian and French are also common
  • The government is stable, and no major political risk could threaten foreign investments


  • Government support is not as solid as that of the Czech Republic's. While incentives and flexible policies do exist, its rates are not as competitive with other European countries

Major clients include Accenture, HP, KPMG, OPEL, Fiat, Lufthansa, etc.


Companies in the United States have often looked to their neighbors in Canada and Mexico for shared services, IT, and BPO operations. In spite of increased Asian competition these countries remain strong players: Their workforces are strong and competitive, and local service providers have worked with the United States for many years. Canada's and Mexico's participation in NAFTA allow for flexible trade policies, incentives, and tax exemptions-thus resulting in huge savings in indirect costs. This agreement also allows for the protection of intellectual property rights-a major issue in shared services operations.

Canada and Mexico offer proximity to principal companies, a crucial factor for organizations that require constant contact with their shared services operations. Both countries possess excellent telecoms and infrastructure, and both share cultural affinity with the United States. Mexico, in particular, along with other Latin American countries such as Brazil, Chile and Costa Rica, is enticing to organizations with a strong Spanish-speaking customer base. Canada, meanwhile, offers lower attrition rates in call centers compared to the United States - a sign, perhaps, that many consider customer service a feasible career path in the country.

Among Latin American countries, Chile is fast becoming a competitive player in the industry. Its infrastructure, with a healthy digital network and superior satellite service, offers a good business environment for investors. Chile has also set up agreements with the United States and the European Union that include penalties for infringement on intellectual property. Citigroup and Unilever are among the multinationals having set up shop in the country.


Companies considering setting-up or expanding their shared services activity have many options. The process of choice requires a rigorous analysis of the functions to be outsourced, and consideration of the trade-offs among the factors involved in making this important decision. This article has focused on offshore locations, and has given a high-level view of some of the options available to companies. A number of countries were not mentioned (at last count, more than 30 countries are vying to attract outsourcing business), but it is clear that the trend to outsourcing of company back-office functions will continue, and even accelerate into the future. This will result in increased competition, and the need for countries to differentiate themselves based on quality of service, turnaround speed, technical and administrative capability, receptive government policies, low staff attrition rates, stable and moderate cost structures, English (and other languages) capability, and other factors that have been mentioned above. It is hoped that this article has contributed in some small way to the consideration of offshore locations.

(For the first part of this article, click here.)