New Opportunities, Challenges And Technology Continue To Transform The Shared Services Landscape

Each year IBM publishes its Global Location Trends report which provides the latest insights in corporate location selection and the extent to which today’s global dynamics influence where companies locate or expand their businesses and create jobs around the world.

General trends across all sectors and business functions indicate that globally, 2015 marked another year of growth in foreign direct investment (FDI) activity, with jobs created from foreign investment growing 3% year-to-year. Building on 2013 and 2014 momentum, this growth points to a continued interest in strategic investments that improve access to markets, resources, talent and improved operating costs. Despite an uncertain global macroeconomic environment and signs of deterioration in several emerging economies, overall investment conditions have remained favorable. With the cost of finance remaining very low by historic standards and new technologies creating opportunities for operational transformation, there are many opportunities for companies to make additions or adaptations to their operational footprint. Furthermore, operating conditions are improving in many emerging countries, giving rise to additional reasons for new investments.

The current article assesses the implications of these transformative shifts on the scale, scope and nature of shared services establishments.

Slightly more shared services centers – fewer jobs

For the first time since 2010, the number of shared services announcements globally (including both foreign and domestic establishments) has picked up again. Despite a 9% increase in shared services projects, the number of new or expanded centers, however, remains far below the average which exceeded 500 in the past decade.

Notwithstanding this increase in the number of SSCs, the shared services jobs created globally have continued to decrease to reach a level that represents only a third of the record job creation that was attained in 2006, evidence that companies are transforming their services operations with consequent reductions in overall job creation. Shared services center investment is likely to continue, while shared services footprints are expected to become increasingly complex.

Figure 1 - General trends in announced shared services jobs by world region (2003-2015)

It is interesting to note that despite an overall decline in shared services jobs announced worldwide, mature markets in North America and Europe have experienced an increase and jointly have secured more than half of the new shared services positions in 2015. Both regions continue to attract the lion share of shared services projects worldwide, in 2015 accounting for nearly 70%.

Latin America accounts for another quarter of jobs which however represents a downturn versus its successes the previous year where it had managed to attract one SSC job out of three. Center size remains considerable with an average of over 350 positions.

Asia suffers from the most severe decline in new shared services job creation, which is a trend that has been ongoing for the last half decade to now reach the lowest level on record. The continent nevertheless continues to attract centers with the largest headcounts, although typical center size dropped from an average of 600 in the past decade, to only 400 today.

Shared services investments in Africa and the Middle East, which had started to position themselves more strongly on the shared services map between 2009 and 2011, have been reduced to minimal levels again in 2015. Political instability and unrest may have caused further reluctance to pursue investment in the region.

Figure 2 – Average center size (2015 versus 2003-2014)

For the fourth consecutive year since it shifted positions with India, the United States continues to be the number-one destination country for shared services activity. While a majority of shared services jobs continue to be created by US companies in their domestic market, nearly one-third of jobs were generated by foreign investors in 2015, compared to an average of less than 20% in the past decade.

Brazil managed to maintain the number two position it reached 2 years ago, despite a 24% fall in shared services job creation. Also in Brazil, a share of positions, although more modest, is created by Brazilian-owned companies. The shared services industry is heavily dominated by voice based call center type of activities.

After a very disappointing year in 2014, India in 2015 manages to secure a global top 3 position again, while until 2011 the country consistently occupied the number one ranking. When only considering jobs created by foreign players, India is on par with the US and Brazil.

Next to India, the Philippines are the only other country in Asia occupying the global rankings, as both China and Malaysia dropped out of the top 20, which further illustrates the severe slowdown in Asian shared services job creation.

Despite the slight dip noted in shared services jobs and center size in Latin America, this continent is clearly successfully positioning itself in the global SSC landscape, evidenced by the fact that the global top 20 is heavily dominated by Latin American destinations. Apart from the more traditional shared services destinations, such as Brazil, Colombia and Costa Rica, most of the Latin American destinations on the list are new entrants into the global rankings. Barbados and Guyana are the newest business locations in the region, which due to the establishment of several large scale outsourced customer care centers attracted sufficient jobs to feature among the world’s top 20 “recipient” countries.

On the other hand, Mexico dropped out of global the top 20, which is in contrast with the country’s overall performance in attracting Foreign Direct Investment (FDI) in 2015, ranking fourth after almost 30% growth in FDI related jobs across all sectors and business functions globally.

While total shared services job creation in Europe has been quite evenly spread between Western and Eastern European locations in 2015, the global top 20 only contains 2 Western European countries versus 4 in Central and Eastern Europe.

The UK consistently ranked among the top 10 performers since the emergence of shared services in Europe. It will be interesting to watch whether this trend may be reversed due to the recent outcomes of the Brexit referendum which may stimulate investors to consider alternative entry points to deliver services to the European market.

Portugal on the other hand for many years seems to have been unsuccessful in positioning itself strongly for shared services activities, but now has benefitted from several sizeable establishments, particularly by third party BPO providers.

In Central and Eastern Europe, the proven destinations such as Poland, Hungary and the Czech Republic continue to be listed among the key beneficiaries of global shared services job creation . Lithuania, which entered the rankings since 2014 managed to further reinforce its position in the top 20, mainly due to the establishment of nearshore centers for Nordic financial services organizations.

Morocco is the only country on the African continent that has attracted a significant number of shared services jobs in 2015. It has particularly been providing opportunities for French speaking call center activity. The only other countries that attracted shared services in the region in the past two years, albeit with limited associated job creation, included South Africa and Egypt. Prior to the political instability and violent upheavals which had put most FDI into the Middle East and Northern Africa on hold, a considerably wider spectrum of countries within the region was considered for shared services establishments.

A similar tightening of location options being considered can be noted in Asia, where until 2010 also more exotic destinations were being tested as shared services solutions.

As a result, the total number of countries that benefitted from shared services investment has been shrinking from close to 70 between 2008 and 2010 to only 40-45 different destination countries in recent years.

Figure 3 – Top ranking SSC destinations by estimated jobs (2015 and 2014 compared to 2003-2014)

The same trend can be observed when assessing the global city rankings, which currently features only around 60 hotspots globally, which is only half or one third compared to the spread of options considered in all corners of the world at the peak of shared services activity.

Where the global city rankings in the past decade were heavily dominated by Asian agglomerations, the geographical spread across continents in the last 3 years has increasingly been concentrated in Latin America.

Figure 4 – Top ranking SSC agglomerations by estimated jobs (2013-2015)

Companies in services industries originating from mature economies continue to lead the way in shared services establishment

US companies constitute the dominant source of overall global FDI, and are responsible for half of the shared services investments (both measured in terms of projects announced and associated job creation).

Companies from the largest economies in Europe (French, British, Spanish and German) account for another quarter.

Shared services investment by Asian companies remains minimal and has further regressed versus previous years, with India as main engine for SSC job creation, quite evenly spread across Asia Pacific, EMEA and the Americas.

Figure 5 – Top ranking origin countries for SSCs by estimated jobs (2003-2014 versus 2015)

The Business Services industry, the ICT cluster and the Financial Services sector historically have been the first to centralize activities into shared services operations, and / or to provide third party support to other companies in doing so. Although the shared services concept has since been widening to all industry sectors (including both private and public), these three sectors continue to constitute the top 3 generators of shared services positions around the world, in 2015 again accounting for 80% of the global SSC job creation. The Business Services industry increased its share to nearly 60%, indicating an increasing interest in outsourcing opportunities.

Most shared services and BPO projects in the past decade were implemented by the likes of Business and IT services players such as IBM, Convergys, Teleperformance, Dell and Hewlett Packard. The largest volumes of jobs in captive centers in 2015 were created by Shell, Xerox, Barclays, Johnson & Johnson.

Increasingly complex delivery models

Shared services delivery models have continuously been transforming over the years. From the initial transactional processing several decades ago, services activities have been evolving to become more cross-functional while moving up the value chain to increasingly specialized, knowledge-based and end-to-end functions. This process has been enabled and further accelerated by innovative automation and cognitive computing opportunities. Emerging digital technologies are being leveraged to optimize operations, which may imply reduced headcount requirements coupled with a higher need for multi-functional talent capable of providing these higher-value knowledge-intensive services in a context of service level optimization, and a reduced emphasis on pure labor arbitrage.

The increased usage of interactive experience in shared services delivery shortens expected cycle times and often will rely on a higher degree of local market knowledge and proximity to clients, which in term may require more flexible and nearshore models.

This aspiration for shared services to operate as agile, technologically smart support organizations may also have caused an increased interest for companies to investigate outsourced or hybrid service delivery solutions.

As a result, while overall job creation in shared services has continued to decline in absolute numbers, we strongly believe that companies will not cease to transform and reinvent their shared services operations, specifically focused on meeting changing customer needs, mitigating business continuity risks, and enabling access to the skills and infrastructure required in the digital age.

New Opportunities, Challenges And Technology Continue To Transform The Shared Services Landscape

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