How to Choose the Right Location: 7 of the Most Important Factors to Consider



SSON Editor
07/01/2015

Location: Your Most Important Decision Once the Shared Services Business Case is Accepted

The success or failure of a shared services model will hinge on an accurate and robust business case put forward. But once that has been accepted, the really important decision that needs to be made is: where to base the center?

In today's "flat world" scenario, the options are frighteningly broad: you can leverage technology and automation to offset the higher labor cost of being onshore; you can take advantage of cultural affinity and languages while benefiting from lower-cost resources nearshore; or you can go big offshore, with all of the pros and cons associated with that option. The decision as to where to go hinges, therefore, on your organization's cost tolerance, the importance of language variety, time zone, talent pool, and technical skills in demand. To further complicate this decision, numerous locations will offer lucrative incentives, whether through taxation, subsidies in training employees, or rent.

Anyone who's done it before will tell you that basing your decision on current cost alone, however, will be a mistake. With shared services effectively reinventing their value proposition every 3 to 5 years, you may find that the cost of an office space or of an employee becomes less relevant as the need to offer knowledge-based service or the ability to leverage automation increases.

So, what do you do? Here are some of the key factors to consider, as shared by Greg Lipper, VP of Global Business Services at Staples, at a recent SSON event.

1. Talent and Scale

You will need to consider your current as well as future demand for talent, and the possible increase [or decrease] in scale for each of the functions included in your shared services model. This decision includes the shifting requirement for management talent and language skills.

2. Salaries and Total Operating Costs

When evaluating the cost-benefit, salaries are an obvious starting point. While nearshore will offer a slight reduction in the cost of an FTE, most offshore locations offer at least a 30% if not greater reduction in equivalent cost. However it's important to include a broad definition of cost within total operating costs. For example, one factor frequently overlooked is the cost of managing a remote center: travel, hotel, days out of office etc. In addition, insurance may be higher in locations suffering from a high incidence of floods or hurricanes, etc.

3. Competition for Talent and Wage Inflation

An attractive talent base is great, but it's less great if everyone else is chasing the same [increasingly scarce] resource. This was experienced in Dublin in the early 2000s, then in many of the popular East European locations, and today across Malaysia [e.g., Kuala Lumpur], India [numerous cities], the Philippines, and China. In other words: if you recognize a good opportunity, chances are so does everyone else. Build in this competition to ensure you have a realistic sense of what acquiring and retaining talent will cost you. Also: Be aware that popular locations tend to experience significant wage inflation. How flexible might you be to shift from a tier 1 to a tier 2 or even tier 3 city, for example?

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4. Office Space

What is the "real" cost per square meter? Factor in all the additional costs such as electricity – hot climates will cost you more in air-conditioning for example (Japan and the Philippines have high electricity costs). Look at how the cost of office space has evolved over the last five years.

5. Labor Flexibility

While most shared services start with a fairly transactional focus, chances are that as your center matures you will be looking for different skill sets. To what extent does your chosen location offer flexibility in labor? What will this cost you?

6. Local Government Support and Ease of Doing Business

Get advice on which incentives and subsidies exist from local government. How long will these last? It's worth networking with other existing center leaders to get an insider's view of the real value of such benefits. In addition, many cost advantages can be overshadowed by highly complex business practices. Find out how easy it is to do business in your country of choice. Is there a lot of red tape? Who can help you through this?

7. Attractiveness of the Location

Should you be looking for skill sets that are not easy to come by in the local market, how attractive is the location to expats, or young Millennials from nearby countries? "Livability" is becoming a familiar term for shared services operators that are making decisions around where to locate their centers. Given shared services’ requirement for languages, it's important to consider the attraction of a chosen location for foreign, native speakers. In addition, you'll be looking for Millennials, who have different expectations to Baby Boomers, for example. If you are relying on expats from HQ, at least in the early years, how easy or difficult is it for them to travel back for meetings? Will their families want to relocate? What are schools like?

Which Locations are offering the best returns for SSOs?
Take SSON's brief Location Pulse Survey HERE
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The above are just some of the issues you'll need to come to terms with early on. Identify what is most important from the start and make sure you have all the right facts on which to base your decisions.