LatAm ranks second behind Asia for shared services and outsourcing
By Eric Hochstein
Delivery center location preferences have shifted significantly in the past two years, with Asia and Latin America gaining favor with corporate decision makers, according to Deloitte’s 2011 Global Shared Services and Outsourcing Survey.
Every two years, Deloitte Consulting conducts a rigorous study of the global state of shared services. This year’s results have just been compiled, and attendees at last week’s Shared Services and Outsourcing Week conference in Orlando received a “sneak preview” from Deloitte Consulting principals Jessica Golden and Mark Klender.
The 2011 Survey has not been officially released by Deloitte and copies of the data and detailed analysis were not available at the conference. Instead, Golden and Klender shared key results and observations with the attendees in a presentation session.
The results from more than 270 companies with shared services or outsourcing centers confirmed that companies now prefer low-cost Asian and Latin American locations more than ever before.
When asked about future plans to relocate, 38% of companies said they had current plans to move centers or expand capacity. Of this group, 72% said they would select a “more established location versus a pioneering one.” Klender later said that this meant that companies would prefer locating in more established business centers in developed or developing countries and would sacrifice lower costs in “pioneering” locations in order to reduce risks. “For example, they might prefer locating in Buenos Aires, Argentina, rather than in a second- or third-tier location in Brazil.”
Latin America ranked second, behind Asia, when respondents were asked where companies were considering relocating or adding service delivery capacity. Klender explained that because of Latin America’s fast growing economies, companies are already expanding their capabilities to meet growing business and consumer demands in those markets, with increased production, distribution and marketing. Shared services operations are growing to meet expanded business needs.
Simultaneously, global trends toward increasing use of shared services in all aspects of business and shifts toward multifunction/multiprocess centers have created the need for more regional shared services centers, feeding global hubs. Deloitte found that some Latin American centers were becoming regional hubs, feeding global hubs in lowest-cost locations, primarily in Asia. “Latin America was the last frontier,” said Klender. “Companies have gotten their acts together. They’ve tackled Europe, progressed to Asia, and Latin America was left.”
Shared Services Mandate
One factor driving expansion of shared services in companies is that 77% of companies are mandating the use of shared services. The mandates focus on cost saving in 87% of companies, while improved access to expertise is cited as a leading factor by 67% of companies.
Finance remains the top functional area, followed by HR and IT. The study found that the more mature a center is, the higher number of process areas it is likely to serve.
The researchers also found that shared services centers and outsourcing are achieving value for companies. “They are delivering year-over-year value to the bottom line,” said Golden. “But companies underestimate the critical elements of the journey required for success.”
One of the key factors needed for success, she said, was change management at all levels of the company and at both the old and new delivery locations, as well as increased internal customer service and improved communications about process.
Klender and Golden were not able to share a copy of their conference presentation at this time, saying that the final report is still being written. They said they expected the report to be available in the near future.