location strategy: expanding shared services location …/media/accenture/... · 2015. 5. 23. ·...

Location Strategy: Expanding Shared Services Location Alternatives in Latin America


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Location strategy: Integral to achieving the intent of shared services

Shared services are set up to bring better cost discipline, higher productivity, enhanced quality and better customer experience. Achieving these objectives depends on establishing shared services in locations that not only meet today’s requirements, but are also sustainable in the future. Undoubtedly, location selection may be regarded as one of the most important decisions in designing the overall service delivery model for shared services.

While the potential business value of shared services has expanded beyond mere labor arbitrage, so has the scope and complexity of location selection strategy. Until recently, across the globe, there were fewer location options available for setting up a shared service center (SSC). Though outsourcing service providers have explored multiple locations, SSCs were still concentrated in few, preferred locations around the world. As the popularity of these locations increased, so did the war for talent, resulting in a demand-supply mismatch, wage inflation and making critical skills scarcer for outsourcers as well as company owned captive centers. Organizations, therefore, are constantly re-assessing their existing

network and newer greenfield locations to hedge against unforeseen challenges in the service sourcing marketplace. Clearly, this is forcing organizations to adopt location selection approaches that account for long-term sustainability rather than short term gains.

Over the years, more and more cities are being considered as viable location options for setting up SSCs. This trend underscores the importance of in evaluating emerging as well as nascent SSC locations as part of the location selection process. (See sidebar, Smart site strategy: A balance of cost, suitability and sustainability).

This paper is the second in our series of reports on shared services location strategy in different regions of the world (our first report concentrated on the Asia Pacific

region). This Point of View concentrates on Latin America and delves into the reasons that make global and local companies set up shared services operations in the Latin America region. Further, we highlight the diverse location options in the region with varying degrees of maturity. To conclude, we highlight how Accenture’s location and strategy assets and capabilities can reduce the complexity associated with making a shared services location decision.

Cost

Suitability

Sustainability

SITESELECTION

Figure 1. The triangulation of three factors—cost, suitability and sustainability—help determine the “best-fit” location for a shared services center.

Many value drivers affect location assessment in a site strategy.

Key Assessment Parameters

Cost Parameters Suitability Parameters

Workforce Costs

• Total Employment

Costs (Entry, Mid

Level, Team Lead and

Manager Levels)

Infrastructure Costs

• Office Prime Rentals

• Prime Rental Inflation

• IT Costs

• Utility Costs

Business Incentives

• Business Incentives

for SSC setup

• Tax incentives for

SSC setup

Workforce Availability

& Quality

• Active Population

• Graduate Churn (Total,

Business Studies,

Science and IT)

Infrastructure Suitability

• Vacancy Rate

• Office Space

under Construction

• Distance to

nearest airport

• Public Transport

Location Attractiveness

• Foreign Direct

Investment

• Major Companies

present

• Shared Services Maturity

Cost Advantage Sustenance Suitability Advantage Sustenance

Smart site strategy: A balance of cost, suitability and sustainability

There is no one right answer for choosing a location in which to establish a service center as there are usually trade-offs between locations. While cost advantage is undoubtedly a key value driver, the availability of a well-equipped and highly engaged workforce complemented by a favorable business environment can improve performance and create financial value. Sustainability of the location may be at odds with cost and suitability factors. In the absence of clear standards for quantifying sustainability, various indicators such as wage inflation, currency movements, office real estate inflation, etc., can indicate the longevity of the cost advantage offered by a certain location.

A best-fit location will come through the triangulation of answers regarding cost, suitability and sustainability (Figure 1).





Why Latin America for shared services?

Geographical proximity, multi-lingual capabilities and common time-zones have made Latin America a preferred near shore destination for outsourcing companies serving North American organizations. Also, low cost arbitrage, coupled with close-knit cultural homogeneity across Latin American countries has resulted in higher domestic demand for shared services within the region than from outside. Moreover, as the industry and local markets matured, more and more companies were attracted by the region’s ability to drive greater standardization and centralization.

Though, there is still some perception around political and economic risk for some Latin American countries, the region overall holds tremendous potential for being considered as a favorable location for shared services setup. However, to attract more players for setting up multi-function and higher value shared services centers, Latin American countries have to bring favorable labor policies, simplify business laws, invest in more skill development programs and more importantly rationalize inter-country transaction tax policies.

Despite several challenges, there are multiple trends that are driving increased interest in Latin American cities by global organizations for setting their shared services centers:

• <<GLOCAL>> Operating Model: More organizations with Latin American businesses want their shared services organizations to be closer to the customer. Recent Accenture research and experience has shown a trend where organizations use a ‘hub-and-spoke’ model to satisfy local needs while leveraging global scale advantages. Organizations with business in Latin America find it attractive to offer some on-the-ground, near-shore services in close proximity to the customer in order to provide a better customer experience.

• Skill Maturity: In Latin America, regional consolidation and outsourcing was spear-headed by Mexico with the Spanish speaking Contact Centre Outsourcing industry. However, over the years, more and more companies are setting up transactional processing centres, that have led to higher skill maturity in the available talent pool and have attracted knowledge and decision support functions that are higher up in the value chain.

• Existing Infrastructure: Global companies are now capitalizing on the past efforts of outsourcers who incurred the upfront costs to build infrastructure and market where it did not previously exist. These global companies can now come in and set up captive shared services operations at a fraction of the cost while capitalizing on the available talent pool. They can additionally gain by knowledge transfer on leading practices on efficient shared service operations by attracting employees who work at these firms.

• Untapped regions: Even though more popular shared services and outsourcing locations in Latin America are experiencing short term inflation and workforce availability issues, a large part of the Latin American region still provides

many cities, regions, and country clusters (such as Belo Horizonte and Toluca in the peripheral areas) that are currently untapped from a shared services and outsourcing perspective. While Asia Pacific might still be able to cater to higher degrees of wage arbitrage, Latin American locations will continue to grow shared services operations by providing higher degree of controls, compliance and standardization.

Latin America: Abounding opportunities in mature, emerging and nascent markets

Accenture’s shared services practitioners conducted a shared feasibility assessment of key Latin American locations. They analyzed these locations based on cost, suitability and sustainability to determine the readiness of the individual locations to support the establishment of new or additional shared services centers. The locations were then organized into three broad categories of maturity:



• Mature: Locations that have been a host to SSCs for a considerable period of time and continue to be a prime destination. Most mature locations are in countries that have established a long history of trade with the United States, including Argentina, Brazil and Mexico. Mature locations offer a strong value proposition and advantageous environment for attracting more work; however, they may be more expensive and subject to a demand supply mismatch.

• Emerging: Locations that have gained popularity for setting up shared services over the past decade. These locations include cities in Colombia and Panama, which have been aggressively ramping up shared services operations in recent years. While an emerging location may already be home to established SSC organizations, it typically cannot provide support to the shared services model at the scale and breadth of a mature location.

• Nascent: A location that has good potential to host SSCs. A few third party outsourcing organizations may have already set up a center in these locations or may be considering them for further assessment, typically because they provide low-cost advantages and room for expansion. However that must be balanced with the potential up-front cost needed to build the necessary infrastructure if not already present.

Figure 2 highlights locations of different maturity throughout the region, and in the following section we explore the pros and cons of these locations in more detail.

Figure 2. A map showing mature, emerging and nascent shared services locations in Latin America.

Source: Accenture

Recife

Mature Emerging Nascent

Guadalajara

Toluca Puebla

Guatemala City

Lima

Sao Paulo

MontevideoBuenos Aires

SantiagoCordoba

RosarioPorto Alegre

Curitiba

Rio de Janeiro

Belo Horizonte

Cali

Caracas

San JuanSanto Domingo

BogotaMedellin

Panama CitySan Jose

Monterrey

QueretaroMexico City



Figure 3. Shared Services Center Locations

Country City Location Perspectives

Argentina Buenos Aires • Mature but highly over-leveraged location for shared services• Good availability of talented resources due to the large numbers of students

graduating from public universities• Economic instabilities may lead to large differences in predicted and actual savings• High wage inflation over the years that could lead to erosion of cost arbitrage

and market competitiveness

Guatemala

Mexico

Guatemala City

Mexico City

• English-language speaking and writing is actively promoted by the government which has resulted in high number of bilingual workers (Spanish and English) • Guatemalans have a neutral accent which makes them suitable for voice work

• Proximity to the US has a huge advantage • As the country’s capital, Mexico City attracts the best talent from all over Mexico• High incidence of smog, air pollution and bad press for violence have been major

deterrents in the past but overall business climate is improving

MATURE SHARED SERVICES LOCATIONS

Mexico Monterrey • Large workforce availability at all experience levels helping in scalability • Stable operating environment, from a political, legal and economic perspective• High operational costs and reasonably high wage inflation (8-10%)

Brazil Rio de Janeiro • Port location makes it a good option for procurement and supply chain skills• Abundant talent pool at all experience levels, ensuring scalability of business• One of the highest office rentals and workforce costs in Latin America

Brazil Sao Paulo • Well established service sourcing hub for IT outsourcing • World-class infrastructure with an excellent array of IT and BPO skills• High competition for skilled resources might lead to resource supply shortages• Higher rate of crime has been reported compared to other Brazilian locations

Brazil Curitiba • While lower in cost as compared to Sao Paulo and Rio de Janeiro, cost is comparable for more specialized skills cost• Known for its specialized skills in IT and software development • English-speaking proficiency is still basic in the location

Chile Santiago • Stable political and financial environment with low legal and regulatory risks• Highly talented multilingual resources • High operating costs may erode SSC business case considerably

Costa Rica San Jose • High suitability for Spanish and English language support• High end professionals are costlier in comparison to other neighboring nations• Higher competition for resources is causing supply shortages




Brazil Belo Horizonte • Abundant graduate and workforce pool• Cost differential makes it an attractive alternative to Rio de Janeiro• Current setup hosts only small and medium sized firms• Medium-to-high wage inflation (approx. 10%)

Brazil

Venezuela

Porto Alegre

Caracas

• Lower costs and lower wage inflation than mature Brazilian locations• Scalability, especially for high-end skills and higher management expertise, could be a challenge• International transportation connectivity is limited

• Significant talent pool, especially in the oil and gas, natural resources and related industries• Good Spanish support and basic English support• High political, security and operational risks are concerns

EMERGING SHARED SERVICES LOCATIONS

Argentina Rosario • Good Spanish and English support. Also, basic Italian language support is available• Rosario metropolitan area is a strong incubator for many cutting edge industries

with focus on biotechnology, software development, and telecommunications

Argentina Cordoba • Country´s second largest city and a University hub for the central region of Argentina• Has some cost-competitive operations in its present day setup • Students from many provinces choose Córdoba and provide graduate talent

Mexico Guadalajara • Multi-lingual scalable workforce support available for Spanish and English• Good location for addressing domestic Mexican demand • Stable wage inflation and has comparatively lower political and legal risks

Mexico Queretaro • Emerging location for IT and BPO services• Good availability of bilingual graduates• Close connectivity to nearby cities like Mexico City, Ciudad Juarez and Guadalajara

Panama Panama City • Located in the high-trade region surrounding the Panama Canal• Call-center and voice activities hub• Low availability of high-end skills • No significant cost advantages when compared to other locations in the region

Colombia Bogota • Comparatively lower operating costs to mature Latin American locations• Availability of large workforce with fluent Spanish skills makes it an attractive

SSC option for Latin American businesses • Perception around security issues have been overcome in the recent past, but concerns still remain



Colombia Medellin • Holds immense potential for growth in the near future• Lower attrition rates, due to lesser maturity• Small talent pool, especially at higher experience levels

NASCENT SHARED SERVICES LOCATIONS

Colombia Cali • Developing economic hub in Colombia• Well-entrenched tourism industry• Scalability of operations is a key concern

Brazil Recife • Attracting lots of technology centers from nearby areas • Has a long history of service sector activity• Modern airport and transportation facilities are present

Mexico Puebla • Well-developed, industrialized city in Mexico• Nascent services industry with low graduate churn

Puerto Rico San Juan • Very nascent location with very little multinational presence• Significant cost arbitrage for US businesses• Scalability and skilled workforce availability is still in nascent stages

Dominican Republic Santo Domingo • Cultural similarities with the United States• Possible resource shortage for skilled English and bilingual resources • Corruption and legal difficulties exist for SSC operations

Mexico Toluca • Close proximity to Mexico City (approx. 60 km)• Mature industry and manufacturing location• Part of Mexico city cluster


Peru

Uruguay

Lima

Montevideo

• Large workforce offers skilled tech workers • Good cost-suitability fit, at par with other peer locations• Not scalable, especially for high-end skills

• Has a mix of both Portuguese and Spanish speaking populations• Graduate pool and workforce availability is very limited• SSC operations are at a lower scale than other comparable emerging destinations



Conclusion

The Latin American region provides diverse shared services location options depending on the organization’s skill and cost requirements. A thoughtful location strategy based on an organization’s long-term strategic goals will position it for long-term success in the Latin American region.

The challenge of building out a comprehensive location strategy is increasing steadily due to complexities arising from the interplay of cost, suitability and sustainability parameters. The measure of a site selector’s success will not be known until long after the location decision. Thus, conducting a thorough assessment requires a fundamentally robust approach supported by established assets and vast local experience.

Accenture’s location selection expertise has helped our clients make the logical and systematic transition to locating shared services operations in multiple Latin American locations. Our approach follows the logical methodology of defining and preparing the assessment scope, gathering data on the locations, performing a thorough analysis and backing it up with our considerable experience to provide the most suitable recommendation for the client context.

Our ability to provide a rapid and accurate assessment is enhanced by our industrialized offering capabilities. A location strategy database that provides data on more than 200 service sourcing locations allows rapid collation of relevant city level micro-data. Established internal scoring models and assessment templates enable us to provide expert analysis and recommendations swiftly. Our vast network of global practitioners and delivery centers help corroborate our assessment and facilitate site visits.

About Accenture

Accenture is a global management consulting, technology services and outsourcing company, with approximately 281,000 people serving clients in more than120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.

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Related Point of Views

Accenture has produced two other points of view discussing location strategies for shared services in Asia Pacific and in the Gulf Cooperation Council.

www.accenture.com/sharedservicesAPAC

www.accenture.com/sharedservicesgcc

About the authors

Mukesh Bhatt is senior manager in the Integrated Enterprise Solution core offering in Accenture Strategy. He has over 10 years of experience in helping clients with assessing, designing and implementing shared services solutions across industries and functions, with a particular focus on location strategy and service sourcing.

Paul Jeruchimowitz is managing director in the Integrated Enterprise Solution core offering in Accenture Strategy. He has more than 17 years of experience leading large-scale, global, integrated business services transformation programs and predecessor shared services models. He is a well-respected author and thought leader on integrated business services models, and serves as a regular presenter at the Accenture Global Shared Services Conference as well as other finance executive forums.

The authors would like to thank Kristin McMinn, Andrea Barabino and Camila Homsani for their contributions to this article.

Disclaimer

This document is intended for general informational purposes only and does not take into account the reader’s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this document and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice.

Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional.

Copyright © 2014 Accenture All rights reserved.

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http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Shared-Services-Location-Strategy-Asia-Pacific-Perspectives.pdf

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