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Facts about location selection
strategy
What is Latin America doing? Will Costa Rica remain at the top
ranking?Mario Tucci – Senior Partner
Martin Bouza – Senior Partner
Which are the challenges for Global
Services in Latin America?
We
Help enterprises regionally to optimize their
central functions
Co-design market entry and globalization
strategies
Identify and validate operational
improvement options including outsourcing,
enabling technology and restructuring
Coach management teams to improve their
relation with the global service industry
Provide advice on service transitions and
new location setup
We
Provide advice on service investment
attraction strategies
Do benchmarking of processes, costs
and location structures to confirm or
evaluate different alternatives
Participate in skills development
programs at regional level through
Finishing Schools implementation
Evaluate, select and invest in services
companies with global potential that we
then connect to our clients
Analyze and publish location
attractiveness based on defined
parameters
Table of Contents
About Shared Service Centers and Latin America Landscape
1. Shared Service Centers
1. Drivers
2. Expectations
3. Evolution
4. Governance and Operating Models
2. Shared Service Center Segmentation
3. Shared Services Center Locations
4. Drivers for Site Selection
5. Top Players, Biggest Gainers and Drops
6. Central America Landscape
7. Future Trends
Drivers to Create a Shared Service
Center
Competitive Pressures
Benchmarking makes
competitiveness of function costs transparent and often leads to cost reduction
programs
Merger and Acquisitions
demand leverage of
synergies / fast integration of
the new companies
HeterogeneousProcesses
Strategy of decentralized
services leads to a differing
process quality, cost and
efficiency within business units
and regions
New global processing
opportunities demand
harmonized processes as a starting point
Globalization
Alignment of clients and suppliers
towards global companies
Need for seamless and
uniform global service
operation
Technology
Enhanced ROI of existing and new
ERP implementations
Realize cost savings and
avoid additional expenditures
though elimination of
system redundancies
Compliance Risks
Decentrilized processes and responsibilities
increase concerns with
SOX compliance
Changing legal requirements
demand an immediate
global implementation
Drivers are different in each company and several could operate at the same time
What to Expect from a SSC
Better Quality
• Explicit Service Level Agreements
• Better operational risk management
• Continuous improvement focus
• Performance management and reporting improvement
Competency enhancement
• Business units can focus on value added activities
• Innovation focus
• Service level improvements that enhance client retention levels
• Knowledge, resources and technology leverage
• Information consistency
Greater Flexibility
• Centralized infrastructure that is flexible to changes in business, structure and cycle volumes
• Ability to add new value added activities without proportional infrastructure costs
• Agility in adding new geographies or services
Improved Efficiency
• Economies of Scale
• Processes improvement and standardization and redundancy elimination
• Best practice documentation
• Clear responsibility assignment
Cost Reduction
• Per head cost reduction by moving the center to a low cost geography
• Cost reduction by service integration
• Facilities cost reduction
• Elimination of IT redundancies
Evolution of Shared Services Centers
Shared Services Centers
(SSC) developed to
improve operational
efficiencies - by reducing
costs and standardizing
operational (internal)
processes
UK, Canada (nearshore)
Philippines, India (offshore)
Microsoft, General
Electronic (GE), and
Texas Instruments were
some of the pioneers (i.e.
large, progressive MNCs
with technology
dependencies)
Domestic and regional
SSCs gave birth to global
offshore centers
Late 80s – Early 90s
Expansion across
verticals – HSBC, HP,
Chevron, etc.
Expansion across
locations – lower cost,
multi-lingual talent pool, and
stable operating
environments
Expansion driven by
Internet & enabling
solutions (HW & SW)
Enabling technologies
created greater operational
complexities – which
provided greater
opportunities for SSCs
Many smaller regional
centers were consolidated
to form larger, global SSCs
Early 2000s Today
Reducing Costs &
Standardizing ProcessesManaging Complexity
& Consolidation
Expanding Capabilities
& Technology Adoption
India & Philippines are leading
offshore locations. China,
Eastern Europe, and Latin
America are emerging
regional hubs
Geo-political dynamics have
become a prominent concern
Sourcing agility and process
innovation driven by better
utilization of diverse, local
talent pools
Rise of ‘super centers’ or
multi-function centers for large
MNCs
New and improved
Governance models
Governance and Operating Model
Shared
• Provide services for both parent
entity and external clients.
• Most Appropriate for Small to
Mid sized Enterprises (SMEs)
who have developed
domain/process expertise.
• Can be located in established or
emerging delivery locations.
• Business Control is often
shared.
Basic
• Fulfills processes for a singular
parent entity.
• Most appropriate for large firms who
require larger volumes of work, which
then provide economies of scale.
• Must be established in mature
outsourcing locations with larger
talent pools that can provide long-
term scale and service profile
diversity.
• Business Control is exclusive to
parent entity.
Hybrid
• Fulfills core processes for parent entity,
and outsources noncore work local
vendors.
• This is appropriate for companies
looking to capitalize local market
opportunities in the long-term.
• Usually located in cost-effective
locations, and where partnerships with
local providers are easily done.
• Business control is shared and can be
determined by local market opportunities
and local providers.
There are NO cookie-cutter solutions for which type of SSC model to employ. Traditionally, higher-value
(and sensitive tasks) were kept onshore or nearby regional centers, but this line has since blurred –
brought about by increasing comfortability of companies with offshore locations & partners, and much
improved capabilities of offshore talent pools.
Governance and Operating Model
% o
f R
esp
on
den
ts
# of Functions in SSCs or Outsourcing programs per Enterprise
Governance Teams must manage an increasing number of initiatives
% o
f R
esp
on
den
ts
# of Regional Areas Organizations have outsourced or implemented SSCs
Source: HFS Research, PWC - 2012
Strategies by function
SSC and Outsourcing Cost Allocation Models
Shared Service Center Segmentation
Finance, HR, IT & Procurement are ‘traditional services’ processed from SSCs. However, there is an increasing trend to process value-add processes such as analytics, research and other forms of business services.
by Industry Sector
17%
18%
20%
27%
35%
39%
41%
52%
62%
93%
0% 20% 40% 60% 80% 100%
Supply…
Sales/Marketing
Legal
Real Estate/Facilities…
Tax
Customer Service/Support
Procurement
Information Technology
Human Resource
Finance
by Process Group
Manufacturing21%
Consumer Products
16%
Financial Services
13%
Tech/Telecom13%
Retail10%
Health Care7%
Energy6%
Media5%
Public Sector
4%
Travel and Hospitality
4% Othe…
Manufacturing, Consumer Products & Financial Services are the top vertical sectors that utilize the SSC delivery
Finance and IT are 2 of the 3 most common internal processes fulfilled in SSC – processes that can be efficiently
standardized
Increased integration of IT into operational platform is increasing consumption of IT services (i.e. Cloud Computing)
Among the top financial processes outsourced are payroll, accounts payable, and external audit. Payroll/time
administration is the top HR process outsourced
Source: Deloitte – 2013 Global Shared Services (from 277 SSC respondents)
Shared Services Center Locations
40 +
20 – 30
10 – 19
1 – 9
Much SSC activity has revolved around large offshore destinations (India & Philippines) – Both of which offer good balance of scale, cost, labor. Both also provide a rich operating ecosystem from which to draw talent from.
Cost effective, talent-laden destinations such as India, Brazil, and China have become popular (recent) locations for
new, regional centers while US and UK remain the ‘traditional choices’ for larger, global centers
Latin America (Brazil) and Eastern Europe (Poland) are emerging as feasible locations – though regional socio-political
and macroeconomic dynamics have become pressing concerns
A location MUST HAVE a balanced mix of financial attractiveness, talent supply and stable business environment -
these are the fundamental weighing criteria for SSC site selection
RISK factors can easily outweigh cost advantages, more so for SSCs than traditional 3rd party outsourcing centers
Source: Deloitte – 2013 Global Shared Services
Shared Services Center Locations
Ranking based on response to how respondents view regions as destinations for the delivery of specific outsourced services (SSC and 3rd Party Delivery Centers).
Knowledge Services
1. India2. US and Canada3. Western Europe4. Central and Eastern Europe
IT Services
1. India2. US and Canada3. Western Europe4. Nordics
Engineering Services
1. India2. China3. Russia4. US and Canada
Transactional BPM
1. India2. Philippines3. Latin America4. Central and Eastern Europe
Product Development
1. US and Canada2. India3. Western Europe4. China
Contact Support Services
1. Philippines2. Latin America3. Central and Eastern Europe4. South Asia/North Africa
Interestingly, Latin America is not top-of–mind when considering high value outsourced services. This could be attributed to the region’s ‘diluted outsourcing identity.’ Too many locations in the region are marketing the very
same value propositions, and claiming to be capable of too many processes. Niches & identities becoming homogenized.
Source: NASSCOM-Tholons Services Outsourcing Atlas, 2014.
WA
TC
H L
IST
LOC
ATIO
N S
TAR
STransactional
BPMFAO Services
Knowledge
Services
Technology
Services
Engineering
Services
Bangalore
Beijing
Belfast
Bucharest
Budapest
Buenos Aires
Chennai
Delhi (NCR)
Dublin
Hyderabad
Kuala Lumpur
Mexico City
Moscow
Mumbai
Novosibirsk
Prague
Pune
Shanghai
Singapore
Warsaw
Bangalore
Beijing
Buenos Aires
Bucharest
Chengdu
Chennai
Dalian (Dairen)
Delhi (NCR)
Dublin
Guadalajara
Guangzhou (Canton)
Hanoi
Hyderabad
Ho Chi Minh City
Mexico City
Mumbai
Pune
São Paulo
Shanghai
Warsaw
Bangalore
Belfast
Chennai
Dalian (Dairen)
Delhi (NCR)
Dublin
Hyderabad
Kuala Lumpur
Manila (NCR)
Mexico City
Montevideo
Mumbai
Pune
São Paulo
San Antonio, Texas
Santiago
San Jose
Shanghai
Singapore
Toronto
Bangalore
Bogotá
Buenos Aires
Cebu City
Chengdu
Chennai
Colombo
Dalian (Dairen)
Delhi (NCR)
Dublin
Hyderabad
Krakow
Kuala Lumpur
Manila (NCR)
Mexico City
Monterrey
Mumbai
Pune
Shanghai
Warsaw
Bangalore
Beijing
Bogotá
Buenos Aires
Cebu City
Chennai
Curitiba
Dalian (Dairen)
Delhi (NCR)
Ho Chi Minh City
Hyderabad
Johannesburg
Krakow
Manila (NCR)
Mexico City
Monterrey
Mumbai
Prague
Pune
San Jose
Bucharest
Budapest
Jaipur
Johannesburg
Medellin
Colombo
Kolkata
Guadalajara
Jakarta
Johannesburg
Bogotá
Jakarta
Kolkata
Moscow
Thiruvananthapuram
Beijing
Buenos Aires
Chengdu
Krakow
Prague
Dalian (Dairen)
Guangzhou (Canton)
Kyiv
São Paulo
Sofia
The NASSCOM Tholons Services Outsourcing Atlas™
Changing Drivers for Site Selection
25,0%
22,5%
15,0%
12,5%
10,0%
7,5%
7,5%
Talent Cost and Availability
Talent Quality
Infrastructure
Business Environment
Overall Industry Maturity
Supporting Clusters
Quality of Life
0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0%
Talent Cost & Availability + Talent Quality - represent nearly 50% of weight given by providers during the
Site Selection process.
Source: NASSCOM-Tholons Services Outsourcing Atlas, 2014. Question: What is the percentage weight given for each criteria during the Site Selection process?
Driving Decisions
Source: NASSCOM-Tholons Service Outsourcing Atlas™ (Sample size represents 50% of total Indian IT-BPM Exports revenue)
52%48%
41% 40%
26%
19%17% 17%
0%
10%
20%
30%
40%
50%
60%
Access totalent
capabilities
Clientrequirementsas part of thedeal structure
Cost savings Access tonewer/local
markets
Part of riskmitigation due
toconcentration
Governmentincentives
Economicinstability in
hostcountry/city
Competitivepressure from
peers
Top Drivers for SSC
1. Access to Talent Capabilities
2. Labor Cost Savings
3. Part of risk mitigation due to concentration
Source: NASSCOM-Tholons Services Outsourcing Atlas, 2014. Question: What were specific drivers for choosing the particular services outsourcing location?
For larger SSCs, the PRIMARY driver for choosing a
service delivery location is Access to Talent.
This poses a problem for scale-limited locations
Even cost reductions or fiscal incentives are often
NOT enough to offset talent/scale limitations
Tholons Top 100 and Central America Landscape
2015 Tholons Top 100 – Top Players
Source: 2015 Tholons Top 100 Outsourcing Cities – Top Players
The outsourcing market continues to look for new and vigorous locations and every city is looking to offer good and exiting options.
Latin America cities have shown a mixed result this time with 25 cities that have made into the list.
13 cities have managed to move up in the list while 7 cities moved down.
San José de Costa Rica has moved to the 11th position, almost reaching the Top 10 list.
Competition is as tough as ever and every effort the countries and promotion agencies do has to be maximize because it could mean the difference between welcoming a new company or not.
2015 Tholons Top 100 Biggest Gainers
Rank
2015Region Country City
1 Asia Pacific India Bangalore
2 Asia Pacific Philippines Manila (NCR)
3 Asia Pacific India Mumbai
4 Asia Pacific India Delhi (NCR)
5 Asia Pacific India Chennai
6 Asia Pacific India Hyderabad
7 Asia Pacific India Pune
8 Asia Pacific Philippines Cebu City
9 Europe Poland Kraków
10 Asia Pacific China Shanghai
0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 10,0
Shanghai
Kraków
Cebu City
Pune
Hyderabad
Chennai
Delhi (NCR)
Mumbai
Manila (NCR)
Bangalore
MAXIMUM SCORES
Scale and Quality Business Catalyst Cost Infrastructure Quality of Life Risk
Tholons Top 100 Rankings - Bangalore and
Manila are the top destination because of
optimal balance of scale and quality & cost
components.
What works for the 3rd party offshore model
during Site Selection, also applies to the SSC
model.
In 2015, much of the SSC activity continued to
revolve around India & the Philippines –
specifically because of scale capabilities and
client market orientation.
LatAm locations, must be able to mitigate scale
limitations through a more compelling balance
between cost, quality, and talent capabilities.
Stakeholders in the region, must also ensure
that existing SSCs in the region, stay in the
region. Losing a few, large SSCs can have
debilitating (and rippling) consequences,
especially in smaller nations.
Exploring smaller, non-traditional client
markets should be considered by the region.
The US & European SSC markets are
increasingly crowded.
Source: 2015 Tholons Top 100 Outsourcing Cities – Biggest Gainers
2015 Tholons Top 100 Biggest Drops
2015 2014 Movement Country City
- 50 -51 Ukraine Kyiv
- 81 -22 Egypt Alexandria
- 96 -6 Ukraine Lviv
33 28 -5 Argentina Buenos Aires
44 39 -5 Brazil Rio de Janeiro
24 20 -4 Brazil São Paulo
28 24 -4 Chile Santiago
89 86 -3 Chile Valparaíso
Tholons Top 100 Rankings – locations
dropping in rank (i.e. Buenos Aires, Rio de
Janeiro) were attributed to increasing
operating costs.
Kyiv and Lviv were dropped entirely due to
socio-political risks. Similar to Alexandria,
Egypt, where civil unrest persists.
Similar socio-political & civil-security risks
exist across LatAm.
Though Mexico provides a sizeable talent
pool and favorable cost envelope to
establish SSCs – lingering domestic security
issues have caused MNCs to balk this
opens up opportunities for other LatAm
destinations.
For a SSC – political and economic stability
are often more important considerations than
the ‘generic propositions’ of nearshore,
cultural affinity and lower cost.
0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 10,0
Alexandria
Lviv
Kyiv
Valparaíso
Rio de Janeiro
Buenos Aires
Santiago
São Paulo
MAXIMUM SCORES
Scale and Quality Business Catalyst Cost
Infrastructure Quality of Life Risk
Source: 2015 Tholons Top 100 Outsourcing Cities – Biggest Drops
Central America Landscape
• Despite being non-traditional regions,
Central America was able to exemplify
significant growth in the IT-BPM
industry
• Countries within the region has seen a
continuous growth most noticeably in
• Costa Rica, which is likened to the
growth and significance of Philippines
and India in Asia
• Guatemala, which saw a modest 15%
growth in 2014; recent multinational
BPO investments in El Salvador,
among others.
Central America has seen continuous growth over the years and is also predicted to experience further growth in the coming years, due to its cultural affinity and the availability of addressable talent pool and highly competitive and skilled workforce.
6,7
13,84,8
8,0
2,3
2,8
7,8
11,0
0
5
10
15
20
25
30
35
40
2009 2014
Offshore Outsourcing Business Process Services
Custom Application Development IT Infrastructure Services
~US$20 billion
~US$35 billion
Individual growth of the countries within the region
• It was estimated that there are 285 multinational companies operating in the region which employs 87,000 bilingual employees.
• Costa Rica and Guatemala garners the most number of operating outsourcing companies - 191, followed by El Salvador - 55, Nicaragua - 25 and Honduras - 14.
• Costa Rica has seen an increase of 122 international companies which have invested in the operation of 140 shared services indifferent categories
SWOT Analysis for Central America
• The fragmented system in Central America will
continue to divert the opportunities for to the
neighboring regions
• The region is facing increasing competition with
the neighboring countries especially in low-cost
proposition
• The continuous dependence of the region
towards headcount dependent services poses
constraint within the region as the region has
small size workforce
• The region is facing a near term deficit towards
English speaking individuals
• The region geographically-wise is advantageously
situated as it is close to the main hubs.
• Most of its countries have direct flight access
towards US.
• The region manages maintain its low cost
proposition compared to its neighboring regions
• Possesses highly skilled and competitive
workforce
STRENGTHS WEAKNESS
• The 6 countries can create a unified bloc offering
diverse services
• Since the region is a relatively small sized in terms
of human resource, there is a great potential and
opportunity for the region to develop their ITO and
KPO capabilities with their skilled talent pool.
OPPORTUNITIES THREATS
Costa Rica: ITO-BPO Sector Overview
BPM 75%
ITO15%
KPO10%
Costa Rica IT-BPM Sector Segmentation• Costa Rica possesses a mature services outsourcing ecosystem
Industry segmentation shows BPM as the dominant service line
followed by ITO and KPO
142 established service providers comprising of 46,465
employees – representing about 1% of the country’s population.
A large BPM headcount for a country with small population
• Adequate BPM-ready talent pool
An estimated 46,000 university graduates annually,
with BPM-aligned graduates numbering 13,300 in 2013.
With a relatively limited population of 4.6 million, this poses a near-term supply issue for the industry.
There is a need for an aggressive talent-augmenting strategies for Costa Rica to maintain its advantageous propositions
• Similar to the BPM sector, a small net deficit of potential ITO talent that can at least offset typical industry churn is
present
High school graduates with additional talent from Instituto Nacional de Aprendizaje (INA) program might not
be enough for service providers
• KPO services in Costa Rica are still largely process-based – the sector has greater flexibility to draw talent from
across diverse academic disciplines
The potential for KPO services in the country can be seen in companies with over 100 FTEs, processing a
variety of KPO-based activities
Source: Tholons Research and Estimates 2014
Future Trends
• Rise of multi-function or ‘Super Centers’
- Super Centers can only be located in ecosystems with equally diverse and scalable outsourcing sectors.
- How do smaller, emerging destinations compete? By initially focusing on the delivery of quality services, developing single-function centers, and later expanding to become multi-function centers.
• Greater emphasis by locators to analyze geo-political Risk Conditions
- Risk conditions, whether geo-political (regional) or civil/security (domestic) are detrimental to the long-term goals of SSC owners. Natural Risks have also become a recent concern.
• Value add will be the next evolutionary requirement
- Similar to the evolution of the offshore model. Successful SSCs and service delivery locations will be those that are able to provide greater value add to the client and the SSC, respectively.
- Can a SSC, or SSC location open parent company to new markets? Provide new opportunities to reduce internal costs? Provider greater flexibilities?
Future Trends
• Optimizing Service Delivery
- Shared Service Centers recognized that new and bigger opportunities for service
optimization exist. This could happen through new technologies, systematic cost
and quality analysis or specific quality improvement tools. Objective: Service
higher demands at lower costs
• Leveraging Digital and Automation Technology
- New technologies including Robotic Process Automation (RPA) and mobile
solutions will contribute to reduce operational costs and improve service quality
and productivity.
• Customer Service
- SSCs are working and developing new skills in their workforce aimed to improve
the overall user experience. Quality and cost are no longer the only valuable
attributes, the relationship between the SSC and the end client is what matters..
Contacts
Mario [email protected]
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