Global Trends in Financial Shared Service Center Locations
A Discussion of Key Findings Related to Location Considerations
In January of 2019, ScottMadden’s Brad DeMent and Trey Robinson delivered a webinar to discuss the results of the latest finance shared services benchmarking study. The study was designed by ScottMadden and surveys were administered by APQC over four cycles: spring/summer 2014; spring/summer 2015; summer/fall 2016; and spring/summer 2018. The scope of the study covers the following topics for an in-depth analysis of financial shared service centers (SSCs): Delivery model, scope of services, staffing, location, performance, and technologies leveraged.
This article summarizes key findings related to regional growth trends, regions served, and location criteria. Where are organizations choosing to locate their shared service centers (SSCs), and how many countries do SSCs typically serve? The answers to these questions depend on a variety of factors, ranging from the size of the organization to important criteria like labor, costs, and taxes. As they discussed this year’s survey results, DeMent and Robinson highlighted key trends and findings related to SSC locational strategy, including growth trends, regional SSC coverage, and the key criteria that organizations consider as they prepare to establish new SSCs.
Access the complete article series here.
Regional Growth Trends
Data from this year’s survey shows that some regions have continued a trajectory of rapid growth in new SSCs, while growth in other regions has flattened (Figure 1). Europe and North America have seen significant growth in new SSCs: The 2014 survey found that 50 percent of organizations reported having an SSC in North America, and that number grew to 67 percent for 2018. Europe has seen even more explosive growth, nearly doubling the number of organizations who have an SSC in the region from 26 percent in 2014 to 49 percent in 2018.
Figure 1: SSC Growth by Region, 2014 to 2018
Latin America and Asia-Pacific have not seen these same rates of growth and have remained relatively flat. One reason for the lack of growth in these regions has to do with automation, Robinson said. “Historically, companies looked for low-cost areas to establish their centers, especially for transactional activities. The evolution of automation is increasingly allowing organizations to reduce their labor requirements. Needing fewer people for routine, transactional, and highly manual tasks has diminished the advantages of establishing lower-cost SSCs in Asia-Pacific and Latin America.”
A second reason for the lack of growth in these regions has to do with midmarket organizations who are implementing financial shared service centers. “Many of these companies are smaller in size and therefore less likely to have global operations. Wherever they happen to be, it’s much more common for them to choose a domestic location for their SSC, and we see most of those in Europe and North America,” Robinson said. As shown in Figure 2, about half of organizations located in one region (49 percent) have SSCs that serve only one country. Organizations that located in multiple regions, by contrast, are less likely to support only one country (16 percent) and much more likely to serve between 10 to 40 countries (45 percent). Survey data also shows that the majority of organizations located in one region have only one SSC, while 40 percent of organizations located in multiple regions have more than three.
Figure 2: How Many Countries Receive Services Provided by Your SSC?
While it is common for organizations to have multiple centers that support global operations, Robinson said, “it’s clear that centers located in a region predominately provide support to the countries located in that region.” As Figure 3 shows, most SSCs in North America provide support to customers in North America (with some limited support to customers in other regions), and the same is true of Europe and Asia Pacific. One important exception is the Middle East and Africa: Robinson noted that “there’s no common way that these countries are supported or served by different centers. Most commonly, customers in this region are supported by SSCs in of Europe or Asia-Pacific, but there’s a lot of variety in this specific area.”
Figure 3: SSC Locations Matched to Customer Geographies
Criteria for Locations
When survey participants were asked to rank a list of 10 common criteria for determining the location of a new SSC, the top criteria were:
- Labor—including labor supply, multilingual staff, and turnover rates
- Cost—including the cost of labor, real estate/facilities, and other financial incentives
- Tax considerations
- Infrastructure—the reliability of basic services and facilities necessary for the economy to function
- Leverage of existing sites
- Cultural similarity with existing operations
- Location-specific political and economic stability
- Risk of natural disaster
The dominance of labor as the top concern for organizations in this year’s survey is consistent with a broader shift over the last four to five years, Robinson said: “Historically, cost was the most important attribute when considering a new location. However, several years ago we saw a shift from cost to labor as the most important criteria. Having access to the right people, including the functional skill sets and the ability to speak multiple languages—especially in Europe—are key drivers.” Because the best locations are often saturated with shared service organizations, the ability to maintain low turnover rates is another important consideration for labor.
The study population is robust and diverse, with 468 organizations participating. While 64 percent of participating organizations are from the US and Canada, respondents also included organizations from Europe (26 percent), Asia-Pacific (8 percent), and Central and South America (2 percent). Company size is balanced across the revenue profile, with median revenue of $7.8 billion. Most organizations (89 percent) have been operating for more than three years, and more than half have been operating for longer than five years.
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