Shared Services Location Strategy: Asia Pacific Perspectives

Choosing the right location for shared services centers in Asia Pacific is a strategic choice that needs to take into consideration the company’s growth plans in the region, and its vision for a global business services network.

Accenture looks at the factors to be assessed in detail, providing a comparative table of various key cities, to help companies make the right decision.

Historically, establishing shared services in the Asia Pacific region has been driven primarily by favorable labor cost arbitrage, an abundant pool of skilled personnel offering wide language skills, and ongoing investment in infrastructure and telecommunications.

However, the rapid expansion of shared services in the Asia Pacific region, coupled with recent economic growth in many countries, has created challenges:

• Mature shared services locations have seen an erosion of the wage arbitrage benefits that once prevailed. For example, according to a recent survey, Indian salaries rose by more than 12 percent in 2011 with similar increases projected for 2012. China is also experiencing wage inflation with the same survey predicting a rise of more than 9 percent in 2012.

• While the growth of shared services in has created an abundance of job openings, it has also created increasing attrition rates. In-demand, skilled shared services employees, tend to change jobs quite frequently, particularly in places such as Manila and in India’s major cities, where shared services center skills are highly sought after.

• Cultural and linguistic challenges within Asia Pacific should not be underestimated. Certain core processes for companies tend to require extensive customerinteractions that are key to competitive differentiation. According to Accenture research, the long-term sustainability of shared services is dependent on centers being equipped with these skills to provide a positive customer experience.

In the wake of a highly competitive shared services and business process outsourcing environment in the region, companies looking to establish shared services centers in Asia Pacific should carefully evaluate local conditions to select the best location to realize their strategic intent.

Selecting a location for a shared services center is a strategic decision and should be made after careful evaluation of several key attributes:

• Cost effectiveness.
• Supply of talent.
• Infrastructure and development.
• Conduciveness of the business environment to shared services.

Mature shared services hotspots like Dalian, Bangalore, Kuala Lumpur and Manila will remain competitive as they have the critical mass to attract talent and sustain infrastructure investment. In addition, Accenture is seeing secondary cities emerge, such as Chengdu and Wuchan in China, Pune and Noida in India, Cebu in the Philippines and even Singapore for centers with highly specialized functions. (For a detailed comparison of these cities, download the full article.)

Companies are not restricted to a single location for their shared services operations. Companies may opt for one or multiple locations depending on languages and time zone coverage required as well as the company’s long term vision for the shared services center. For a multiple center approach, a hub-and-spoke model is often preferred to avoid duplicating all functions. In this model, standardized activities that are not dependent on language would be supported from a global hub, with other centers – the spokes – serve as satellites that interact more closely with local businesses, customers and vendors in the local language or context.

This model offers the dual advantages of scalability and a superior customer experience, and is especially attractive to companies that are growing rapidly in Asia Pacific.

Besides the traditional shared services scope of activities, companies should also consider potential activities that can be added on to its shared service operations in the future.Many companies have started to co-locate specialized or value-added functions, for example, center of excellence functions, with the shared services centers to facilitate closer integration with transaction processing, and leverage a common governance structure and established infrastructure. According to Accenture’s Shared Services 2011 research, specialized and value-added services that can be added to shared service can range from transportation to research to data analytics.

As well as evaluating several key attributes of APAC locations such as cost effectiveness, supply of talent, infrastructure and the business environment, companies looking to set up shared services operations here need to consider location selection as a strategic decision and define a location model that supports the company’s strategic growth plans in the regionas well as the company’s vision for a global business services network.