Kirk Laughlin
In March came a major announcement; in June there is silence. Kraft Foods, basking in the glow from significant business growth in Latin America, apparently has created two new shared services operations centers there. However, the company is unwilling to disclose any details about the centers, despite the fact that in March at the Shared Services and Outsourcing Week program in Orlando, Mark C. Johnson, Vice President, Enterprise Shared Services, told a packed room that Kraft was transitioning from a “local to a global approach to shared services” and as part of that evolution, was establishing two new centers in Latin America. But the company won’t comment at all about them now.
Usually, upon entering a new market or establishing a significant presence in a growing location, the corporation announces the opening and congratulates itself on the selection with fanfare. As Kraft Foods did when they trumpeted a recent investment in an operational facility in Brazil, proudly quantifying the new jobs created, the plant’s eco-friendly attributes, and contributions the company made to the local community.Start of Journey
At the March conference, Johnson detailed the company’s approach to shared services from the mid-1990’s, when Kraft Foods began to provide domestic payroll, HR administration and accounts payable services from a center in San Antonio, Texas, to the 2009 creation of a globally focused Enterprise Shared Services organization “providing a balanced set of services based on unique functional requirements.”
He told the audience that Kraft Foods was reaching a mature level of sourcing optimization, having centralized, standardized, and automated, while progressing through stages of multiple independent shared services locations providing a variety of services to regionalization and towards globalization. He said that at maturity, the globally optimized sourcing organization could provide up to 35% cost savings.
Johnson spoke of the two newest centers in Central and South America, but didn’t identify where they were located. A map included in his presentation shows centers situated in two locations that appear to be Panama and the border between Brazil and Venezuela, but actual countries and cities cannot be identified.
The organization currently has centers in Spain, Slovakia, and the UK, presence in the US, and a global hub in Mumbai, India. The UK shop, along with a center in Plano, Texas, joined the network when Kraft Foods acquired Cadbury, in 2010. The globalization of Kraft Foods’ back office operations has followed the global evolution of the company’s core businesses. With the Cadbury acquisition, the company now generates more than half its annual revenue of $49.2 billion outside of North America, with 26% coming from developing markets, including Latin America.
Brazil Expansion
In May 2011 new employees cut the ceremonial ribbon to open an $80 million manufacturing facility in Pernambuco, Brazil. Initially the plant will produce chocolate and powdered beverages, and will begin manufacturing biscuits next year.
With this investment Kraft Foods is positioned for further expansion in the fastest growing areas of one of the fastest growing countries in the world. More than 18,000 applicants competed for positions at the 270,000-square-foot Pernambuco facility in north-northeast Brazil, which will employ over 600 locals to start, adding 200 more when the new biscuit line opens in 2012. The company was quick to point out that the new plant would provide jobs to Brazilians, and bring new investment to the local communities. The release also stated that the new plan’s environmental footprint would be small and that it would seek to be recognized by Leadership in Energy and Environmental Design (LEED).
The facility could become the company’s first certified LEED plant in a developing country. Kraft also trumpeted its $2.2 million investment to help local kids live healthier lives. Before ground was broken on the plant, they aligned with INMED Partnerships for Children to plant vegetable gardens in more than 300 public schools in Pernambuco, which will provide fresh produce for school lunches and help educate 100,000 Brazilian students about healthy eating.
It seems ironic that a global company which issued a press release in May about a major business expansion in Latin America highlighting the contributions the company is making in Brazil, is unwilling to indicate where it is establishing shared services operations in the same region, and what functions will be performed there. Isn’t that an investment to be proud of?
According to a company media release, Kraft Foods derives nearly $2 billion in annual revenues from Brazil where it sells 35 brands and has 10,000 employees. But whether the company invests in manufacturing facilities or back office operations, its investments bring new jobs to communities and new economic opportunities to workers. Why does Kraft Foods choose not to discuss the shared services investments in Latin America?
Mr. Johnson, who, in March, asked Nearshore Americas not to write about his presentation until we had a chance to speak at his office in Northbrook, IL, ignored repeated requests through March, April and May to schedule that interview. Now, he is gone.
According to Julia Fernandez, a company spokesperson, Mr. Johnson left the company in the “past couple of weeks.” However, as of June 13, Mr. Johnson’s LinkedIn profile continues to state that he is “Vice President, Global Shared Services at Kraft Foods.” But then again, many people don’t amend their profiles right after leaving a position.
In response to inquiries from Nearshore Americas about the shared services centers, Ms. Fernandez said, “I have connected with several of my colleagues and as I understand, aside from the information you already have, we don’t have any additional details to share and are unable to comment further at this time.”
It seems ironic that a global company which issued a press release in May about a major business expansion in Latin America highlighting the contributions the company is making in Brazil, is unwilling to indicate where it is establishing shared services operations in the same region, and what functions will be performed there. Isn’t that an investment also to be proud of, creating new jobs, and bringing added economic vitality to other communities?
For Kraft Foods to be able to manufacture and sell Tang in Pernambuco, it needs to be able to process payroll for its workers somewhere. And if the payroll processing center handles paychecks for workers from Pernambuco, Brazil as well as Peoria, Illinois, isn’t that what globalization is all about?
Do they actually have other centers in Latin America, and do they not know where they are? Or do they have something to hide?
I think is simpler than that, some public companies (such as Kraft Foods) are sometimes not willing to disclose details of their operation by geography, because traditionally they do not publish such details on the record. Perhaps Mr Johnson was not authorized to speak about those details. Let’s not be that paranoid. A quality multi-national company such as this one knows where its delivery centers are, no?
Enrique,
Thanks for your comment. I certainly believe that Kraft Foods knows where all of its delivery centers. And I agree with you that there are things that a company does not discuss publicly and place on the record.
But here, the case is a bit different. Mr. Johnson spoke publicly, with slides, at a conference in Orlando in March, and described the company's leadership in global sourcing optimization. They're doing very well in this area and can be looked at as a model by companies trying to create a global delivery model.
But in his slides and his talk, Mr. Johnson named six of the eight cities where Kraft Foods has delivery centers, and said that there were 2 in Latin America . The slide shows one in Central America and one in South America. But the specific locations are not identified, while the all the others are. Asking where those centers are seems legitimate to me, especially since the other dots on their map of their global delivery centers are clearly identified.
When I spoke with Mr. Johnson after his presentation, he asked that I contact him back at his office (so he could confer with the PR group I imagine), and he asked that I not write about what he said until then. He seemed willing to talk with me, with PR guidance, at a later time. I agreed, and Nearshore Americas mentioned that some companies had made statements about Latin American centers, but we did not name them at that time.
When I got back from the conference, I began to try to reach Mr. Johnson to followup. He refused to respond to multiple emails. In May, I began contacting the corporate relations group. After a number of unanswered inquiries, and then referrals, Ms. Fernandez indicated that he had recently left the company. Then, another couple of days after I confirmed my interest in speaking with another executive of their choice, and provided a series of straightforward (I thought) questions, I was told they would not have any comment.
At the same time, they had recently issued their press release about the Brazilian investment, and the complementary investments in the community where their new plant is located. It seemed to me that there might have been a correlation between the growth of the Kraft Foods business in Brazil and Latin America, and the investments being made in supporting operations. That was one of the questions I wanted to ask the Kraft Foods executive.
Because with the growth of businesses beyond the American borders, the question of "offshoring" of back office jobs becomes very interesting. If demands on back office systems are growing because of the addition of new employees manufacturing Tang in Pernambuco, and the company decides to create a new delivery center in South America, those are not "US jobs" being offshored to a lower cost location. Those are new jobs being created by the growth of a business in that region.
That's really what this story is about. When the offshoring of US jobs (captive or outsourced) was an issue in past years, the drivers were clearly lower costs in distant locations and the concern about the loss of American jobs was a real issue. But, with companies, like Kraft Foods, the creation of regional delivery centers may not be driven entirely by a search for lower cost solutions. Instead, they are meeting the growing demands of their business in expanding regions, and those jobs are primarily local jobs.
And companies that are afraid to speak that truth about their sourcing decisions, while trumpeting the creation of jobs in manufacturing, may be being disingenuous.
So, I don't think that it is simple as you suggest it may be. And its a symptom of globalization and the rapidly expanding economies of the previously lesser-developed world, compounded by the turmoil created by rising costs and scarcer human resources in China, India and the Philippines, which is causing companies to look elsewhere, including Latin America, for cost-effective solutions fo service delivery in a globalized environment.