Latin America is quickly establishing itself as a preferred destination for global corporations seeking to set up shared service centers (SSC), with more and more players pursuing new locations in Brazil and the Andean states to perform back-office functions. “Proximity and cost structure are some of the factors favoring the region,” says Mark Klender, Principal, Deloitte Consulting, which has recently surveyed nearly a hundred global corporate executives to gauge shared services trends and preferences.
The number of shared services centers is declining in the U.S. and Canada, but rising in Latin America, particularly in South America, the survey found. When Deloitte conducted a similar survey in 2011, Latin America had come second after Asia, but this time round the region has turned out to be ‘the first destination of choice’ for setting up SSCs.
More than 11 percent of respondents said they prefer Brazil, while only 10 percent preferred India, which the consulting firm regards as ‘the mainstay’ of the sourcing industry. In the survey, a considerable number of executives expressed interest in Mexico and Argentina.
Another interesting piece of news is that nearly 50 percent of SSCs servicing Brazil today are based within Brazil, and the South American country’s major cities such as Sao Paulo, Rio and Itajaí are increasingly becoming the hotspots for shared services centers.
More striking still, many corporate companies are using their LatAm centers to process back-office functions for operations in Europe and Asia.
As an example, Brewer AmBev, which has a very large regional shared services in Sao Paulo, is serving not just operations in the region, but also the firm’s operations in Canada. Diageo’s SSC set up in conjunction with the Indian outsourcing company Genpact is also exploring ways to serve the British liquor company’s operations in Europe.
Long list of Shared Services
Many global multinationals have already set up SSCs in the region. “The list is long and the names include HSBC, MacDonald, Pepsi, Walmart, Amway, Siemens, Roche, Nestle, Johnson and Johnson, Procter and Gamble,” said Klender.
What is playing to the advantage of Latin America is the region has many countries and a majority of their residents speak a single tongue. “Many firms are setting up one SSC for every four or five countries. In other words, they set up one SSC in South America and another in Central America,” said Charles Arid, global practice leader, shared services, at PricewaterhouseCoopers (PwC).
According to Deloitte, labor cost and availability of workforce has continued to be the decisive factor defining where you will locate your shared services center. Availability of physical space, technology infrastructure and skills in languages are the other factors of importance.
Interestingly, analysts say, most of the SSCs are serving as pan American centers but a vast majority of them are concentrated in four major countries – Brazil, Chile, Mexico and Argentina. That is because global multinationals in Latin America have 75 percent of their operation in generally two or three countries.
Klender says the number of SSCs will increase in the days ahead as the region consumes more goods and services. The consumer goods company Unilever, which sold its finance shared services to Capgemini, has joined hands with IBM to handle HR functions for its workers in Brazil, Mexico and Chile.
“Organizations are increasingly leveraging shared services and outsourcing initiatives to reduce costs, increase efficiency, achieve greater agility and improve compliance,” Arid said.
Where Are the LatAm Vendors?
Though SSCs are growing in number across Latin America, it is hard to find a regional vendor servicing a global client. Many SSCs set up by homegrown companies appear to be run by their own subsidiaries.
Analysts say a lack of knowledge about the benefits of setting up specialized centers for discreet business functions is holding back many small and medium businesses from leveraging shared service centers. Many don’t trust the argument that SSCs help cut cost and are also unwilling to conduct a feasibility study.
Corporate firms, on the other hand, are appearing more willing to outsourcing their back-office functions than set up captives or SSCs with third party vendors. A past survey from HfS Research showed 70% of companies preferring to outsource and 52% increasing investments in shared services.
Klender says the biggest challenge for corporate companies is selecting the right country to set up the shared service center. “If you pick the wrong country you may not be able to save as much cost as you had expected,” he said.
“Shared services market is maturing in the region. LatAm companies don’t need to have their back-office functions processed in countries like India,” Klender added.