Leveraging Shared Service operations in lower cost areas

In building the business case for Shared Services, the ability to move operations to a lower cost area is often a key benefit.  With the move to a global business environment, talented resources are available world-wide to support back-office processes.

Established thinking usually dies pretty slowly, and most Finance programs evolve slowly.  In the typical progression, Finance operations are either co-located or located near the corporate office, typically a larger city.  There are some gains achieved from process standardization and economies of scale, but there isn't a large labor arbitrage.

In the second phase, operations are moved to a lower cost area onshore.  In the US and Western Europe, this will result in some cost savings due to lower labor rates, and for many companies this is as far as they are willing to go.  For some companies, it doesn't make sense to go off-shore as the increased costs of coordination outweigh the benefits of lower labor rates.  For others, however, the potential savings of moving off-shore are too great to resist.

For now, India is still king of offshore locations; however, rising labor costs, fewer available resources, and the increasing attractiveness of other countries like China are cutting into India's lead.  For Europe, Eastern European countries such as Hungary, The Czech Republic and Bulgaria offer solid options for Shared Service operations.

Whether onshore or offshore, lower cost regions can play a key role in reducing the cost structure of Finance.  A thoughtful analysis of the options is integral to building a solid business case for Shared Services.