Verifying Country-specific Data in the Site Selection Process

Here's an interesting post by Kirk Laughlin at Nearshore Americas.  Mr. Laughlin discusses the need to verify data obtained about various countries as part of a site selection process.  Many times the data is provided by economic development authorities in that country who have a vested interest in getting companies to locate to their country.  This conflict of interest can lead to some rather interesting data.

The moral of the story is to always keep a skeptical eye on any data used to justify the selection of a specific country or city and to use multiple sources of data whenever possible to identify any significant anomolies in the data. 

Choosing a site for a shared service center - Part II

In part one of this series, I discussed the benefits of locating a Shared Service Center at an existing location or facility.  While the majority of companies decide to leverage an existing location, it sometimes makes sound business sense to choose a completely new location.  Here are some of the reasons:

1. Establishing a new identity for your new Shared Service Organization.  At times none of the existing Finance operations are performing significantly better than the others, and none of them are performing at the level of leading companies.  Or maybe there is a fragmented Finance organization due to multiple acquisitions and each one is loyal to their old business units.  Whatever the case, merging the various support groups into a single group and creating a new identity can be beneficial.  Of course, you could do this and still stay at an existing location.  The problem is that there may still be a lingering perception that it really the old Finance group under a new name.   A new and separate location can go a long way towards dispelling that image.
   
   
2. Building in a new region to support organizational expansion. Since the mission of the Finance organization should be to support Operations, it may make sense to go to a new location to support the organization in that area or region.  A couple of years back I had a client that had acquired various businesses in Europe.  Of course, each business came with it's own Finance organization.  They elected to build a Shared Service center in a greenfield location, in this case Budapest, Hungary.  While they didn't have a presence there prior to the establishment of the SSC, a number of variables made it an ideal location. 
   
   
3. Labor arbitrage.  Let's face it.  One of the, but certainly not the only goal of Shared Services is to create a more competitive cost structure.  This could be the compelling reason for not establishing a Center at an existing location.  This could apply to a U.S. company that simply wants to consolidate operations into a single support business and needs to find a lower cost onshore alternative.  This is particularly true of companies located in high cost areas such as the San Francisco Bay Area and the New York and Boston areas.  It could also mean establishing an offshore presence to create a global delivery center.
   
   
4. Tax incentives.  It's no secret that various country, provincial, state and local governments are eager to recruit clean employment like a Shared Services Center.   This can be a powerful incentive when choosing to move to a new location.
   
   
5. Infrastructure incentives by local/regional government.  Similar to tax incentives, many governments will help with infrastructure buildout as part of the overall package.
   
   
6. Requirement for new skills not available in existing locations.  If an SSC needs a specific skill set not easily available in the local market, it may make sense to move to a new market.  More likely, this is tied in with the labor component.  You could almost surely find the skills you need for the right price, but it may be more expensive than is necessary to pay.
   
   
7. Requirement for new language capabilities.  Similar to the skills argument, language skills may be a reason to move to a new location.  I have one client that has an SSC just outside of London and they can handle service requests in 11 different languages.  On the other hand, I had a client setting up a regional SSC in Asia that picked Shanghai, China in part because of the language skills they could find there.

It is certainly less risky to establish a Shared Service Center in an existing location.  When doing so, the company is already familiar with the local laws, customs and languages.  However, there are very real benefits to moving to a completely new greenfield site.  This option should not be discounted simply because it carries higher risk.  If done properly, a new location can reap economic and intangible benefits for years to come.

Choosing a site for a shared service center - Part 1

Once the decision to move to a shared service model is made, one of the early challenges is finding the right location.  Since there are a number of factors that go into it, I'll be covering this decision in multiple posts.

In this post, I'd like to address a very fundamental choice.  Will your company locate a shared service center (SSC) in a location where you already do business, or will you choose a completely new location?  Choosing an existing location is considered a brownfield while a new location is considered a greenfield.

There are a number of good reasons to choose an existing location, and in fact this is the most common choice for companies.  Why is it so popular?

1. Ability to leverage existing facilities.  Companies can lower the capital cost of setting up an SSC if there is room in an existing building.  It can also facilitate a faster transition if facilities don't need to be located or built.
2. Ability to leverage an existing location.  Even if an existing building doesn't have available space, it could still make sense to build a facility on an existing site.  The company already operates in that state/province/country and is knowledgeable about all the rules and regulations.  And it may still be possible to leverage other existing infrastructure, such as a parking lot or a cafeteria.
3. Leverage existing management oversight.  The site manager can oversee construction and development of the center until permanent management can be put in place.  They can also help negotiate the permitting and licensing process for that location.
4. Leverage an existing operation that demonstrates best-in-class metrics.  It is entirely reasonable to perform a benchmark study to determine how multiple sites compare to each other and to external benchmarks.  Say your company has multiple accounts payable locations due to acquisitions.  It would be prudent to compare each site to best-in-class metrics and to each other.  If one site has the management and processes in place to perform at a high level, it may make sense to consolidate all operations into that center.
5. Maintain a competitive cost structure.  If an existing facility is in a relatively low cost state/province/country, it may make sense to build on an existing facility.
6. Leverage available labor pool.  An existing facility may already be situated in an area with a large labor pool with the process skills required to set up the center.
7. Leverage available language skills.  All of the required language skills may be available in an existing location.
8. Minimize time to completion.  Using an existing facility or location will minimize the time required to get up and running, and to begin achieving a return on your investment.
9. Maximize your tax advantage.  Your company may already have an existing facility in a very favorable tax environment.
10. Maximize contributions from state/province/country governments.  Similar to tax benefits, an existing location may have a government that is very eager to provide economic incentives such as road and other infrastructure build-out.

These are some of the big reasons why many companies choose a brownfield location for a new shared service center.  In my next post I'll discuss why it sometimes makes sense to choose an entirely new, greenfield location.

Where in the World are Companies Locating?

A.T. Kearney's annual survey of attractive business locations shows how much the world changes and yet stays the same. Consistent with last year, India, China and Malaysia took the top three tops due to their educated workforce and relatively low wages. The surprise, maybe, is that the United States rose in attractiveness. But don't get too excited. The main reason was the weak dollar which made the U.S. more competitive against other locations.

Poland, the Czeck Republic and Hungary all fell as demand for resources drove up costs. Egypt and Jordan improved their postions as more companies considered the Middle East.