17 minutes | Dec 2, 2020

Shared Service Centers in Latin America

Shared Service Centers in Latin America Contact the Central American Group if you are looking to establish a shared service center in Central America.  The Central American Group:  Hello, welcome to another edition of the series of podcasts that the Central American group puts on. We like speaking with individuals that have knowledge about doing business in the region. Today, we are happy to have with us Augustina Mortola.  She is from a company that is a consulting firm in Buenos Aires, Argentina. And the name of the firm is Jones Lang LaSalle. Welcome, Augustina. Can you please introduce yourself to our listeners? Augustina Mortola:  Of course. Hi, Steven, how are you? Thank you very much for having me. It’s such a pleasure to come and talk to you about shared service centers in Latin America. Well, as you already present to me, my name is Augustina Mottola.  I work for JLL and I’m part of the strategic consulting team. We perform different assignments for real estate investments. I’m part of a regional platform. We cover Latin America. The Central American Group: Well, today, tell us a little bit about the topic that we’re going to cover if you can just give an introduction to that. Augustina Mortola:  Of course.  We’re going to talk about shared service centers in Latin America.  We recently carried out a regional study on shared service centers that included the main markets in the region.  We also undertook a deep dive into emerging markets like El Salvador that have great potential to attract this type of business.  We took a look at shared service centers to really understand if there’s potential in the country and can share some of our findings with you. The Central American Group: Okay, so today, we’re going to concentrate mainly on El Salvador. Just explain to the folks that might not have knowledge of this topic. What exactly are shared services? Augustina Mortola: Well, shared service centers in Latin America are horizontally structured operating models, which consolidate activities that are executed for different business units within the same company.  Away to understand it is that, for example, companies have different finance teams. So those financing could support one business unit, or they could have a centralized finance team that gives support to all the business units within the company.  Creating these horizontal structures where companies centralize certain services that provide support to different business units creates efficiency. We have observed that companies are increasingly doing this with the objective of performing internal restructuring, reducing costs, consolidating administrative functions, and avoiding duplicating efforts between various business units.  Some of the other advantages for companies using shared services in the Latin America model include the improvement in efficiency and the achievement of greater management control.   Shared service models enable companies to focus on their core activities, they are specialized entities are free to carry out high volume and low strategic value transactions. The Central American Group: What exactly are the activities that are performed generally in shared service facilities? Augustina Mortola: When looking at shared service operations, one can find a wide range of activities that include human resources, payroll, database maintenance, emailing, training, and some finance functions such as PL creation, vendor management, and purchasing.   All of these activities can be centralized to give support to different entities within the same company. They can be performed from shared service centers in Latin America.   We’ve seen that shared service center implementation programs, for the most part, are processes that run in stages.  In this way, the risk of failure is minimized, and the deterioration of operations is avoided.  It’s really important to bear in mind that the ability to centralize these services that I just mentioned, is linked to the maturity of the company processes. We have observed that corporations have not only have begun to consolidate their operations services, but also to centralize functions in markets that present scenarios that promote their success. The Central American Group: What are the main markets for shared services in Latin America? We can answer this question in two different ways:  Globally and based on the information we obtained from a study on the state of the global shared service industry in 2020.  Worldwide the most popular countries to set up in new shared service locations are the United States and India. Together, these two markets make up 35% of the global shared service center stock that is made up of around 3,290 locations. When we looked into the Americas, we found that Central and South America have great potential.   We performed a study of shared service centers in Latin America that included 300 companies that had operations. Base on this survey, we found out that 40% of companies contacted plan to add more centers and more staff to their current operations.  Based on our JLL survey results, we believe Latin America has a great outlook to foster the shared services industry. The Central American Group:  We know that you did a focus on El Salvador.  Could you provide us with a little bit of information that pertains to El Salvador and the prospects that it might have with respect to shared services? Augustina Mortola:  Yes, of course.  We’ve seen that this industry is currently growing considerably in Latin America.   As the industry matures in local markets, more and more companies are attracted to the regions.   With regard to the particular case of El Salvador, this is kind of an emerging market with great potential to attract shared services business. It’s very cost-competitive. Just to give you an example, the average salary for a shared service center staff worker is approximately $300 a month.  The country also has very low inflation and uses the US dollar as its currency.   Additionally, according to the World Bank, El Salvador is considered to be the number one country in the region for trading across borders.   There are many benefits in these emerging markets.  For instance, there are also tax benefits for companies setting up shared service centers in Latin America. And of course, as with any emerging market, the lack of infrastructure may present a challenge.  This is particularly the case for El Salvador that we are discussing, we noticed there’s not much of a developed shared service industry there.  This can be very positive on one hand because it brings lots of advantages for companies that start to settle there in terms of cost infrastructure available labor force.  It’s also a challenge because, well, firstly, what we found is that companies value security and seek to avoid exposing the workforce to environments that may not be very safe for them. In this respect, El Salvador has work to do with changing the public’s perception of the state of security in the country. We believe that although the infrastructure is not developed yet, El Salvador occupies a strategic geographic location, is cost-competitive, and it offers tax advantages.  It will be a good strategy for the future to position this market as a strong contender to develop a competitive shared service center industry. The Central American Group: Prior to beginning this recording, you commented on the quality of the workforce that’s available in El Salvador.   Is there anything you could tell us about that? Augustina Mortola: Yes, of course, what we did was study different industries based on generic information.  We identified that there was a niche that needed high skilled labor force in terms of different industrial capabilities and financial capabilities. If we look into El Salvador, we examined different graduates and the different colleges that they attended.  We found that there is a high proportion of well-educated people in the labor force.   This can be challenging to find in another market.  El Salvador does have well-educated people that can be employed at an extremely competitive cost.  If we want to really dive deep down into this topic, I believe one of the challenges that exist is to find a workforce capable of speaking multiple languages.  The population should be trained not only in Spanish but also in English and in other languages depending on the market that a shared service center in Latin America operates.  We have determined that only 15% of shared service centers provide services to local companies.  Forty percent of the services are provided within a regional.  These are areas in which employees need to speak Portuguese and Spanish.  Furthermore, 40% of activities provided from shared service centers in Latin America have a global reach. English is a must in order to start this kind of operation.  In El Salvador, based on our data, approximately 500 people with bilingual abilities join the workforce each year.  Since at the present moment there are limited job opportunities in El Salvador, there are a lot of high skilled workers that are available to businesses at a competitive cost.   The Central American Group: Taking a step back, and looking at things from more of a regional perspective, which are the main markets for shared service centers in Latin America? The main market in the region is Sao Paulo, Brazil. It’s actually the main market. It has a big internal market, and it also provides services globally.  In the second place, we’ll have Mexico.  It has two main markets. Mexico City is the biggest one and then Monterrey.  In third place, we have San Jose, Costa Rica, which is really one of the most well-known countries in our region, because they have Free Trade Zones in which shared service centers are centralized.  After San Jose, Bogota, Colombia would be another main market for shared services in Latin America. The Central American Group: What are the main trends in the industry? And how would this group of trends impact Latin America? Augustina Mortola:  Well, if we have to talk about trends, we can highlight four main ones. The first one would be the shared service center maturity process. Depending on the maturity level of the operation, the variable that determines the location of a shared service center is cost.  A large proportion of the survey companies that we included in our study are considered to be in the early stages of maturity.  These organizations are highly motivated by cost.  The region is very cost-effective. The second one would be about adopting global operational structures. We’ve seen that usually shared service centers in Latin America start with a small scope of activities that cover limited geographies.  What we have seen is that companies are evolving to develop what we call GBS or global business services. They are providing support from one location to their global different business units and operations. This increasing level of centralization of operations is also positive because companies are performing more activities and covering more geographies from existing shared services. The third trend is the adoption of artificial intelligence.  I think this is important to mention based on a McKinsey study that was published in March 2019.   Sixty-eight percent of Latin American shared service centers perform manual tasks. If we look at the results of the JLL survey, we see that companies are working towards automating most of their operational activities.   Even though this is the case, only 35% of shared service centers in Latin America plan to do so in the next two to six years in the shirt service centers. Last, but not least, we believe that transformations to centers of excellence will have a positive impact on our region. This represents the evolution of the appreciative shared services center to value-added ones.  This model requires a highly trained workforce.   We have seen that Asia and Europe positioned themselves as the most competitive market for this type of service. However, although they are adept at delivering value-added services, they are not cost-efficient for performing operational tasks.  Based on this trend, we have identified a shift that will benefit the Latin American market. it’s a market that has, you know, lots of potential for creating a platform and delivering shared service centers. The Central American Group:  Is there anything that is beyond these trends that is important to recognize? Augustina Mortola:  Well, if we want to focus on things beyond trends, it’s important to highlight that there is a tendency for companies to locate their shared service centers close to headquarters.  This derives from the operational advantages of working in close proximity, both in terms of time zone and geography.   Currently, 70% of the companies that operate shared service centers are US corporations. This local proximity will enable Latin America to position itself as a competitive and preferable location for the consolidation of shared service centers. At the same time, it’s important to highlight that the maturity of markets such as Asia will have a positive substitution effect for a region in both Asia and Europe.  Organizations in these markets are evolving towards the development of Centers of Excellence.  We estimate that this change will accelerate the growth of shared service centers in Latin America, which can position itself as the main recipient of high volume, but really low strategic value operations. According to our survey, we estimate that, by 2025, 605 new shared service center operations will be incorporated into our region. The Central American Group: When we do these podcasts, there are questions that come up in our listeners’ minds.  Is there an email address that our audience can use to contact you to ask further questions? Augustina Mortola:  Of course, Steven. My email is, I can spell it out to you because my name is not that easy to spell.  It is augustina.mortola@am.jll.com that’s my email.  If anyone has any questions, they should feel free to reach out. It would be a pleasure to provide information on this topic. In addition, we’ll be putting up if it’s okay with you. The Central American Group:  Additionally, we have included a link to your LinkedIn page. Augustina Mortola: Thank you, Steven. It was a pleasure to be here. And thank you for having me. Have a great week. Have a good day you as well. Goodbye. Contact UsPlease use this form to contact us and we will respond as soon as possible: hbspt.forms.create({ portalId: "4942516", formId: "4e06c058-8555-403f-a026-77268123ee9f" }); The post Shared Service Centers in Latin America appeared first on The Central American Group.
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