Shared services locations vs. costs: Comparison of four key countries
Posted by firstname.lastname@example.org on September 7, 2016
Shared services centres (SSCs) offer a practical solution to the longstanding need of controlling costs in competitive environment. Nevertheless, running shared services themselves do cost money; how much is largely dependent on the location of the SSC.
Figure 1 presents the breakdown of the most significant cost centres for SSCs.
Figure 1: Operational cost breakdown of shared services centres
Source: Author's own study based on ABSL Report
In order to deliver the services required, SSCs need a skilled workforce. This means that labour costs is the biggest single cost associated with running a centre. Through our research we have found that labour costs usually comprise around 65% of SSC costs, which includes salaries and other non-wages benefits (e.g. private healthcare, sport activities, etc.). Around 12% of costs are absorbed by rent of office space and equipment needed for daily work. 10% of costs are spent on administration needs. This relates to all administration functions (management, HR, finance and controlling) and training. The final category that comprises 6% of all SSC costs is IT. All SSCs need IT hardware and software in order to deliver particular tasks. There are some functions that deliver services 24h per day and they have to have a constant access to IT networks and electricity supply. To reduce risk and ensure business continuity during uncertain situations some shared services centres are even equipped with diesel generators.
Figure 2 presents average annual cost of a shared services centre per full time employee (FTE). To assess different regions, the authors chose the following countries: Poland (CEE), Bulgaria (the cheapest location in CEE), India and the US. The values below represent thousands of USD.
Figure 2: Average of annual cost of Shared Services Centre per one FTE (’000 USD)
We can observe that there is significant difference between India and US. In total, the cost difference amounts to 50k USD, which represents a huge saving for companies locating their SSCs in India. Of course, there are advantages and disadvantages of this solution and location is always dependent on the overall shared services strategy.
On the other hand, comparing two Central and Eastern European locations (Sofia and Warsaw), there is a 15k USD cost difference, in Bulgaria’s favour. The gap does not seem to be that large if we take into consideration the attributes that these location offer. Bulgaria is associated with IT skills and is a European SSC hub for the Middle East. Poland, however has a highly skilled workforce who have unique language skills and are closely aligned to the North and Western European culture.
About the author:
Robert Golnik is a Senior Controlling Assistant & KPI Analyst at Getinge Group's shared services centre in Krakow, Poland. Robert holds Bachelor's and Master's degrees from the Faculty of Management, Czestochowa University of Technology, and is currently studying for a PhD there. His research areas cover globalisation, outsourcing, shared services and foreign direct investments. He has authored a number of academic research papers on the business services landscape in Poland.
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