The Expanding Role of Shared Service Centres in Emerging Markets

by Michael Guralnick, Managing Director, Global Head of Corporate and Public Sector Sales and Global Marketing, Treasury and Trade Solutions, Citi and Swati Mitra, Managing Director, Global Sales Leader, Emerging Market Corporate Clients, Treasury and Trade Solutions, Citi.

Given the divergent growth rates and market dynamics of emerging and developed economies, the challenges of automating and standardising the financial and operational flows of a multinational are immense.  Market volatility, new regulations, digitisation, cyber threats, evolving technologies and globalisation are introducing a wide array of new considerations for risk management.  Examples include risks triggered by capital controls, taxation system changes, clearing system enhancements, regulatory reporting, geopolitical activities, sanctions, environmental challenges, foreign exchange and banking system instability, technological developments, and cyber threats.

In order to leverage investment in technology, simplify operating models and drive corporate governance, there is a continuing trend towards the establishment of shared service centres (SSCs) primarily in low-cost emerging market locations.  SSCs can be used to automate and standardise processes, whether regionally or at a global level, and improve the efficiency of many back-office functions (e.g., payment processing, accounts receivable and financial reporting). In doing so, companies often find that they can improve working capital and optimise cash flow, support growth with increased productivity, and position themselves to more effectively manage risks.  By centralising such functions, companies also avoid the difficulties of having to replicate the necessary infrastructure and skills in each market as they grow organically, or through mergers and acquisitions.

From Citi’s extensive client base of SSCs, feedback suggests that whilst the success criteria and key performance indicators for SSCs have remained focused on cost-savings and operational efficiency, one of the new drivers for the growing evolution of these centres is the recognition of the crucial role they can play in risk mitigation, regulatory compliance and improved control.

Creation of an SSC typically results in streamlined banking structures, centralised operational processes and holistic access to data across the organisation. It therefore allows an SSC to achieve greater control over bank accounts and liquidity, improves cash flow forecasting, reduces entry points for security threats, and enables simplification of bank connectivity, channels and work flow.  Most SSCs ensure that key performance indicators, or a balanced business scorecard is in place to monitor a wide range of metrics across numerous factors including: operational efficiency, financial performance, cost savings, people management/attrition, as well as risk management dimensions.

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Geographic expansion, particularly in the emerging markets, and changes in organisational constructs are resulting in a widening of the scope of activities for SSCs. Many have evolved from low-cost, high volume processing hubs to centres of excellence,  and ultimately they are moving towards global organisations, often referred to as Global Business Services, leveraging scale to achieve even greater returns on investment. 

By bringing together operational activities across multiple functions and regions under a single organisational framework, companies are able to achieve end-to-end ownership of significant functional processes such as: cash elimination, electronification of paper, data protection and technology standards.  These processes are reviewed and agreed by governance boards, customer advisory councils and global process owners who recognise the importance of partnership building, early identification of potential areas of risk, value of data analytics and need for an end-to-end enterprise process view. 

Many of these companies have widened the scope and accountability of the SSC to address improvement in working capital, technology, risk and compliance. If we take data as an example, an SSC has access to a large volume of data about the business model, operations and flows, which are sensitive to market changes.  Turning this data into actionable analytics can create tremendous value for a company: for example, a regional or global payment file can be dissected and analysed with a banking partner to identify areas for improvement in straight-through processing, conversion from paper to electronic, cross-currency payment flows management and opportunity for cards or trade finance solutions.

As cyber-attacks increase in their sophistication, SSCs can also lead the way in partnering with banks like Citi to implement education programmes for their team members, and secure electronic solutions such as host-to-host connectivity, mobile alerts, digital signatures and workflow tools that mitigate cyber threats and fraud risks.

The good news is that for companies who have embarked on the journey to centralisation, once the SSC foundation is in place, adding countries or new functions can be an accelerated process thereby increasing the returns on a company’s initial investment.  Continuous executive sponsorship, access to a diverse talent pool and on-going investment in state-of-the-art technology platforms are key.  Over the coming years, we expect to see SSCs play a crucial role in improved use of metrics, enhanced automation tools, digitisation of processes, and driving evolution of a robust technology and operational risk management architecture.  We also see SSCs as an integral partner to functions such as treasury, finance, procurement and human resources as each of those areas take on increasing complexity within their own functions.