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.