The creation of an HR shared services centre can lead to savings of between 20% and 40% depending on location, with the majority coming from reduced labour costs.
According to Josefien Glaudemans, marketing director at specialist location services consultancy Buck Consultants International, the workforce generally accounts for 80% of any organisations’ expenditure alongside other factors such as transport and telecommunications.
But when making decisions as to where a shared services centre should be located, more subjective quality factors such as labour availability and flexibility as well as language capabilities should also be taken into account.
“Labour accounts for 80% of your costs so it drives the decision. For quality, it’s 90% based on labour so again it drives the decision,” Glaudemans said during a presentation at the European HR Directors’ Summit in London yesterday.
But she warned that total employer cost was about more than simply gross salaries. In order for HR directors to compare apples with apples, they must also include social security payments and other benefits in their calculations.
Moreover, HRDs should not rely on only one source to establish what labour costs in any given country were likely to be. Regional development agencies, recruitment consultancies and investors all had their own agendas that would skew the figures.
This meant that it was best to work within ranges and to remember that the cost differential between tier one and tier two and three cities located in individual countries could be larger than that between different countries. A five year forecast was also useful in order to understand how circumstances were likely to change.
Cost implications
“Each market has its own development phase so risk-averse companies will prefer a developed market, but there are cost implications. If the market is less developed, there will be less cost but staff will require more training,” Glaudemans said.
She also warned that “cultures can collide” and recommended that HR directors also take account of Richard D. Lewis cross-cultural model when making location decisions. This model categorises different cultures into three types:
- Multi-active: warm, emotional, loquacious, impulsive, which applies to Latin American countries
- Reactive: courteous, amiable, accommodating, compromisers, which applies to Asian countries such as Vietnam
- Linear-active: cold, factual, decisive, planners, which applies to Anglo-Saxon-speaking countries such as the UK
But Glaudeman said that, for Europe and the US in particular, “the offshoring trend was nearly ending and there’s a trend to near-shore”. European high-tech and airlines and US-based telecommunications providers were “re-shoring” their activities – which mainly comprised accounting, admin, data entry and processing rather than HR, which was still relatively uncommon – from Asia because of “quality issues” and were now looking at new territories closer to home.
In terms of nearshore territories, UK organisations were showing especial interest in tier two and three cities in Central European countries such as Poland, Romania, Hungary and the Czech Republic after their capitals had overheated in terms of labour costs. Smaller cities could still generate savings of between 30% and 40%, however, while the Baltics were also gaining a lot of attention for the first time.
Likewise in favour at the moment were Malta, South Africa and Ghana, although onshore locations in Scotland, Wales and Northern Ireland could still generate savings of between 20% and 30% on labour costs in London, Glaudeman said.
As for the offshore location of choice for UK companies, this was still India, but the Philippines, Malaysia and Vietnam were all up-and-coming, she added.
