It might not yet have the same profile as South Asia or Eastern Europe, but Latin America is becoming an increasingly popular destination for organizations looking to establish shared service centers, either serving domestic markets or as part of regional or even global shared services strategies. Furthermore, along with this growth in the captive sector Latin America has become the focus of growing interest on the part of major outsourcing providers whose entry into the market has had knock-on consequences across the board. Throw into this already-volatile mix the current economic instability and it’s easy to see why the region’s activity is making waves across and beyond the shared services and outsourcing space in 2009.
We convened a panel representing practitioners, providers and advisors to take a look at the current level of maturity of the Latin American market and to examine how – and if – the economic malaise affecting much of the rest of the global economy is impacting upon operations in the region.
Laura Bao Castro
CR FSSC Controller
Director, Latin America Finance Operations
Vantaz Group Consulting
PwC Global Sourcing Leader for South America
Q: I think the first question we should look at is: is it right to talk of “Latin American shared services” at all? Latin America is a very big region geographically and in terms of population; it’s got a smaller linguistic diversity than, for example, Europe, but there are still very big differences between, say, Brazil and Costa Rica. To what extent is it actually possible for organizations – captive or BPO – to take a truly regional approach in Latin America? Is it impossible to avoid having significant resources in individual countries?
Ricardo Neves: This is a region different from other regions in the world. If you talk about intra-region services, you’re talking about two major languages which are, in some ways, close to each other; you have also a closeness of overall culture; and usually what you see with multinational or regional operations here is that the larger countries like Brazil, Argentina, Mexico, Chile correspond to a significant size of the operations. Usually if you look at most of the global or multinational companies in the region, they have 50% or even 75% of their operations carried out in two or three countries at most – and then 10, 12 other countries where they do have operations but which make up only 25% or less of their business.
This gives a challenge when setting up a regional center, because there is a scale for the larger countries which is not present in the smaller ones – and what I’ve seen here is a mix between totally centrally run shared services and a lesser local presence in smaller countries to make sure the right scale is achieved and the right support is done at the regional level. There are companies based in Brazil that I’ve seen who have regional shared services – like the brewer AmBev, now connected with InBev and AnhauserBusch, which has a very large regional shared services based in Sao Paulo serving not just operations in the region, but also the firm’s operations in Canada for the Labatt operations. Unilever has also set up an HR shared services – and has just sold its finance shared services to Capgemini in the region.
In sum, from those large operations that I’ve seen, as I said I’ve seen a mix of some centralised services and some small countries with local services combined.
Esteban Carril: We’re serving Argentina, Chile, Peru, Mexico, Colombia, Venezuela, and Brazil. My team is divided into three functional areas, in two countries. One team is working in Sao Paulo, Brazil; the other two functional teams are working here in Argentina. We run accounts payable, accounts receivable, credit and collections, billing, cash applications, payroll, commissions and bonuses. It’s actually not divided linguistically: we found we already had some good skills in Brazil to develop the credit and collections department there, so we decided to leave the existing group providing services there in Brazil, to provide services for the rest of the Latin American countries. We wanted to have three functional groups, but we wanted to try to keep the same skilled people working and we didn’t want to have to move them from one country to another.
Laura Bao Castro: We’re part of a global strategy. We have currently two pretty large financial shared services centers in Intel. One is located in Malaysia and the other one is located here in Costa Rica; the markets that are supported from Costa Rica are Canada, the US, Costa Rica, and Mexico, Colombia, Venezuela, Chile, Argentina and Brazil.
Q: Laura and Esteban, you both come from big global organizations with significant worldwide presence. Do you think it’s still the biggest companies who are setting up shared services in Latin America or are the smaller, or maybe mid-market, organizations also getting involved?
Laura Bao Castro: I think the mid-market is coming up. I was able to go to [a Latin AMerican shared services event in] Chile last year, and also participated in [a] conference in Mexico City, and I was very surprised by the number of Latin American multinationals that have already moved into this journey, or are in the process of doing so – especially in Mexico where I think a lot of companies are looking into it, even having shared services within Mexico itself. The concept is right there; they know they can reduce costs and produce more quality with shared services, and even within Mexico itself companies are developing shared service centers.
Mauro Mezzano: Actually we’ve been seeing this shift since two or three years ago. At the start of the decade many multinationals began establishing shared services in the region, but when I went to conferences in Miami and Orlando there weren’t many Latin American-owned companies present. Then in 2004, 2005, bigger local companies and groups started with the concept. Now smaller and smaller companies are doing it; some of them don’t really implement what we would call shared services but they do centralize and they do take a few concepts from shared service centers, and perhaps redesign a process. The influence of shared services is spreading out through many more companies than before.
Ricardo Neves: I’ve seen an increase in interest: among mid-market companies it’s less regional. What I’ve seen is among large companies, they’ve done a lot of rationalization in each of their countries of operation, and a lot of discussion about regional shared services. What I’ve seen in the mid-market, specifically in Brazil, are still questions on “in-country” shared services if you know what I mean. It’s more making sure that they leverage their local operations, and then as a second step – especially with some of the systems work done – it’s something of a done deal to set up something regional: when you have a regional systems platform, for example. Managed IT Services Markham
Q: Let’s shift focus slightly and take a look at the outsourcing market in Latin America. Over the past couple of years we’ve seen the entry into the region of some of the big global players – in particular some of the big Indian providers. What impact has that had on the market – and on firms that are running shared services?
Esteban Carril: In my experience in leading a shared service centre I have been trying to find different ways to do things, and finding vendors who can provide services in a more efficient and economical way than us doing it ourselves. When it comes to the outsourcing sector, I find that in Latin America things are still in development. When it comes to outsourcing it’s important to see how well-organized companies are, and how well they provide services in multiple countries – and I see the challenge for many of the big firms is that they are still working as independent companies in each country, and not really regionally organized in order to provide services to multi-country shared service centers.