IT & Engineering: why more and more large companies are opening Shared Services Centers in Asia

Shared Services Centers (SSCs) are booming. So are Global Capabilities Centers (GCCs) and Centers of Excellence (CoEs), relatively similar types of structures. Their number is growing exponentially, especially in Asia and in IT activities. These models have been very popular across the Atlantic for several decades. According to the Shared Services Handbook published by Deloitte, 80% of Fortune 500 companies already use Shared Services in one form or another. But the big news is that European companies are also turning to this type of organization in their droves.

So, what’s behind the success of Shared Services Centers, especially in IT? Why are more and more companies turning to Asia to set up this type of organization? Here is our analysis.

Shared Services Centers, Global Capabilities Centers, Centers of Excellence… what’s it all about?

Shared Services Centers (SSC) are structures that centralize one or more operational functions. They are autonomous internal organizations responsible for providing services to several entities within the same group.

The classic case is a hybrid model between insourcing and outsourcing: the management team and managers are employees of the company, and the teams are often composed, at least in part, of independent experts. Historically, SSCs were mainly dedicated to functions such as accounting or HR, but they are increasingly being developed for IT functions, where needs are growing.

Other models come close to Shared Services Centers:

  • Global Capabilities Centers (GCCs): these are shared service centers focused on high-value-added activities, such as research and development, product design, data analysis, and engineering. They are thus distinguished from SCCs, which are more concerned with support functions.
  • Centers of Excellence (CoE): These structures combine cybersecurity or user experience skills and expertise. They are designed to improve the company’s expertise in a given subject.

What are the benefits of Shared Services Centers?

High operational efficiency and service quality

Regardless of the area of expertise involved, the objective of shared service centers is the same: to improve operational efficiency and service quality by centralizing and standardizing these functions within the company. Streamlining processes increases productivity and reduces errors while mobilizing a highly skilled workforce, particularly in GCC and CoE, allowing the company to benefit from cutting-edge expertise. This is especially true in highly technical areas of IT expertise.

Cost optimization

By pooling processes, tools, and skills, these structures allow for significant economies of scale compared to a decentralized organization. In addition, Shared Services Centers are often more economically attractive than outsourcing solutions. They also prevent the company from developing a dependency on a supplier, which can impose brutal price increases.

Better control of activities

Compared to a traditional outsourcing model, shared service centers allow companies to gain much control over their activities. Here are some of the benefits:

  • Skills and know-how are kept in-house and can be a competitive advantage rather than being used by the supplier to benefit other customers
  • Internalization allows for better alignment with the company’s objectives and culture and collaboration with the various business lines.
  • Operations are much more agile than outsourcing, which is always governed by contractual clauses or data-sharing restrictions that weigh on the fluidity of processes.
  • The company owns the networks and hardware. Therefore, the risks related to cybersecurity and data protection are better controlled.

SCCs, GCCs, and CoEs are structures with multiple assets, attracting more and more companies that want to improve the management of their activities, especially IT. Some open such structures directly on their territory, but most turn to other countries, particularly the Asian continent.

Why is Asia the new Eldorado for large groups wishing to open their IT Shared Services Center?

According to The State of Indian Shared Services 2023 study published by SSON Research & Analytics, India would be the number one destination for companies looking to open a CSC, as it already has over 1,200 such centers. According to the same study, the second largest market is the Philippines. So why is Asia the ideal place for this type of structure? Here are some explanations.

Highly qualified IT talent pools

For many companies, Asia is a response to the severe talent shortage experienced in Western countries. Indeed, countries like India, the Philippines, and Vietnam represent vast pools of talent, which today benefit from solid training in technology and IT. India, for example, trains nearly half a million new engineers each year, according to official figures. And they are English-speaking engineers. More and more of Silicon Valley’s most prestigious executives are coming from Indian universities.

Highly specialized local expertise

Asia is also a vast continent, with many regional specificities, especially in the IT and engineering world. The Philippines, for example, is known for its expertise in BPO (Business Process Outsourcing). Vietnam is considered a reference destination for software development. Many large corporations are using several Asian countries for their shared service centers, for example, for their IT helpdesk. This allows them to strengthen the resilience of their operational infrastructure by distributing activities to different locations. In an outage at one location, services can be transferred to another site, enabling business continuity.

Countries with a lower cost of living

The main objective of CSCs and CCGs is not to mobilize low-cost labor as in the offshoring model but rather to access highly skilled talent, which is now either unavailable or unaffordable in the Western talent markets. The cost of living in Asian countries can be 4 to 5 times lower, allowing companies to save on labor costs. Salary differentials also allow companies to retain talent in their shared services centers. They can offer them very competitive packages compared to what is generally available in local markets.

Finally, the proliferation of Shared Services Centers can be explained by the many advantages of these organizational models, which are particularly well-suited to the IT and engineering needs of businesses. And Asia is an excellent area for their development. Do you need help to open a Shared Services Center in Asia or to recruit external talents locally in India, the Philippines, Singapore, or Vietnam? LittleBig Connection can help you through its Global Connect service.