What is a Shared Service Center in Mexico and how can it reduce operating costs?

 

Estimates are that more than 80% of the 2,000 largest companies globally have implemented this business model. Establishing a shared service center in Mexico through Intugo can also be a solution for mid-sized companies.

A Shared Service Center in Mexico is an area of people, processes, and technologies concentrated in the same place, doing the same things for different internal clients of a company that operates in several places. Shared service centers utilize standardized processes. This means that instead of having several areas of duplicate people, technology, and functions, only one is concentrated in a specific place. As a result, a shared service center in Mexico can help companies to streamline their organizations.

The Objective of a Shared Service Center in Mexico

Shared service centers concentrate all the areas, be it finance, human resources, legal services, tax, purchasing, commercial and sales functions, etc., in a single structure to remove transactional activities This gives a company’s managers the ability to increase their focus on strategic activities through the specialization of their teams.

A shared service center in Mexico enables operations within companies to be more efficient, reduce costs, and improve the quality and control of activities. In addition, such facilities help organizations to maintain a high level of specialization thanks to companies focusing on their core business and increasing their level of service and quality.

In this regard, Carlos Zegarra, Lead Partner of Management Consulting at PwC Mexico, stated in a recent interview that these models “were born mainly to manage costs adequately.” However, he added that this “is no longer the only reason” because now there are other reasons, such as the quality and control with which the activities have gained prominence.

Benefits for companies of a shared service center in Mexico

According to the 2021 Global Survey on Shared Services Centers, carried out by PwC, companies implementing these models reduce their service costs by 20 to 30% in the first years. For this result to happen, however, they need to standardize their repetitive processes. This allows for lower costs and the achievement of greater operational efficiencies.

In addition to the above, other advantages are associated with establishing a shared service center in Mexico. Among them are:

• Greater operational control.
• A better-trained staff.
• An increased focus on the core business.
• Increased efficiency and productivity.
• A better exchange of experiences and practices.
• Unification of information technology systems.
• Automated and controlled processes.
• Centralization of company operational units.

 

Can all organizations use them?

Carlos Zegarra emphasized that this model is not for all companies, since it only works most effectively for those organizations “that are highly transactional” and have a sizable back office. However, they can function in medium-sized companies where a significant number of personnel are in support areas in multiple facilities.

It must be taken into account that in most back office processes, there is a percentage that can be standardized and others that cannot. Whether this can be done depends on each case. For example, accounts payable is one of these processes.

Carlos Zegarra highlighted that the coronavirus pandemic showed that the shared service centers are a successful model “that generates high levels of productivity and is ready to be applied to other activities.”

 

How to implement a Shared Service Center in Mexico?

Figures from PwC revealed that more than 80% of the 2,000 largest companies globally have implemented some shared services scheme, which is why Carlos Zegarra shared three variables that companies need to consider before implementing a shared service center in Mexico:

1. Labor cost: Mexico is becoming more competitive when compared to other countries in Latin America. When a company implements the shared service center model, it has to do it in a low-cost location to achieve the most significant benefit.
2. Supply of talent: People with a certain level of preparation and a sure command of languages are needed. In this regard, Mexico has some of the most prestigious universities in Latin America, representing an advantage for companies that establish a shared service center there.
3. Technological infrastructure: Considering that many people are serving the same internal clients of the company in different places in real-time, an adequate connectivity scheme is needed. In this sense, companies such as Intugo have made significant investments in this critical area.

 

After considering the above, the organizations need to define what functions will be assigned to a shared service center in Mexico and what will not. In order to determine this, an analysis must be carried out to ascertain where what is available, the processes, the activities, and the situation of the company. Also, companies must define the objectives to be achieved.

Overall, opening a shared services center in Mexico can provide cost savings, access to a skilled workforce, favorable business environment, proximity to the US, and cultural similarities, making it an attractive option for companies looking to establish a presence in the region.