Shared Services Centers the Latest Trend of MNC Investment in China

The latest Ernst & Young survey reveals that as part of a global trend, multinational companies are increasingly investing in the development of shared services centers (SSCs) in China to help improve their overall competitiveness.

 

The survey further demonstrates that SSCs can help companies effectively drive down cost, improve service quality and enhance overall effectiveness. From a government point of view, it also helps promote regional service outsourcing, develop a bigger pool of professional human resources, and create a better environment for service outsourcing.

 

In this context, it is timely that the China Council for International Investment Promotion is hosting the China Sourcing Summit 2011 in Hangzhou from April 18th to April 20th to help improve understanding of SSC concepts and to facilitate communications between local and multinational companies and provincial governments around this subject.  Ernst & Young are co-hosting the Summit and are providing a number of international and local EY Advisory experts to talk about emerging SSC trends.

 

According to a recent survey by Ernst & Young, there are more than 450 shared services centers operating in China covering a range of industries and functions. The financial sector accounts for 40%of SSCs with the rest being the manufacturing, service, telecommunications and transportation sectors. In terms of coverage, over 60% of SSCs currently are focused on local Chinese businesses, with the remaining 40% either serving global or Asia Pacific operations. In terms of investors, Chinese funded centers comprise just over half of the total with foreign funded centers at 47%. European and US funded centers constitute the majority of these foreign funded operations.  “We expect the SSC trend to continue and accelerate in China given the continued competitive drive to reduce cost and make best use of available talents.  In future, we also expect the range and depth of services provided by China based SSCs to develop as both the economy and available skills mature” says Nigel Knight, Ernst & Young’s Managing Partner for Advisory Services in China.

 

In terms of location, the bulk of the major SSCs are currently located in or close to major cities such as Shanghai, Beijing, Guangzhou, Shenzhen, Suzhou, Dalian, Chengdu and Wuhan. All of them have their own respective advantages in four main dimensions,  i.e. degrees of business innovation, industrial representation, service coverage and breadth of services offered . Beijing, Shanghai and Dalian have the largest number of IT, industrial and customer service and finance related SSCs and a close connection with local leading industries is evidenced here. For example, Shanghai has the largest number of financial services SSCs and Suzhou has the strongest advantage in manufacturing-related SSCs. Global SSCs are mainly located in Shanghai, while those focused on servicing the North and Northeast Asia region are typically centered  in  Dalian.  Lastly, those centers focused on Southeast Asia are often located in Shenzhen.

 

“Companies are stepping up their efforts to establish SSCs in China.Besides the potential cost and efficiency advantages, China’s huge domestic market demand, along with its rapid economic growth are increasingly important to both local and international companies and are driving this trend," says Martin Qi, Partner of Ernst & Young Advisory Services.

 

 

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