The case for a Chinese shared service centre

Are shared service centres a necessity or a luxury for expanding Chinese companies? And what factors should be considered when setting one up?

One or even a few shared services within a company’s group structure in one location is nothing out of the ordinary. So establishing a specific shared service centre (SSC) would be a logical step for a company to grow its business at home or even abroad. But according to Jason Wang, Henkel’s Greater China chief financial officer, the shared service centre model is being applied not only for treasury functions but also for many other finance operations.

“Henkel’s shared service centre model is a pyramid structure providing worldwide outstanding financial services. The role of the SSC is to ensure corporate governance and to provide an optimal financing structure for the group,” said Wang at the EuroFinance cash, treasury and risk management conference in Shanghai at the end of last year. “Our lead administration centre covering Greater China is located in Zhangjiang, Shanghai, and is focused on centralisation, standardisation, automation and compliance.”

The primary objective of setting up a SSC is to reduce costs, enabling a company to in-source rather than outsource. Benefits include faster response times allowing improved control within the same organisation, and lower costs compared to fees charged by an external service vendor. For a rapidly growing Chinese company, a SSC enables it to capture economies of scale and provides additional flexibility for domestic and international expansion.

But setting up a SSC is not a task that can be completed overnight. Choosing the right location is perhaps the key decision, and many Chinese companies and multinationals with an established China presence such as Henkel choose first-tier cities despite the increased costs involved.

“Why did we choose Shanghai, an expensive first-tier city and not another, second-tier city? Because there is easy access to talent,” Wang explained. “Locating in a city such as Shanghai means there are more career development opportunities for our finance team members. In Zhangjiang there is better support for businesses and a developed information technology infrastructure.”

For the expanding Chinese company looking to build a SSC, the setting up stage requires advanced resource planning according to Wang. A phased approach should be taken and proactive internal and external communication is paramount to success.

At the operational stage, processes and people should be standardised and consolidated before any move to the new SSC so that key individuals are retained and services are undisrupted. The first cost reductions usually come from lower headcounts and the homogeneity of technology and systems across the corporate structure. “At the operation stage, processes should be well documented. Having the right people with the right skills and sound, secure and robust systems is essential,” said Wang.

Is it necessary for an expanding company to set up a SSC? There is no right answer. Many factors may influence a company’s decision about whether setting up a fully fledged SSC will reduce costs and provide unmatched visibility and flexibility. But for a large company operating in multiple locations, streamlining decentralised operations can be as simple as setting up a SSC.

The SSC model is continuously evolving and it is quite possible to achieve optimum conditions with a mixing and matching of options by taking a step back and outsourcing selective back office operations. As Chinese companies continue to grow, so too will the SSC model evolve.

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media