Portugal - Shared Services Centres

Shared Services Centres
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Study to deploy a common
platform to develop Shared
Services Centres in
Portugal

Factsheet
Title
Study to deploy a common platform to develop Shared Services Centres (SSC) in Portugal
Promoter
POAT-FSE – Programa Operacional de Assistência Técnica do Fundo Social Europeu
(Operational Technical Assistance Programme of the European Social Fund)
Author
Deloitte Consultores, S.A. – R&D and Government Incentives
Acknowledgments
We would like to thank everyone who generously made themselves available to assist us in preparing
this "Study to deploy a common platform to develop Shared Services Centres (SSC) in Portugal”
March 2014

Index
EXECUTIVE SUMMARY 2
1. INTRODUCTION 6
2. METHODOLOGY 7
2.1. Fundamentals.................................................................................................................................7
2.2. Object of the Study ........................................................................................................................8
2.3. Methodology...................................................................................................................................9
2.3.1. Stages......................................................................................................................................9
2.3.2. Tools ......................................................................................................................................10
3. THE SHARED SERVICES CENTRE MODEL 13
3.1. Framework of organisational models ........................................................................................13
3.1.1. Decentralised model ..............................................................................................................13
3.1.2. Centralised model ..................................................................................................................14
3.1.3. Outsourcing model.................................................................................................................14
3.1.4. Shared services model ..........................................................................................................14
3.2. Characterisation of the shared services model........................................................................14
3.2.1. Main motives..........................................................................................................................15
3.2.2. Main critical success factors ..................................................................................................16
3.2.3. Main risk factors.....................................................................................................................17
3.3. Characterisation of factors influencing the offshoring decisions..........................................18
3.3.1. Facilitating factors ..................................................................................................................18
3.3.2. Inhibitors factors.....................................................................................................................19
4. INTERNATIONAL FRAMEWORK AND MAIN TRENDS IN THE EVOLUTION OF SHARED
SERVICES CENTRES 21
4.1. The history of shared services centres .....................................................................................21
4.2. The present and the future of shared services centres ...........................................................22
4.2.1. Location..................................................................................................................................22
4.2.2. Scope of services...................................................................................................................25
4.2.3. Motives and impact................................................................................................................26
4.2.4. Future trends..........................................................................................................................27
5. ATTRACTING INVESTMENT IN SHARED SERVICES CENTRES 28

5.1. Evolution and present context of FDI ........................................................................................28
5.2. Strategies and tools to attract and promote investment .........................................................29
5.2.1. The role of national investment promotion agencies .............................................................30
5.2.2. Digital platforms and online promotion ..................................................................................31
5.2.3. The importance of aftercare...................................................................................................33
5.2.4. Presence in rankings and media events................................................................................34
6. SHARED SERVICES CENTRES AND EMPLOYMENT AND EQUAL OPPORTUNITIES
POLICIES 36
6.1. The ESF.........................................................................................................................................36
6.2. Europe 2020 Strategy ..................................................................................................................38
6.2.1. The European strategy for equal opportunities......................................................................39
6.3. The Portugal 2020 strategy .........................................................................................................42
6.4. The national reality in employment and equal opportunities..................................................43
6.5. The role of shared services centres in job creation, inclusion and equal opportunities.....45
7. THE NATIONAL ENVIRONMENT FOR ATTRACTING INVESTMENT IN SHARED SERVICES
CENTRES 49
7.1. Characterisation of the national and business environment ..................................................49
7.1.1. Human Resources .................................................................................................................49
7.1.2. Location and infrastructures...................................................................................................57
7.1.3. Business context....................................................................................................................59
7.2. The services sector in Portugal..................................................................................................63
7.3. The shared services centres sector in Portugal.......................................................................65
8. PORTUGAL´S POSITION IN ATTRACTING INVESTMENT IN SHARED SERVICES CENTRES IN
THE EUROPEAN CONTEXT 68
8.1. Methodology.................................................................................................................................69
8.2. The Czech Republic.....................................................................................................................70
8.2.1. Labour costs ..........................................................................................................................71
8.2.2. Indirect costs and taxes .........................................................................................................72
8.2.3. Technological readiness ........................................................................................................73
8.2.4. Labour qualification................................................................................................................74
8.2.5. Infrastructure..........................................................................................................................76
8.2.6. Regulation..............................................................................................................................76
8.2.7. Conclusions ...........................................................................................................................77
8.3. Poland ...........................................................................................................................................78
8.3.1. Labour costs ..........................................................................................................................79
8.3.5. Infrastructure..........................................................................................................................83
8.3.6. Regulation..............................................................................................................................84
8.3.7. Conclusions ...........................................................................................................................85
8.4. Spain..............................................................................................................................................86

8.4.1. Labour Costs..........................................................................................................................86
8.4.5. Infrastructure..........................................................................................................................91
8.4.6. Regulation..............................................................................................................................91
8.4.7. Conclusions ...........................................................................................................................92
8.5. Ireland............................................................................................................................................92
8.5.1. Labour costs ..........................................................................................................................93
8.5.5. Infrastructure..........................................................................................................................97
8.5.6. Regulation..............................................................................................................................98
8.5.7. Conclusions ...........................................................................................................................98
8.6. Overall evaluation ........................................................................................................................99
8.6.1. Labour Costs..........................................................................................................................99
8.6.2. Indirect costs and taxes .......................................................................................................100
8.6.3. Technological readiness ......................................................................................................101
8.6.4. Labour qualification..............................................................................................................102
8.6.5. Infrastructure........................................................................................................................102
8.6.6. Regulation............................................................................................................................103
8.6.7. Conclusions .........................................................................................................................103
9. INCENTIVES TO ATTRACT INVESTMENT IN SHARED SERVICES CENTRES 106
9.1. Portugal.......................................................................................................................................107
9.1.1. Investment incentives and R&D...........................................................................................107
9.1.2. Job creation incentives ........................................................................................................111
9.1.3. Training incentives ...............................................................................................................114
9.1.4. Other support measures ......................................................................................................115
9.2. Czech Republic ..........................................................................................................................115
9.2.1. Investment and R&D incentives...........................................................................................115
9.2.3. Training incentives ...............................................................................................................117
9.3. Poland .........................................................................................................................................118
9.3.1. Incentives for investment and R&D .....................................................................................118
9.3.3. Incentives to training ............................................................................................................123
9.4. Spain............................................................................................................................................123
9.5. Ireland..........................................................................................................................................126
9.6. Comparative analysis ................................................................................................................128
10. CONSULTATION WITH STAKEHOLDERS 133

10.1. Exploratory meetings ..............................................................................................................133
10.1.1. Companies.........................................................................................................................133
10.1.2. Public entities promoting investment and employment in Portugal ...................................139
10.1.3. Industry Associations .........................................................................................................139
10.1.4. Organisations promoting regional development ................................................................140
10.1.5. Bilateral platforms promoting commerce and investment..................................................142
10.2. Surveys .....................................................................................................................................143
10.2.1. Shared services centres information .................................................................................143
10.2.2. Location selection process of shared services centres .....................................................145
10.2.3. Portugal´s attractiveness factors .......................................................................................147
10.2.4. Improvement opportunities in Portugal..............................................................................148
10.2.5. Gender and opportunity equality........................................................................................149
11. CONCLUSIONS AND RECOMMENDATIONS 151
11.1. SWOT Analysis.........................................................................................................................151
11.2. Shared services centres development platform...................................................................156
11.3. Policy contribution to the promotion of shared services centres ......................................158
11.3.1. Partnership Agreement......................................................................................................158
11.3.2. Industrial Development Strategy for Growth and Employment..........................................159
11.3.3. Smart Specialisation Strategies.........................................................................................161
11.4. Recommendations...................................................................................................................162
12. BIBLIOGRAPHY………………………………………………………………………………………... 167

Acronyms
AICEP
ATA
BPO
CCDR
Agency for Investment and Foreign Trade of Portugal
Tax and Customs Administration
Business Process Outsourcing
Commission for Coordination and Regional Development
EBF Statute of Tax Benefits
ERDF European Regional Development Fund
ESF
EU
European Social Fund
European Union
FDI
GDP
GVA
Foreign Direct Investment
Gross domestic product
Gross Value Added
IEFP Institute of Employment and Vocational Training
IFRS International Financial Reporting Standards
INE
IRC
IRS
ITC
NSTS
NUTS
OECD
National Institute of Statistics
Corporate Income Tax
Income Tax of Individuals
Information Technology and Communication
National Scientific and Technological System
Nomenclature of territorial units for statistics
Organization for Economic Cooperation and Development
PALOP Portuguese Speaking African Countries
POAT Operational Programme of Technical Assistance
POFC
POPH
PPP
QEC
QREN
R&D
SEZ
SME
SWOT
TSU
USA
Operational Programme for Competitiveness Factors
Operational Programme Human Potential
Purchasing Power Parity
Common Strategic Framework
National Strategic Reference Framework
Research and Development
Special Economic Zone
Small and Medium-sized Enterprise
Strengths, Weaknesses, Opportunities, Threats
Single Social Tax
United States of America
UNCTAD United Nations Conference on Trade and Development
VAT Value Added Tax

List of Tables
Table 01 The seven attributes of shared services centres
Table 02 Other key concepts related to shared services centres
Table 03 Comparative analysis of organisational models
Table 04 Major services covered by aftercare
Table 05 The priorities of the Europe 2020 strategy
Table 06 Fundamental Principles of Employment Package operations
Table 07 Europe 2020 strategy targets for employment and education, and Portugal´s
current position
Table 08 Priority domains of the European strategy for equality between women and men
(2010-2015)
Table 09 Poverty and social exclusion indicators (2011)
Table 10 Prevalence of people with disabilities, both employed and unemployed (2002)
Table 11 Potential impact of shared services centres on employment and equal
opportunities
Table 12 Main countries of origin of the foreign population with legal resident status (2011)
Table 13 Distribution of employed population by age group
Table 14 Distribution of employed population by academic background
Table 15 Distribution of employed population by economic sector
Table 16 Distribution of unemployed by level of education
Table 17 Level of education of resident population aged over 15 (in thousands)
Table 18 Number of graduates by education area (in thousands)
Table 19 Annual variation in productivity, remuneration per employee and unit labour costs
in Portugal
Table 20 Average cost of utilities
Table 21 Main factors influencing investment in Portugal
Table 22 Positive and negative aspects of Portugal for attracting investment
Table 23 Number of companies, employees and turnover in the services sector
Table 24 Indices composition for the comparative analysis of countries
Table 25 Portugal: main characteristics of the incentive systems for Innovation
Table 26 Portugal: main characteristics of the Incentive System for Research and
Technology Development
Table 27 Portugal: main characteristics of Contractual Tax Benefits for Productive
Investment
Table 28 Portugal: main features of the Tax Incentive Scheme for Corporate Research and
Development II
Table 29 Portugal: main characteristics of job internships
Table 30 Portugal: main characteristics of Estímulo 2013
Table 31 Portugal: Main features of the social security refund scheme to encourage job
creation
Table 32 Portugal: Main characteristics of the POPH program
Table 33 Czech Republic: main characteristics of the Transfer of Land

Table 34 The Czech Republic: main characteristics of the Corporate Income Tax Relief
Table 35 The Czech Republic: Main characteristics of the R&D Tax Allowance
Table 36 The Czech Republic: main characteristics of the Job Creation Grants
Table 37 The Czech Republic: main characteristics of the Training and Retraining Grants
Table 38 Poland: Main characteristics of submeasure 4.5.2. Operational Program
Innovative Economy – Support to investments in the services sector
Table 39 Poland: main characteristics of Measure 4.4. Operational Program Innovative
Economy – New investments of high innovative potential
Table 40 Poland: main characteristics of Measure 4.2. Operational Program Innovative
Economy - Promotion of R&D activities within companies and support within the
industrial design framework
Table 41 Poland: The main characteristics of Measure 1.4. Wielkopolska
Table 42 Poland: The main characteristics of Measure 1.3. Operational Program
Development of Eastern Poland – Promotion and Innovation
Table 43 Poland: The main characteristics of Polish Government Grant
Table 44 Poland: The main characteristics of R&D Credit
Table 45 Poland: main characteristics of SEZ
Table 46 Poland: main characteristics of the Labour Incentive - District Employment
Agency
Table 47 Spain: Main characteristics of the Regional Incentives Program
Table 48 Spain: Main characteristics of the Direct Innovation Line
Table 49 Spain: Main characteristics of the Strategic Action Economy and Digital Society
Table 50 Spain: Main characteristics of the Technological Innovation Deduction
Table 51 Spain: main characteristics of job creation incentives
Table 52 Ireland: main characteristics of Research Development and Innovation Grants
Table 53 Ireland: main characteristics of R&D Tax Credits
Table 54 Ireland: main characteristics of Employment Grants
Table 55 Ireland: main characteristics of the Start-Up Relief
Table 56 Ireland: main characteristics of the Special Assignee Relief Scheme
Table 57 Factors determining the selection of Portugal for the location of shared services
centres
Table 58 Main problems and obstacles identified during the installation, development and
maintenance of shared services centres in Portugal
Table 59 Case Study: Altran Portugal
Table 60 Case Study: 3S Solvay Shared Services
Table 61 SWOT Analysis: Strengths and Weaknesses

List of Charts
Chart 01 Objective of the Study
Chart 02 Activities included in shared services centres
Chart 03 Geographical distribution of shared services centres
Chart 04 TOP 10 shared services centre locations, by level of maturity
Chart 05
Regions considered for the establishment of new shared services
centres
Chart 06
Evolution of the factors considered important for the location selection
process of shared services centres
Chart 07 Services performed by shared services centres
Chart 08 Main motivations for the implementation of shared services centres
Chart 09 Future trends of shared services centres
Chart 10 FDI (as % of GDP) in European countries in 2000, 2005 and 2011
Chart 11 Turkey: Investment Support and Promotion Agency of Turkey
Chart 12 Costa Rica: Costa Rican Investment Promotion Agency
Chart 13 Denmark: Invest in Denmark
Chart 14 Main objectives of the POPH
Chart 15 ESF main areas for 2014-2020
Chart 16 Evolution of unemployment rate and youth unemployment rate in
Portugal
Chart 17 Conversion and requalification programmes - the Irish case
Chart 18 ICT Skills Development programme
Chart 19 Number of emigrants (total and by working age)
Chart 20 Evolution of unemployment and youth unemployment rate and
number of graduate students per year
Chart 21 Evolution of unit labour costs in financial and business (2005-100)
services sectors
Chart 22 Wages remuneration per worker at purchasing power parities, in the
financial and business services sector
Chart 23 Average travelling time from Portugal to some European capitals by
plane
Chart 24 Evolution of export weight in share of services in total exports
Portugal
Chart 25 Successful cases of shared services centres in Portugal
Chart 26 Portugal and the Czech Republic: Annual average gross wages (PPP
in USD for 2012 prices)
Chart 27 Portugal and the Czech Republic: Median Wages (gross amount,
Euro/year)
Chart 28 Portugal and the Czech Republic: taxes

Chart 29 Portugal and the Czech Republic: Technological readiness – some
indicators
Chart 30 Portugal and the Czech Republic: internet access in schools (scale of
0-7)
Chart 31 Portugal and the Czech Republic: qualification – some indicators
Chart 32 Portugal and the Czech Republic: 2012 PISA results
Chart 33 Portugal and the Czech Republic: annual number of graduates in
science, engineering and computing (total %)
Chart 34 Portugal and the Czech Republic: availability of skilled workforce
Chart 35 Portugal and the Czech Republic: Infrastructure – some indicators
Chart 36 Portugal and the Czech Republic: total number of communication
accesses per 100 inhabitants
Chart 37 Portugal and the Czech Republic: regulation - indicators
Chart 38 Portugal and the Czech Republic: aggregate
Chart 39 Portugal and Poland: Annual average gross wages (PPP in USD for
2012 prices)
Chart 40 Portugal and Poland: Median Wages (gross amount, Euro/year)
Chart 41 Portugal and Poland: taxes
Chart 42 Portugal and Poland: Technological readiness – some indicators
Chart 43 Portugal and Poland: internet access in schools (scale of 0-7)
Chart 44 Portugal and Poland: qualification – some indicators
Chart 45 Portugal and Poland: 2012 PISA results
Chart 46 Portugal and Poland: annual number of graduates in science,
engineering and computing (total %)
Chart 47 Portugal and Poland: availability of skilled workforce
Chart 48 Portugal and Poland: Infrastructure – some indicators
Chart 49 Portugal and Poland: total number of communication accesses per
100 inhabitants
Chart 50 Portugal and Poland: regulation – some indicators
Chart 51 Portugal and Poland: aggregate
Chart 52 Portugal and Spain: Annual average gross wages (PPP in USD for
2012 prices)
Chart 53 Portugal and Spain: Median Wages (gross amount, Euro/year)
Chart 54 Portugal and Spain: taxes
Chart 55 Portugal and Spain: Technological readiness – some indicators
Chart 56 Portugal and Spain: internet access in schools (scale of 0-7)
Chart 57 Portugal and Spain: qualification – some indicators
Chart 58 Portugal and Spain: 2012 PISA results
Chart 59 Portugal and Spain: number of graduates in science, engineering and
computing (total %)
Chart 60 Portugal and Spain: availability of skilled workforce
Chart 61 Portugal and Spain: Infrastructure – some indicators
Chart 62 Portugal and Spain: total number of communication accesses per 100
inhabitant
Chart 63 Portugal and Spain: regulation – some indicators

Chart 64 Portugal and Spain: aggregate
Chart 65 Portugal and Ireland: Annual average gross wages (PPP in USD for
2012 prices)
Chart 66 Portugal and Ireland: Median Wages (gross amount, Euro/year)
Chart 67 Portugal and Ireland: taxes
Chart 68 Portugal and Ireland: Technological readiness – some indicators
Chart 69 Portugal and Ireland: internet access in schools (scale of 0-7)
Chart 70 Portugal and Ireland: qualification – some indicators
Chart 71 Portugal and Ireland: 2012 PISA results
Chart 72 Portugal and Ireland: number of graduates in science, engineering
and computing (total %)
Chart 73 Portugal and Ireland: availability of skilled workforce
Chart 74 Portugal and Ireland: Infrastructure – some indicators
Chart 75 Portugal and Ireland: total number of communication accesses per
100 inhabitants
Chart 76 Portugal and Ireland: regulation – some indicators
Chart 77 Portugal and Ireland: aggregate
Chart 78 Labour costs: overall assessment
Chart 79 Indirect costs and taxes: overall assessment
Chart 80 Technological readiness: overall assessment
Chart 81 Labour qualification: overall assessment
Chart 82 Infrastructure: overall assessment
Chart 83 Regulation: overall assessment
Chart 84 Global average
Chart 85 Overall assessment
Chart 86 Incentive systems potentially applicable to shared services centres
Chart 87 Comparative analysis of incentive measures in Portugal, Czech
Republic, Poland, Spain and Ireland
Chart 88 Distribution of human resources by education level
Chart 89 Types of services provided by shared services centres in Portugal
Chart 90 Shared services centres markets in Portugal
Chart 91 Key factors considered when selecting the location of shared services
centres
Chart 92 Main attractiveness factors for shared services centres in Portugal
Chart 93 Critical training areas to support the business expansion of shared
services centres
Chart 94 Portugal’s position in areas relevant to shared services centres
Chart 95 SWOT Analysis: opportunities and threats
Chart 96 Shared services centres development platform
Chart 97 North 2020: A Regional Strategy for Smart Specialisation: priority area
human capital and specialized services
Chart 98 The development platform of shared services centres and their
performance in the critical areas

Study to deploy a common platform to develop Shared Services Centres in Portugal 1

Executive Summary
The aim of the “Study to deploy a common platform to develop Shared Services Centres in
Portugal” is to contribute to the establishment of a national strategy for attracting and
developing the activities of service centres in Portugal. This study has been funded by the
Operational Technical Assistance Programme of the European Social Fund (POAT-FSE), in
the “Research and Evaluation” intervention area.
Given the high availability of qualified human resources, the investment made in foreign
language education, the international recognition of the national education system, and the
strong competitiveness due to reduced labour costs, shared services centres are crucial for
creating sustainable jobs and supporting the economic development and growth of the
country.
Portugal has been selected by many multinationals as the prime location for several shared
services centres, benefiting from opportunities demonstrated internationally by the sector´s
framework, and from an increasing momentum among public and private entities that have an
impact on the attractiveness of such investments.
Nevertheless, opportunities remain to improve strategies and policies that will permit, in a
more effective and concerted manner, the exploitation of the potential of shared services
centres for creating skilled employment services, and to increase the added value and
tradable nature of services provided in the country.
The first part (Chapters 1 and 2) of the report defines the methodological approach used in
this study. The second part (Chapters 3 to 6) describes a comprehensive framework for the
shared services model, covering its origins source, recent evolution, role in job creation and
ways to attract shared services centres.
The third part (Chapters 7 to 9) analyses the national environment for setting up and
expanding shared services centres and provides a benchmark with a group of competitor
countries, due to their intrinsic conditions for attracting investments, such as Spain, Ireland,
Poland and the Czech Republic. The fourth part (Chapter 10), presents the main conclusions
reached with sector stakeholders, as a result of exploratory meetings and surveys.
Finally, the fifth part (Chapter 11) provides the conclusions and recommendations arising from
this study, based on all the information gathered. This chapter seeks to support the
recognition of the strategic nature of shared services centres for prioritising the multi-year
programming period (2014 to 2020) for the attribution of EU Structural Funds to support
investment.

Since the development of shared services and outsourcing in the offshoring regime, in the
1980s, companies have been fragmenting their processes effectively and efficiently. The
implementation of these organisational models has evolved significantly, from the regions and
countries receiving the investments, to the type of services covered.
Factors such as increased labour costs in traditional service centre locations (for example, the
US and India), time zone and geographical proximity are crucial when assessing the
destination for investments, as these contribute to more efficient operations and quicker
responses to business needs. Considering this, businesses have witnessed a progression in
offshoring of value-added processes. They have also seen a diversification of geographies for
setting up shared services centres.
In the future, with regard to the types of activities covered, it is expected that shared services
centres will continue to expand to value-added and knowledge-intensive services. As for
location, it is expected that shared services centres will continue to reach new geographies,
enhancing the dispersion already observed in their geographical distribution. Regarding the
location of new investments, the crucial factors will be the proximity of the locations
considered, either to the headquarters or to existing operations, demonstrating the growing
importance of nearshoring.
Even though the shared services model is relatively mature, there are plenty of opportunities
for the emergence and maturity of a new generation of shared services centres, with more
complex functions and new geographies.
Considering the above, and the fact that there are many highly skilled workers unemployed in
Portugal and it is a prime location to attract investment, Portugal should make a clear and
concerted effort to promote its attractiveness for shared services centres.
The next programming period, 2014-2020, will play a key role in boosting the investment in
the area of shared services centres. Thus, based on strategic orientations of the EU structural
funds (according to published documents), for this new programming period, a set of
objectives has been defined which, on one hand, can reinforce the country’s attractiveness to
shared services centres. It can also benefit from an increased prevalence of such activities in
Portugal. To this end, the application of existing strategic guidelines should consider including
measures and actions aimed specifically at the shared services centres sector, bearing in
mind its specific needs and characteristics.
This report presents a set of suggestions and recommendations aimed at contributing to the
development of the activity of shared services centres in Portugal, placing strategic and policy
guidance at the service of this sector, emphasising the following: (i) the definition and
implementation of an integrated strategy to promote Portugal´s advantages and attributes; (ii)
the development of integrated actions in the education and training system, to prepare the
human resources to respond to the specific needs of shared services centres; and (iii) the
creation of a specific support instrument for shared services centres that combines, in a single
program, the funding of different investment needs for their implementation and/or expansion,
in a multi funding logic.
Finally, considering the current context of growing economic globalisation that is not always
consistent with the choices and needs of each country and/or region, it is essential to promote
concerted and continuous monitoring, involving all the relevant stakeholders, to maximise the

investments and simultaneously mitigate any relocation processes, which may be contrary to
our interests. The effective promotion of a platform for the development of shared services
centres therefore corresponds to a measure which, in practical terms, aims to achieve these
strategic intents for the sake of Portugal.

Part I – Study Methodology

1. Introduction
This study analyses the impact of the dissemination of shared services centres in Portugal,
with regard to: improving job opportunities, supporting business strategies for employment,
social inclusion, and strengthening the exchange of experiences. It aims to address the
following main objectives:
 Outline the activities of shared services centres, their motivation and success factors and
also analyse recent developments and future trends;
 Understand the decision processes for choosing shared services centre locations, analyse
Portugal´s competitive position and its comparative advantages and disadvantages relative
to leading competitor countries;
 Assess the feasibility of implementing a platform for the development of shared services
centres, to support national and international companies in creating and maintaining an
organisational unit to provide administrative, financial, and technical support services,
 Assess the possibility of establishing a specific incentives system to support the
development of shared services centres.
This study identifies the differentiating factors that can make Portugal a preferred destination
to implement and/or expand shared services centres. It analyses Portugal weaknesses and
possible ways to overcome them. It identifies factors that will, potentially, enhance Portugal´s
existing attributes and place the country in a more advantageous position, locally and globally,
with regard to job creation and attraction of investment in more value-added areas.
The study also presents a set of recommendations to support a national strategy for
promoting Portugal as a preferred location for companies embodying shared services centres.
In particular, it aims to make recommendations for the possible development of a specific
system of incentives to promote the development of shared services centres in Portugal,
which may be an important part in planning the ESF and ERDF funds for 2014 to 2020. Thus,
a measure with these characteristics may enhance the relevance of the ESF in implementing
public policies relating to employment creation, and social sustainability (considering that
shared services centres’ activity is intensive in the use of skilled labour and therefore, may
also have a positive impact on the upgrading and retraining of the unemployed workforce).

2. Methodology
2.1. Fundamentals
This section clarifies the key concepts used throughout this study, in particular the concept of
shared services centres and others around this theme.
Firstly, it suggests a definition for shared services centres, which will then be used throughout
this study. Despite the lack of an agreed definition of "shared services”, even after a thorough
research of the available literature, Schulz and others define a shared services centre as an
organisational concept characterised by the existence of seven attributes, detailed in Table
01.This definition is supported by more than fifty percent of the literature analysed.
Table 01 – The seven attributes of shared services centres
Attribute Detail
1. Are the outcome of consolidation
processes within an organisation
Shared services result from the consolidation of organisation-wide
processes in one place - the shared services centre - to avoid
duplication of work, and promote synergies.
2. Have as central competence the
provision of support services
Shared services typically aim at non-strategic processes, including
administrative or technical support processes. These can either be
simple transactions or more complex processes.
Transaction processes are characterised by their high standardisation,
low financial risk and high potential for automation, and typically include
accounting and operational services related to information and
communication technologies.
Some shared services centres can also provide support for more
complex services that require greater knowledge, such as financial
analysis and/or application development.
3. Constitute an independent
organisational unit
Shared services centres operate as an independent unit, having an
autonomous management. Typically, they are owned in full by the
company, or group of companies, which is generally their main
customer. Geographically, they may be located in a different country
from the parent company, because of the need to obtain information
and use appropriate technologies. Additionally, shared services centres
can operate in a single country or region, or even globally, depending
on the complexity of the process and of the company.
4. Are aligned with external competitors
In order to increase their competitiveness, shared services centres
actively acquire strategic knowledge about the market and the foreign
competition by benchmarking prices and own strengths and
vulnerabilities. By doing do, they optimise their competitiveness when
facing internal customers, justifying any deviations.

Attribute Detail
5. Have cost reduction as their main
objective
Through economies of scale, shared services centres allow substantial cost
reductions that may be around about 25% to 30% of the initial costs.
6. Are particularly focused on internal
clients
Shared services centres seek to optimise the services provided to internal
clients. The prices and quality levels of the services provided are defined by the
shared services centres.
7. Are managed as a private company
Fully integrated in the market, shared services centres seek to add value at a
price customers are willing to pay.
Source: Adapted from Schulz et al, 2009.
It is also important to clarify other concepts related to shared services centres. These are
presented in Table 02 and will be used as a future reference throughout this study.
Table 02 – Other key concepts related to shared services centres
Concept Definition
Outsourcing
Hiring the services of a legally-independent entity not affiliated with the same
economic group.
Insourcing
Hiring the services of a legally-independent entity affiliated with the same
economic group.
Onshoring
Hiring the services of a legally-independent entity (affiliated or not with the same
economic group), located in the same country as the contracting entity.
Offshoring
Hiring the services of a legally-independent entity (affiliated or not with the same
economic group), located in a different country as the contracting entity.
Nearshoring
Hiring the services of legally-independent entity (affiliated or not with the same
economic group), located in a separate, but geographically close country, to the
country of the contracting authority (particular case of offshoring).
Source: Developed by the authors.
2.2. Object of the Study
Considering these definitions, Diagram 1 summarises the objective of the study.
Chart 1 – Objective of the Study
Source: Developed by the authors.

Given the objectives of this study, particularly the analysis on the impact of shared services
centres on job creation and attraction and/or expansion of investment in the country, this is
quite comprehensive. It involves not only the analysis of insourcing shared services centres,
but also the analysis of companies providing outsourcing services. Regardless of whether
shared services centre belong or not to the same economic group, they remain independent
business units, with skilled labour, and have a positive impact both on inclusive and non-
discriminatory employment, and on the creation of skilled jobs.
Regarding geographic location, the purpose was to study the investment decisions in relation
to shared services centres located in Portugal, i.e., whether in an onshoring context
(implementation or expansion in shared services centres for corporate groups based in
Portugal), or in an offshoring context (foreign investment setting up or expanding shared
services centres in Portugal).
In addition, this study involves all types of activity carried on by shared services centres, which
can range from contact centre and back office activities to R&D, and is not confined to low-
complexity processes/specific activities (i.e., non-critical routine activities that involve high-
volume processes).
2.3. Methodology
Because of the multiplicity of factors to be taken into account, a specific methodology was
developed. The stages and methodological tools are presented below.
2.3.1. Stages
Considering the objectives, this study has used the following methodological steps:
 Bibliographical Survey: Initially, the study group surveyed the available documentation and
reviewed the literature in order to support the definition of key concepts for this work,
characterise the shared services centres sector, and identify its recent developments and
trends.
At this stage, ESF orientations were also mapped - regulations and/or any other strategic
documents - and their relations with employment, social inclusion and equal opportunities,
given the need to prepare a set of recommendations to support a national strategy to
revitalise the shared services centres sector in Portugal (intensive activities on skilled labour
which impact on inclusive and non-discriminatory employability).
 Collection of primary/secondary information: The primary sources of information have
supported the empirical analysis carried out, and have increased awareness about the
issue. This was complemented with a secondary source of information from studies,
technical reports and Deloitte´s database (desk research), with contributions from
institutional and corporate agents.
 Diagnosis: Based on the information collected, both quantitative and qualitative, the
national context was looked at having regard to the main variables and conditions that
contribute to the choice of location of investments in shared services centres, particularly the
qualifications of the Portuguese population and workforce. This analysis identified a set of
skills and weaknesses relevant when the country is considered as a potential destination (or
not) for the implementation and/or expansion of such centres. Finally, we have also
analysed the current marketing practices and the projection of the country, specifically in the
shared services centres context, particularly how the information relevant to the decision-
making of investors has been made available and disseminated through the various
communication channels.
 Evaluation and identification of best practices: Based on the knowledge obtained in the
previous stages, the study tried to identify the best practices in terms of strategies for

attracting investment in shared services centres, their implementation models and the
incentives to support the development of technical, linguistic and academic skills.
 Summary and recommendations: At this stage, a systematisation exercise was conducted
to draw conclusions from the previous stages. Based on the results, the study group defined
the guidelines and recommendations to support the definition of the national attributes for
the development of shared services centres, bridging the existing gaps and weaknesses
observed. These recommendations focus on the systems and incentives available for the
sector.
 Dissemination: Finally, in view of the contribution that the study might provide to future
public policy development in this area and its possible relevance in the local context, we
arranged five sessions to disseminate the results in the regions of Central Portugal, the
Alentejo, the Algarve, Lisbon and Northern Portugal. This was done through the central
government, entrepreneurs and other business agents that might benefit from the guidelines
and recommendations resulting from this study.
2.3.2. Tools
2.3.2.1. Primary Information Source
 Exploratory Meetings: Exploratory meetings were held with key stakeholder groups in the
shared services centres sector in Portugal, including: (i) companies carrying on these
activities in Portugal - Siemens, 3S Solvay Shared Services, Altran Portugal, BNP Paribas,
Blip, INAPA Portugal, Alcatel-Lucent and IBM Portugal; (ii) public entities responsible for
promoting investment and employment in Portugal - AICEP and IEFP; (iii) sector
associations - Confederação do Comércio e Serviços de Portugal and Associação Portugal
Outsourcing; (iv) organisations promoting development at a regional level - CCDR Alentejo,
Algarve, Lisbon and Northern Region, "Invest Lisboa" and Fundão City Council; and (v)
bilateral platforms to promote trade and investment - Câmara de Comércio e Indústria Luso-
Francesa, Câmara de Comércio e Indústria Luso-Alemã and Câmara de Comércio
Americana em Portugal.
These meetings were critical to gather information on different stakeholders’ perceptions
regarding what Portugal has to invest in to promote the development of shared services
centres. They were also important to understand Portugal´s image abroad, identifying the
weaknesses that must be overcome to maximise the investment opportunities in the sector,
among other relevant information for this study.
 Web-based Inquiries: Thirty-nine companies were surveyed, covering different
characteristics such as size (turnover, number of employees, etc.), type of activity carried on
(including contact centres, administrative/financial support centres, R&D and competences
centres), maturity of operation (already working, or under development), among others.
The results were relevant in identifying key opportunities to appoint Portugal as a destination
of excellence for the implementation of shared services centres, supporting the final
recommendations and conclusions.
 Case Studies: The study group collected quantitative and qualitative information regarding
best practices identified through documentary research methods and exploratory meetings.
The development of these case studies provided a way of gathering information, assessing
weaknesses, and complementing documentary information with the experience of key
players in the implementation of shared services centres in Portugal.
2.3.2.2. Secondary Information Sources
In examining secondary information sources, the study group analysed Deloitte studies and
reports, relevant documents such as methodological frameworks, national and European
regulations, and other strategic documents such as the ESF and ERDF regulations, important
to understand employment criteria, social inclusion and equal opportunities.
In addition, secondary sources of information, publications, technical reports and studies,
directly or indirectly related shared services centres (namely in the fields of demography,

economy and taxes) were used to enhance the quality of the results. It is important to
emphasise that an international benchmarking was undertaken to analyse the competitive
position of Portugal in relation to the various factors for attracting investment in shared
services centres, which helped to identify its competitive advantages and disadvantages,
relative to some of its competitors.

Part II – Overall framework of the
shared services model and investment
attraction

3. The Shared Services Centre
Model
3.1. Framework of organisational models
To respond to growing challenges and increase competitiveness, organisations are obliged to
find innovative and adaptive solutions that promote efficiency and effectiveness in a globalised
market. In this context, organisations need to change strategies, create new business models,
and adapt processes and operations to take advantage of emerging opportunities and create
value for their customers.
In an increasingly global market, competition has forced companies to constantly rethink their
operations, organisation models and internal management processes, to determine the best
allocation of available skilled resources to carry on their core, peripheral and support activities.
In this context, current organisational models have changed and evolved, from centralised
models to outsourcing and shared services models, leading to the separation of the activities
considered strategic for competitiveness from the support ones.
The organisational model of strategic and support activities, built on shared services, differs
from more traditional models, such as decentralised, centralised and outsourcing models. This
is especially prevalent with regard to the appropriation of income, reporting and decision-
making systems, as illustrated in the following Table.
Table 03 – Comparative analysis of organisational models
Decentralised
Model
Centralised
Model
Outsourcing
Model
Shared Services
Model
Differences in
appropriation of
income, reporting
an management
responsibilities
Income Company Company Subcontractor Business Unit
Report Department Company Subcontractor Business Unit
Management Department Company Subcontractor Business Unit
Advantages and
disadvantages of
the models
Advantages Flexibility
Control,
Consistency
Reduced start-up
costs
Efficiency
downsizing
Disadvantages
Deviation from
core
competencies
Inertia
Dependence,
Loss of control
Culture change,
High start-up costs
Source: Adapted from Bergeron, 2003.
3.1.1. Decentralised model
The decentralised model is characterised by the dispersion of services/activities through the
various organisational units in the organisation, such as departments and business units. The
main advantage of this model is a faster decision making process and greater flexibility to
change or adjust. However, the decentralised model is, in theory, an economically

disadvantageous model, as it does not allow economies of scale (it encourages the
redundancy of processes), technical standardisation, standardisation of processes, and
specialisation of resources.
3.1.2. Centralised model
The centralised model provides high control management and maximises economies of scale.
However, it requires more time for decision-making processes, thus lowering the quality of the
service provided. Nevertheless, this model favours constant technological development and
use of higher-quality infrastructures, which could be affected by the higher intrinsic complexity
and length of the decision-making process.
3.1.3. Outsourcing model
In the outsourcing model activities/non-core services are contracted out to an external non-
affiliated entity that provides the same services to other clients. The main objective of this
model is to reduce costs by avoiding hiring full-time employees for short-term projects. It also
allows the concentration of resources on the organisations core activities. Compared to the
shared services model, the outsourcing model has lower initial costs of implementation (start-
up costs).
3.1.4. Shared services model
This management model is characterised by the concentration of non-core services in an
autonomous business unit, included in the same economic group, with responsibility for
monitoring, reporting and managing resources. It has its own location, preferably equidistant
from partners who share the benefits of their services.
Income from non-strategic services remains in the company (or group of companies) through
a contractual relationship, in which the shared services centre is committed to provide scale
services at a certain income.
The main advantages of this model are control, standardisation of processes, and downsizing
and specialisation of services. Additionally, this model allows high economies of scale,
technological standardisation and homogenization of processes, and it facilitates the
specialisation of resources. It follows the oscillations of the needs of member companies, and
the incorporation of new companies through acquisition or mergers. Nevertheless, this model
presents some disadvantages including higher costs of implementation, and possible
duplication of certain administrative structures, such as accounting and financial services.
3.2. Characterisation of the shared services model
After describing the different organisational models, a more detailed analysis of the shared
services model is presented in this section. This analysis identifies the main motivations,
critical success factors, and key risk areas of the shared services centre model.
The concept of "shared services" emerged in the private sector in the late 1980s, when large
companies with multiple business units began to analyse and review their internal processes
and attempted to define more efficient and effective business models.
These new business units have become relatively autonomous and have focused, primarily,
on the provision of specific services to support management at the lowest possible cost,

fostering significant efficiency gains by promoting standardisation and reengineering of
processes. From their origin, the dynamics of shared services have been leverage mainly by
large and complex individual and groups of companies, with more than Euro 2 billion in
revenue, and with multiple business units (adapted from Shulman et al, 1999).
The main objective of creating such centres was the concentration of repetitive non-core
services of a particular company and/or group of companies, which in most cases include
activities related to accounting, human resources, and information and communication
technologies operations (adapted from Walsh et al, 2006). More recently, many organisations
have found that shared services can be equally applicable to other activities related to the
provision of services to "external" clients, such as the establishment of call centres.
If, on the one hand, it is critical for companies to maintain control and proximity to their core
competencies, on the other, the definition of core competencies is becoming increasingly
restricted.
High-value activities such as R&D and the design of new products, among others, have been
deconstructed and standardised, so they can be included in competence centres. In this
regard, the creation of a shared services centre cannot be justified solely on cost reductions,
but in the improvement of the service provided, increased creativity, innovation and better
relations with partners, suppliers and customers.
Chart 02 – Activities included in shared services centres
Source McKinsey Global Institute, 2003.
3.2.1. Main motives
Shared services require a collaborative strategy to optimise human resources, capital, time
and other corporate resources. This can be done by concentrating their activity in a new
autonomous unit such as a shared services centre, designed to promote efficiency, create
value, reduce costs and deliver service excellence throughout the organisation.
Despite the numerous advantages associated with implementing this model, there is not a
one-size-fits-all strategy for its implementation. Each organisation should carefully evaluate its
development strategy, based on business needs and context.

In this regard, organisations face key questions when deciding on the setting-up or expansion
of a shared services centre, including the following:
 What are the sources of value in the organisation?
 To what extent does the organisation have the capacity to change, and when to change its
organisational model?
 What are the activities and skills that should be transferred to the shared services centre,
based on strategic importance, homogeneity and volume?
 What should the shared services centre do? Perform one, or more, functions and processes
for multiple business units?
 How should the shared services centre be structured? Locally, regionally or globally?
 What savings are achieved by the creation or expansion of a shared services centre?
 To what extent will the shared services centre model improve the efficiency and
effectiveness of the existing business model?
 What is the cost of setting up the shared services centre, taking into account such things as
the change of corporate culture, consultancy spending, investment in new management
structures, and expenditure on training?
 What is the impact on quality of service when moving activities to the shared services
centre?
 How long until the shared services model reaches break-even?
As already mentioned, there are several benefits from setting up shared services centres,
namely:
 Cost reduction – Resulting from the constant pressure of internal customers, cost reduction
is the most obvious benefit to companies or group of companies opting for setting up or
expanding a shared services centre;
 Improved Quality of Service – The focus on service orientation to external customers
provides a better quality of service to internal customers, due to the provision of these
services in a decentralised manner in each department;
 Increased focus on core competencies of the company – With the non-critical and back-
office activities ensured by shared services centres, the management of the company or
group of companies can focus more intensely on its core competencies;
 Potential to create a new profit centre – As a separate entity, the shared services centre can
be operated to provide the same type of services to external clients, thereby generating an
even higher return;
 Increased efficiency – The standardisation of processes and application of appropriate
technologies can improve the quality of service at comparable or lower prices;
 Gains from economies of scale – By concentrating activities that otherwise would be
scattered, shared services centres increase economies of scale compared to traditional
organisational structures.
3.2.2. Main critical success factors
Taking into account the specifics of the shared services model, it is crucial to understand and
manage the critical factors needed to ensure the successful implementation of a shared
services centre. The main critical success factors are as follows:
 Corporate Culture – The consolidation/concentration of activities in a shared services centre
necessarily involves several changes and transformations in an organisation. Employees
may be reallocated to new and/or different roles, or to a different management structure.
The change in the organisational context, coupled with the corporate transformation at the
management level, may cause changes in expectations, work patterns and employee

behaviour. These can cause individual resistance to the implementation of shared services
centres. Thus, the biggest challenge of organisations is to avoid major shocks when creating
or expanding shared services centres, as individual resistance poses a major threat to
successful implementation of these centres. This resistance may imply a reduction in
efficiency in the initial phase.
For effective change with minimal resistance, it is necessary to assess the level of risk
aversion implicit in the culture of the company and maintain high motivation levels through a
proper change management plan. This may involve things such as training to ensure proper
adequacy of employees to their new tasks, to minimise the risk arising from the creation or
expansion of shared services centres.
 Competitive Environment – The strong competition between shared services centres and
outsourcing entities dedicated to providing similar services is important to maximise the
potential of shared services. The real competition from other suppliers in the business in
which the shared services centre operates encourages better quality of the services, and
leads to the continuing use of existing best practices.
 Size of the Company – A third factor is the minimum requirement that the model imposes on
company size and revenues. This minimum value depends on the business of the parent
company, its volume and unit cost, as well as on the relative cost of alternative models.
 Implementation Time – Considering that the shared services model requires a
transformation of the internal processes, implementation time is also a critical factor. The
larger and more diversified the company is, the greater the time needed to ensure
successful implementation and the greater are the costs involved. It is emphasised at this
level that the main obstacle to a faster implementation generally does not relate to the
availability of resources or technological barriers, but with the time needed to change the
organisational culture.
3.2.3. Main risk factors
The implementation of a shared services centre involves various risks as presented below:
 Administrative Risk – The most significant administrative risks are: inadequate
implementation strategy of the model, incomplete planning, failure to understand the
business, deficient organisational structure, resistance to change, deviation of resources and
overruns. These risks may jeopardise the implementation or expansion of the shared
services centre.
 Economic Risk – Another important risk factor is related to external economic conditions,
including a weak economy and increased competition during the transition to a shared
services model. Other relevant risks may also occur, including but not exclusively: higher
costs than estimated, lack of critical mass for the services, and incorrect pricing.
 Political Risk – Several risks may arise from political instability (occurrence of coups d´etat,
civil war, etc.), and from the instability of domestic legislation, in particular the incentive
framework and taxation system.
 Legal Risk – Legal problems caused by the implementation of a shared services centre, for
example: violation of customer privacy, intellectual property loss, poorly designed contracts
or fraud issues associated with the provision of accounting services. These may ultimately
result in company bankruptcy.
 Technological Risk – Regarding technological risks, the most critical relate to the outage of
crucial processes of the parent company, as a result of a break in the services provided by
the shared services centre. Other technological risks comprise wrongly scaling the
technology when the service is transferred to the shared services centres, and misuse or
over-complexity making it unable to be implemented.
 Marketing Risk – Finally, regarding marketing and sales, the biggest risk is the lack of an
internal market. It may even happen that the market does not fulfil the conditions required for
the change to a shared services model, thereby affecting its profitability.

3.3. Characterisation of factors influencing offshoring decisions
This section analyses the main factors that currently promote, or inhibit, offshoring location
decisions. This relates to the shared services model and the outsourcing model, as both are
the objects of this study.
3.3.1. Facilitating factors
The most relevant factors that promote the decision-making for the location of shared services
centres in an offshoring regime are as follows:
 Cost Reduction – This remains as one of the critical factors in the decision of the offshoring
process. Cost reduction is a decisive element, even in some complex activities, such as
programming in ICT. Nevertheless, the analysis of current trends implies that the greater the
value-added and complexity of the business activities, the lower the importance that
companies attribute to the “low cost” factor. In fact, with the increasing of added value to
offshore activities, demand and retention of talent tend to have greater relevance than the
search for low wage levels.
 Limitations of internal creativity – Some sectors show considerable constraints in their ability
to maintain adequate levels of innovation based solely on internal sources of creativity, as
happens, for example, in the pharmaceutical sector. In high-tech sectors, it is primarily the
search for new sources of creativity and talent that drives companies to locate their shared
services centres or outsourcing vendors in different countries (offshoring).
 Search for Foreign Talent – The demand for foreign talent is a critical factor in motivating
offshoring. Since the number of graduates in science and engineering degrees in rich
countries (particularly in Europe and the USA) has stagnated since the 1980’s, there is now
a shortage of graduates in several technical and technology areas. Simultaneously, in
certain areas, the supply of graduates from emerging countries is growing, and people are
becoming more capable, more up-to-date, and more tuned into global developments
 Existence of knowledge clusters – A knowledge cluster is a dense network of interconnected
companies, suppliers, universities and research centres, whose proximity and interactions
enhance the responsiveness and innovation of the industry, not easily replicable elsewhere.
Therefore, it appears that clusters of knowledge are an important factor in the location
decision for investment in offshoring. These clusters attract not only FDI, but also external
mobile talent
1
. Additionally, as more multinational companies are attracted to knowledge
clusters, their potential attractiveness increases, thus reinforcing a virtuous cycle of
agglomeration of firms, and strengthening its reputation as a centre of excellence.
 Relevance of the local market – The importance of the local market is one of the main
criteria used by companies to identify and select suitable shared services centres and
offshoring locations. The importance of local a market can be measured by the following
factors: (i) current size; (ii) potential size; (iii) ability to act as a focal point in the global and/or
regional supply chain
2
and, finally, (iv) ability to foster new ideas.
1
For example, the emergence, in recent years, of a biotechnology cluster in Singapore, as a result of generous tax
incentives and other support provided by the government to promote the use and upscaling of intangible competitive
factors, such as knowledge.
2
For example, as a local market, Taiwan is a low or medium sized market. However, as a centre of design for
integrated circuits and computers, the island integrates supply chain industries, presenting itself as an important link
between Chinese manufacturers and Western markets, and between Western technology and the Chinese mainland
market, thus its geographical importance exceeds, by far, its size.

 Partial Routinisation of high value activities – The activities considered strategic, or core, can
be classified into two levels: (i) routine activities and (ii) activities that constitute intellectual
property assets of the company. The human resource management function, for example,
holds what is critical to the business. Activities such as record keeping or benefits
management are likely to be standardised and outsourced to another entity (affiliated or not
with the same economic group).
Although traditionally R&D activities are highly confidential and would not be transferred to a
new entity (internal or external to the economic group), recently, companies have come to
the conclusion that R&D, including applications for patents and/or product development, can
be partly programmed and coded through the use of ICT systems. This allows significant
savings to be made when these functions are performed by shared services centres, or
contracted to external entities.
 Search for greater flexibility and efficiency in organisations – With the increasing pace of
change in several industries, companies feel greater pressure to become more flexible to
new organisational realities and markets. In this context, the management model for vertical
integration has been revealed to be inappropriate and to suffer from several limitations.
Thus, the separation of some parts of operations to shared services centres and outsourcing
companies can lead to more flexible and more focused companies, providing a more
effective response to growing challenges.
 Obtaining economies of scale – When certain auxiliary functions of various divisions, or
departments of a company or group of companies, are not run continuously, skills and
accumulated experience may be insufficient to ensure, in a sustainable manner, high levels
of performance. The shared services centre, or the outsourcing company, consolidates
human resources, processes and systems in a single location, allowing for economies of
scale. This result in more functions being discharged more efficiently compared to
companies that carry out the same functions internally, in various organisational units. The
difference is due to the fact that specialisation enables a deeper and repetitive learning of a
specific function.
3.3.2. Inhibitors factors
The inhibiting factors that obstruct the implementation of an offshoring location, both for
shared services and outsourcing, are as follows:
 Difficulty in transferring knowledge – The transfer of activities to shared services centres or
to outsourcing companies may prove to be a difficult, time consuming and costly process,
especially when it comes to an intensive knowledge activity. In fact, some complex activities
are difficult to transfer, especially to developing countries. These involve high investments in
training in order to enable workers to perform the new functions, which can sometimes
exceed the value of the savings envisaged by paying lower wages to employees.
 Increased costs in offshore locations – The reallocation to offshoring locations involve not
only the initial installation costs, knowledge transfer and training, but also overseas
operating costs. In certain locations with significant investments in offshoring, such as
Bangalore and Hyderabad, India, or Shenzhen, China, skilled labour costs have doubled or
even quintupled since the mid-1990. In addition, the capacity to retain human capital is one
of the biggest challenges to the success of offshoring. Companies that have better
performance results are those that invest more in their human resources through training,
improvement of levels of commitment and involvement of its employees.
 Risk of information leakage – Concerns with information leakage may assume two forms.
Firstly, there is the concern that contracting-out may increase the occurrence of involuntary
technology spillovers, particularly when high turnover of staff between competitors occurs.
Some studies indicate that labour and intellectual property legislation are dominant factors in
determining the location of R&D centres, given the recognised risk of leakage. In some
cases, the competitive threat may even come from the subcontractor. After mastering an
important part of the client´s value chain, it may expand its operations to compete with the
former client at a later stage. Secondly, there is the concern of the possibility of "hollowing
out" the core competencies of a company or group of companies, contributing to its failure in
the medium to long term.

 Installation costs – Another obstacle to offshoring relates to the cost and difficulty of
installation, training, monitoring/coordinating and contracting, which may be influenced not
only by cultural factors, but also by the physical distance and/or differences in time zones.
Contracting difficulties include the inability to draft a contract, regardless of its complexity,
which covers all contingencies. This is particularly important because contracts may result in
misunderstandings due to cultural and linguistic differences, and therefore, their applicability
may be uncertain. Other factors such as regulations in specific sectors are also important to
consider.
 Xenophobia and protectionism in developed economies – Xenophobia and protectionist
environments may obstruct the development trend of offshoring some areas, such as
telephone customer service or financial services. In particular, the accent, the local
knowledge and cultural affinities are important factors in call centres, as they affect the value
perceived by the customer. In this regard, factors such as the percentage of the population
speaking English, and the median level of education may prove critical in the offshoring
process.

4. International framework and
main trends in the evolution of
shared services centres
4.1. The history of shared services centres
In the 1980s, the ICT revolution was the catalyst for the emergence of both shared services
and offshore outsourcing. This enabled companies to fragment their processes within the
global market in an effective and efficient manner.
In addition, the development and growth of offshoring rested on two key factors: (i) the
relatively low costs of delegating tasks to entities (affiliated or not to the same economic
group) located in different countries and (ii) the ability of service providers in those countries to
sell high-quality, or more specialised services than those already available in the countries of
the user companies.
In this context, the original offshoring concept focused on the ability of companies to achieve
large savings by sending labour-intensive processes and activities of its business to low-wage
geographies. This strategy has been prevalent for several decades, culminating in a strong
growth of the offshoring movement.
However, the approach to offshoring to shared services centres and outsourcing has been
changing. These changes are due to the reduced arbitrage between labour costs and the
significant increase in wages in countries like China and India (countries with an established
track record of attracting shared services centres), while the cost of labour in North America
and Europe has not changed significantly. Moreover, it appears that other countries, such as
Vietnam, Indonesia or the Philippines, can offer even lower wages, although without the
economies of scale of China or India, and the efficiency of their supply chains. Although it is
still possible to observe significant differences between wages paid in many parts of the world,
other factors are gaining importance in the decision regarding the location of shared services
centres and outsourcing, such as time zone and geographical proximity.
In parallel with these developments, the type of services covered by offshoring has also
evolved. Early-stage offshoring was very limited to services related with back-office and
administrative tasks, while companies are now observing the benefits of this model, enhanced
by improvements in suppliers’ capabilities, which have led to the progressive inclusion of
additional processes.
More recently, offshoring services have expanded to activities that involve intensive use of
skilled human resources and knowledge-intensive services.

This evolutionary process, which occurred for certain types of activities/services covered by
offshoring, also involved important changes in the geography of the sector. The higher the
value-added of the services involved, the less relevant the cost arbitrage became. This then
gave significance, in the context of offshoring decision-making, to the following factors: (i) the
specific qualifications of employees, (ii) their academic training and professional experience,
(iii) proficiency in several languages, and (iv) the development of the business itself. In
addition, the time zone, cultural affinity and geographical proximity are increasingly important
factors in the offshoring decision-making process, creating a new offshoring category, named
nearshoring. This occurs where the shared services centre is located in a different country,
but geographically close to the contracting entity’s country.
4.2. The present and the future of shared services centres
The current global economic situation reinforces the need to apply business strategies based
on cost optimisation and the demand for higher return on investment. Consequently, the
setting up and good performance of professional service centres has become an increasingly
relevant approach within organisations.
Currently, the shared services sector exhibits strong growth, with a high demand for more
comprehensive shared services centres with greater geographical scope, to maximise the
potential offered by this model.
In this context, we analyse below the main evidence of the current international shared
services centre environment, and the most relevant trends for the future of this organisational
model, focused on three major areas: location, scope of services/activities and motivations.
This analysis is based on Deloitte’s biennial surveys
3
on the topic of shared services centres,
with particular focus on the 2013 survey, which obtained responses from 277 companies,
mostly in manufacturing and consumer goods industries, covering 38 countries and 870
shared services centres.
4.2.1. Location
Regarding the location of shared services centres, according to the results of the Deloitte
survey conducted in 2013, compared with the 2011 results, the conclusions are (i) greater
representation of Eastern Europe and Scandinavia in terms of the location of shared services
centres in Europe, (ii) maintenance of the number of shared services centres based in the
U.S. and Asia (although with a significant increase in the number of centres located in India),
and (iii) a substantial increase in the number of shared services centres located in Latin
America, with particular emphasis on South America.
The Chart 03 shows the geographical distribution of shared services centres.
3
Global Shared Services Survey, Deloitte Consulting LLP, 2013.

Chart 03 – Geographical distribution of shared services centres
Source: “Global Shared Services Survey”, Deloitte Consulting LLP, 2013.
To recognise the main changes that have occurred in terms of geographical location of shared
services centres, Chart 04 presents the ten locations with the highest number of shared
services centres, considering two levels of maturity: shared services centres less than three
years old, and those that have been operating for more than ten years. The chart shows a
greater dispersion of the most recent shared services centres among the ten most attractive
countries, in contrast with a strong concentration in the US of shared services centres that are
more than ten years old. New destinations for shared services centres have been emerging,
resulting in a loss of market share and reputation by the traditional locations of these
organisations, especially the US, which had a clear lead in this sector.
Chart 04 – TOP 10 shared services centre locations, by level of maturity
In parallel, it is worth investigating what regions are considered in the determining a location
for new shared services centres, as well as their relative importance, to identify the prospects
in terms of geographical distribution in this sector. To this end, Chart 05 presents the
responses to the survey question "What regions are considered for new shared services
centres?".
Legend
+ 40 shared services centres
20 – 39 shared services centres
0 shared services centres

Chart 05 – Regions considered for the establishment of new shared services centres
In this context, 50% of the potential locations identified on the Chart are countries in Latin
America and Eastern Europe. The top 3 countries considered for location of new shared
services centres are Brazil, Poland and India, which represent a total of about 30% of the
responses.
Latin America was, in 2011, the second most considered location for new shared services
centres, achieving first place in 2013, influenced by an increase of the importance of the
Brazil, from 2% in 2011 to 11% in 2013, followed by Mexico and Argentina. In Eastern Europe,
Poland is the most considered country for setting up shared services centres, followed by
Hungary and Romania.
One of the main reasons for the emergence of new countries in the shared services centres
context is the change in the critical factors of the location selection process. To take a closer
look at this issue, Chart 06 shows the evolution of the factors considered important in the
location selection process by the companies covered by the Deloitte survey, between 2011
and 2013.
Chart 06 – Evolution of the factors considered important for the location selection process of
shared services centres
Source: “Global Shared Services Survey”, Deloitte Consulting LLP, 2011 and 2013.
6% 6% 6%
8%
9%
18%
21% 21%
28%
5%
7% 7%
14% 14%
17% 17%
22%
23%
0%
5%
10%
15%
20%
25%
30%
Tax benefits Regulatory and
legislative
context
Risk profile (e.g.
political, social)
Headquarters'
proximity
Proximity to
existing
operations
Language skills Workforce
availability
Workforce cost Workforce
quality
2011
2013

In conclusion, the factors associated with workforce (language skills, availability, costs and
quality) remain the most important in the process of selecting a shared services centres
location, although their relative significance has been decreasing. Conversely, the importance
of the proximity of the location to either the headquarters or the operating units should be
highlighted, which emphasises the relevance of the nearshoring concept.
In view of the above, with regard to the location of shared services centres, the following
trends that have influenced the recent evolution of this sector - and that will also influence its
future development - should be highlighted:
 Companies are considering a larger number of potential locations for shared services
centres, significantly more than were considered a few decades ago;
 Latin America and Eastern Europe show a significant growth in their share of shared
services centres, as the two most important regions in attracting new investment in this
sector;
 Factors associated with labour/workforce (language skills, availability, cost and quality)
remain the most decisive factors in the process of selecting a location for shared services
centres, although they have been losing importance to proximity to headquarters and
operating units.
4.2.2. Scope of services
Over the years, opportunities and challenges faced by businesses have led to an increase of
the scope of the shared services centres, which were initially intended to perform a specific
standardised function at a low level of complexity. These same opportunities and challenges
have now led to the creation of shared services centres that concentrate on more than one
function.
In theory, a shared services centre can accommodate any activity, provided it has adequate
management, and specific performance criteria are defined (Bergeron, 2003). At present,
there is a great variety and number of shared services centres, with different types of
functions/roles, and varying levels of complexity. Chart 07 shows the roles performed by 870
shared services centres, included in the survey conducted by Deloitte in 2013.
Regardless of the business sector, companies continue to transfer, in large measure, so-
called, “back office operations” to shared services centres. The focus is on financial services,
which include mainly the management of account payable (55%), receivables (50%) and
accounting (48%). In terms of human resources functions, payroll (40%), employee
management (39%) and reporting (32%) should be highlighted. ICT typically include the
development and optimisation of applications (36%), security and control (36%) and helpdesk
(34%). Nevertheless, the status of some new functions has increased, particularly in the legal
and real estate areas.

18%
20%
27%
35%
39%
41%
52%
62%
93%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Sales/Marketing
Legal area
Furniture/Infrastructure
Tax area
Customer support
Procurement
Information technology
Human resources
Finance
Chart 07 - Services performed by shared services centres
It is important to mention the multi-functional nature of shared services centres, meaning they
have the ability to cover more than one role or type of service. This was confirmed by 43% of
responses in the 2013 Deloitte survey.
4.2.3. Motives and impact
The analysis of the main motivations and business events that trigger the setting of shared
services centres is also important to gain a better understanding of the real needs and
expectations of companies. In this context, according to the responses obtained in the 2013
Deloitte survey, cost reduction remains the main motivation for adopting this organisational
model, along with the need to create a structure to effectively support business growth (as
shown in Chart 08).
Chart 08 – Main motivations for the implementation of shared services centres
Despite cost reduction continuing to be one of the main motives for the creation of shared
services centres, their benefits and impact are being recognised in a greater number of
businesses. Therefore, shared services centres are no longer seen exclusively as a low cost
alternative, but also as a strategic asset that enables organisations to significantly increase
the efficiency and quality of processes, as well as to have more effective internal controls, and
to efficiently support their sustainable growth.
6%
7%
8%
9%
10%
11%
23%
26%
Acquisitions
Pressure to increase the market value
Competitive pressure
Need for internal control
Technological changes
Economic downturn
Need to create a platform for scalable growth
Restructuring business/Cost-cutting

4.2.4. Future trends
With regard to the evolution of trends in the shared services centres sector, it is worth noting
from Deloitte’s survey that 95% of respondents believe that shared services centres will
continue to include value-added and knowledge-intensive services, such as R&D services.
Meanwhile, the majority of the respondents agree that shared services centres will also
continue to expand to new geographies, enhancing the geographical dispersion of these
centres. In fact, these two trends are corroborated by almost all the respondents, which will
shape the evolution of shared services centres in the years ahead.
Chart 09 – Future trends of shared services centres
A final trend worth mentioning is that shared services centres provide services to clients
outside the economic group to which they belong. This allows the exploitation of economies
of scale and additional revenue sources and profitability for organisations. However, this was
not a unanimous trend among the survey responses.
Even though the shared services model is relatively mature, there are still many opportunities
for creating shared services centres with more complex roles, exploring new geographies and
the use of hybrid models (complementing the shared services centres with outsourcing
services).
3%
3%
4%
8%
30%
32%
31%
35%
39%
24%
62%
63%
55%
56%
45%
57%
7%
4%
11%
6%
12%
11%
1%
1%
Shared services will become virtual, eliminating the need for physical
infrastructure
Increased automation can lead to shared services centers' shutdown
Most functions will eventually be transferred to third parties
Shared services will serve external customers and become profitable centers
Shared services will continue to expand into new geographies
Shared services will continue to expand into higher value-added processes
Totally agree Agree Disagree Totally disagree

5. Attracting investment in shared
services centres
5.1. Evolution and present context of FDI
Countries perceive FDI as an important source of capital inflow and job creation. In recent
years, governments have also recognised the relevance of FDI to the inward transfer of
technology and know-how, which leads to spill overs across the business framework such as
the introduction of new processes and the acquisition of new skills. Several studies have
demonstrated positive relationships between FDI and the growth of GDP per capita.
According to a Financial Times report
4
, in 2012 the number of FDI projects in the world
decreased by 16%, after an increase of around 8% in 2011. The average level of investment
per project also dropped, as the total FDI amount decreased 33% compared to 2011 (a
decrease higher than the number of projects). The slowing of economic growth in China led
companies to reduce their capital-intensive investment, significantly contributing to the
reduction of the total FDI amount in 2012.
Globally, all regions saw their FDI levels reduced in 2012. However, two regions stand out, (i)
Africa, which showed a lower decrease in the FDI rate than the world average (increasing its
share of new FDI projects from 5,5% to 6%) and (ii) Western Europe, which showed a 1.5%
decline in attracting new FDI. Asia-Pacific took over as the leading FDI destination region in
2012.
With regard to regions contributing to FDI, in 2012 Western Europe led the outbound
investors, with about 43% of total FDI projects. At a national level, the U.S. was the leader in
this area, both in receiving FDI and investing abroad.
With regard to FDI in Europe, the number of inbound investments decreased by more than
20%, with the highest FDI drop occurring in Germany. In 2012, only Spain and Poland
reported an increase in the number of FDI projects in their countries, which was a positive
result after years of downturn. It is also important to mention the performance of Ireland and
Turkey, whose decline in FDI was less than the European average. Also, in 2012, Turkey also
entered the Top 10 European countries attracting FDI projects.
Chart 10 shows the evolution of FDI as a percentage of GDP in some European countries
over the last decade. The chart shows a decrease of FDI.
4
“The FDI Report 2013, Global greenfield investment trends”, The Financial Times Ltd, 2013.

Chart 10 – FDI (as % of GDP) in European countries in 2000, 2005 and 2011
Source: OECD.
Globally, of the sectors attracting FDI, the services sector demonstrates an upward trend in
recent years. According to UNCTAD, FDI quadrupled in the services sector between 1990
and 2002. According to the Financial Times report, the business and financial services and
the ICT sector represented about 44% of FDI projects in 2012, an increase of 5% over 2011.
This report also draws attention to an important FDI trend at a global level, FDI expansions.
These have been increasing in recent years, rising from 11% in 2008 to 23% in 2011. This
means that investors are increasingly favouring the expansion of operations or reinvestment in
existing locations - in most cases, with less risk and lower investment, instead of investing in
new locations.
According to AICEP and the Bank of Portugal, the gross FDI amount in Portugal showed a
positive trend in the last five years, with values between Euro 32 billion and Euro 43 billion.
In 2012, gross FDI in Portugal reached Euro 39.3 billion, down by 9% relative to 2011. In the
same year, the sector with most FDI in Portugal was wholesale and retail (34%), followed by
financial and insurance activities (22%), and manufacturing (19%).
5.2. Strategies and tools to attract and promote investment
Given the current context and the evolution of FDI flows, particularly the increased importance
of the services sector, potential FDI recipient countries face significant challenges and
opportunities in implementing strategies to attract and promote investment when the needs
and specific requirements of this sector are considered. This study analyses the importance of
different tools to attract and promote investment in this particular sector using the shared
services centres area in Portugal for this purpose.
0%
5%
10%
15%
20%
25%
30%
Czech
Republic
Hungary Ireland Netherlands Poland Portugal Slovak
Republic
Spain United
Kingdom
2000
2005
2011

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