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Industries:  General 

Where Should Your Sourcing Center be Located?

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By: Ipsita Suman
Principal Analyst, Indirects

calender31 Jan 2019

where-should-your-sourcing-center-located

Procurement is rapidly turning into a customer-centric organization. Procurement has to evolve to strike a chord with changing demands. Procurement Organizations make great efforts to find a suitable location for their procurement/sourcing centres. The location should be attractive enough for proficient professionals as well as sustainable enough to deal with attrition and other issues.

What was a mere support function a few decades ago has transformed into a panacea of almost all business problems. Best-in-class organizations are trying hard to find a city that is cost effective as well as attractive to talent from cultural and monetary perspectives.

Below are the established locations for strategic, operational, and tactical procurement centres.

Determining factors for selection of a sustainable location

Location analysis depends on the business environment, city culture, and macro-economic parameters. Below are the sub-parameters considered.

Understand the business environment

  • Access to sourcing professionals
    • Presence of similar industries
    • Presence of shared service centres
    • Demand for sourcing professionals (qualitative)
  • Access to talent pool
    • Top universities
    • Language capability of students (qualitative)
    • Employer activity (qualitative)
  • Labour market flexibility and foreign residents
    • Unempolyment rate
    • Liveability rank
    • Expat population
    • Presence of work council (qualitative)
  • Equality and diversity
    • Female empolyment rate
    • Gender equality index
    • Gender sensitivity (qualitative)
  • Understand the surrounding environment
    • Political landscape
    • Financial stability
    • Banking system
    • Financial macreconomic factors
    • Attractiveness
    • Quality of life
    • Transport
    • Connectivity—Road networks, presence of nearby airports
  • Estimate of costs involved in setting up shared service centres
    • Start-up cost
    • Salary costs and predicted salary increase
    • Benefits and overheads
    • Office rent
    • Cost of living
    • Local purchasing power

Emerging Cities for Sourcing Centres

emerging-cities

Europe has both established and emerging centres for sourcing and procurement. Emerging locations are situated in Eastern Europe. Due to the time zone similarity and language capability, cities in Eastern Europe are in high demand.

Eastern Europe

  • Krakow is fairly established in terms of shared service centres in Poland. Access to sourcing professionals is very high in this region.
  • Cost of living is relatively low. Office rents are expected to increase by 3-5 percent.

Western Europe

  • Barcelona has a good mix of talent pool and sourcing professionals to make it a preferred destination for a shared service centre.
  • In Spain, a contingent worker is treated in the same way as a regular employee in terms of pay, equality, facilities, and level of assessment. Also, a termination is treated as being by reason of redundancy if it is based on an ‘economic, technical, organisational, or production’ reason.
  • Spain’s rank in Ease of Doing Business has decreased from the past year. Corruption has increased this year and the Attractiveness indicator, Ease of Settling, has reduced from that of the previous year. After last year’s political instability, the country seems to be bouncing back to form. Spain is well connected by all major means of transport.

Central and Latin America

  • Sao Paolo has a good mix of talent pool and sourcing professionals to make it a preferred destination for shared service centres.
  • The cost of living is on the lower side.
  • Costa Rica’s GDP growth rate has increased to 5 percent due to investment in multiple shared service centres. Due to presence of multiple industries and many such centres, San Jose is a preferred location in Costa Rica.
  • Argentinian workers are among the most highly educated in Latin America. Argentina has relatively high social security and other labour taxes and has been a member of the International Labour Organization since 1919.

Asia

  • Kuala Lumpur has good access to sourcing professionals to make it a preferred destination for shared service centres.
  • The Philippines is known for its skilled workforce that continuously fuels the growth of the outsourcing industry shared service centres, and it is the only nation in the region to make it to the global top 10 as the most gender-equal nation in Asia.
  • Many global service centres are located in Bangalore, thanks to the availability of a highly educated and skilled IT workforce. Bangalore is seeing a rise in the demand for procurement professionals due to shared service centres being set up. The city has a high number of universities catering to business and supply chain specialties.

Conclusion

The location of the sourcing and procurement centre can play a major role in supporting the procurement function, and hence should be chosen after a significant amount of consideration.

 

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