something to smile about? - Euromoney Institutional Investor PLC

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JT InternationalJT Internationalannounced the openingof its Manchester-basedEuropean BusinessService Centre inFebruary 2003. As asubsidiary of JapanTobacco – the world’sthird largest cigarettemanufacturer – JTInternational boastssales in excess of $30billion.JT International (JTI)is a shared serviceprofessional. As the t-shirt says, “Been there,done that”. In additionto Manchester, thecompany has one inKuala Lumpur,managing the Asianmarket, and one in St.Petersburg, for dealingwith the Russian marketwhere the company hasa particularly strongpresence.The choice for aEuropean location wasbetween sites such asManchester, Barcelona,Rotterdam, Dublin andPrague. For MartinBraddock, JTI’s CFO, thecreation of a sharedservice centre in Europewas linked to an overallcorporate strategy:“Throughout theprocess, JTI was tryingto become a low-costquality producer. Thatapplied to the productitself as well as the backofficefunctions. Thisdrove the thinkingtowards a shared servicecentre.”The employee basewas top priority. “Thecriteria for the sharedservice centre wasessentially theavailability of labour,the skill of labour andthe cost of labour. Weformerly evaluated theNetherlands and our St.Petersburg operationsbut we discounted anumber of otherlocations as we weremoving very quickly.“We heard Dublinwas over-heating interms of its sharedservices and that we’dbe moving in to a zoo,competing for staff. InBarcelona we heardthere were problemswith retaining the rightquantity and quality ofstaff and in Prague therewere similar concerns.”So why Manchester?A grant from theNorth WestDevelopment Agency(NWDA) of £630,000($1.2 million) proved agood incentive, as didcooperation offered bythe ManchesterInvestment andDevelopment AgencyServices (MIDAS). “Thegrant was not the overridingfactor in ourdecision, but it didindicate an acceptanceby the NWDA of ourmoving in to the area. Insome countries thedevelopment agencieswere only luke-warm intheir reception.”The challenge forBraddock was theconceptual change.“Any shared servicecentre experience isdifficult - you’re“Throughout theprocess JTI wastrying to become alow-cost qualityproducer. Thatapplied to theproduct itself aswell as the backofficefunctions.”changing processes,systems andorganisation. We did theprocess in 12 monthsbut it was very painful.”After his experiencesin creating a sharedservice centre, whatadvice does he have fora CFO setting out on theshared service route?“You can’t do enoughplanning, you have tomanage the executionissues and theorganisation has to havethe stomach to gothrough the change.” Itis also worthremembering, saysBraddock, that, “sharedservice centres are onlypart of the road map tostandardised processeswithin a company.”The EuropeanBusiness Service Centrehas 86 employeesranging from seasonalqualified accountants toprocessing clerksworking on corporateconsolidation,reporting, generalledger activities for theEuropean entities,accounts payable andreceivable, processingpayments and ancillarySAP support.time at its four universities and is fastbecoming a target for young Europeanslooking to improve their English andfind employment in an area whereaccommodation is affordable. “Theblend of UK nationals and foreignnationals is an important factor in Manchester’ssuccess,” says Norwood. “SSCsin Manchester will find their staff are40% to 60% from outside the UK and areoften nationals of the country whosemarket they are serving. This has significantadvantages when dealing withexternal customers and suppliers andmeans that a higher quality or morevalue-added service can be offered thanfrom some other locations.”Cammie Seymour at Michelinagrees. Project manager at the Frenchownedmanufacturer, Seymour hasoverseen the creation of the Manchesterbase since its inception in October2002. “Manchester had a huge advantagein that is has a very largeinternational population and graduateswith strong language skills. We sendour graduates abroad for four monthsat a time to learn treasury skills inanother country - they have to fit in culturallybut also be able tocommunicate,” she says. The skills arethen transplanted back to Manchesterwhere Michelin employs 150 people inaccounts payable, fixed asset accounting,general ledger and intra-groupaccounting.CF was lucky to track down Seymour.She spends much of her time flyingbetween Michelin’s European bases tocheck on the treasury teams and ensurethe employees are fully trained beforetheir final return to Manchester. “Wedid a study over two years on whetherto create a shared service centre at theEuropean level. We looked at 15 citiesin total but the shortlist came down toManchester, Madrid or Michelin’s basein Clermont-Ferrand in France.”Michelin’s consultants suggestedBarcelona and Lisbon, or real offshoringlocations like India. But asSeymour notes, “it’s important to be inEurope as our customers are inEurope.” With official corporate languagesof French or English, Seymourpoints out that Michelin needed a destinationwhere at least one of thecorporatefinancemag.com March 2004 cf 39
TREASURY LOCATIONMANCHESTER & GLASGOW“I’m not convinced there isa pan-European SSC ineastern Europe operatingon a single centre model.“Chris Norwood, MIDASlanguages was spoken. Manchesteroffered a good track record and anattractive cost base. “Cost was a definingfactor. In Europe there is littledifferentiation in cost for the top-endaccounting positions, but Manchester ismore competitive for costs at theaccountancy entry-level,” she adds.Norwood denies any competitionbetween Manchester and other EuropeanSSCs, but with the reduced riskfactor of operating in Eastern Europetoday, he must recognise there is athreat to Manchester’s popularity?“If you choose between the two typesof locations [western and easternEurope] you choose between differentkinds of shared service centres. Ateastern European locations you havethe low-cost offering but will you havethe value-added aspects, such as customerrelationships or infrastructure?”says Norwood, who points out that TetraPak, Bristol-Myers Squibb and Kellogg’salready cover eastern Europe from Manchester.“An SSC in Manchester (orRotterdam or Barcelona) will offer awider range of languages, a wider rangeof professional expertise and may createvalue through greater efficiencies andanalysis of business performance ratherthan simply through lower cost salaries.“I am not convinced that there is atruly pan-European SSC in EasternEurope operating on the single centremodel that you will find is the norm inManchester. No one is sure what’sgoing to happen after May 1st. The driftof professionals away from EasternEurope may actually increase theshared service centre culture in thewest, and employment costs may alsoincrease there.” cfScotland is shakingoff its image as anindustrialbackwater and ispromoting itself asa location forcorporate sharedservice centres.Jason Eden looks atwhat Scotland’ssecond city Glasgowhas to offer thebrave-heartedcorporate.GREATER GLASGOW & CLYDE VALLEY TOURIST BOARDGlasgow’sSSC sceneIn June 2003, Glasgow waslabelled the “Coolest city in theUK,” by the National GeographicTraveller magazine. Now, beingsomewhere ‘cool’ may not be apriority for most corporates consideringrelocating their operations, butwhen you are trying to attract multilingual,skilled professionals to manshared service centres, it is a pretty bigselling point.So too is a £500 million ($932million) district purpose-built for thefinancial services sector with thousandsof highly skilled people, 24/7operations, dual routing telecoms andexcellent international transport links.In Scotland, traditional industriessuch as shipbuilding and heavyengineering have given way to IT, lifesciences (the Roslin Institute inEdinburgh cloned the first mammal,Dolly the sheep), and communicationtechnologies. Glasgow and Edinburghhave also become locations for callcentres and shared service centres. Onesuch corporate to fall for Glasgow’scharms is the Eaton Corporation, anelectrical power distribution company.Eaton set up operations in Glasgowin 1997 and currently employs over 90staff. “We looked at London, Dublin,Amsterdam and Glasgow. For us, itreally wasn’t a choice. Glasgow wonhands down,” says Jim Ward, Europeanshared-service centre finance leader.“We thought the Amsterdam economyhad too much labour inflation and Londonhad the twin problems ofaffordability and retention of multi-lingualstaff due to a buoyant labourmarket.” Glasgow, says Ward, didn’tsuffer from these problems back in1997, and still doesn’t.A flexible, multi-lingual labourforceWithin a 20-mile radius of Glasgow’scity centre there is a catchment labourforce of 2.5 million people; more than28,000 people work in the finance sector.This number is expected to increasedramatically during 2004, when the£500 million, purpose-built InternationalFinancial Services District (IFSD)is completed.40 cf March 2004 corporatefinancemag.com
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