JULY 2020

Opportunities in the “new normal” for Shared Services located in Spain

Content

COVID-19 impact on Shared Services

Update Shared Services located in Spain

Trends and opportunities in the post-COVID era

Who to contact

COVID-19 impact on

Shared Services

How COVID-19 situation has impacted theoperations at Shared Services Centers

Manage continuity of service

Respond Recover Thrive

Work remotely and digital training

Cash Management

Labor measures and flexibility of Operations

Crisis Management phases

Learn and recover

Grow stronger in the “new normal”

01

02

03

A s p e c t s t h a t h a v e b e c o m e c r i t i c a l f o r o p e r a t i o n s m a n a g e m e n t :

Lack ofpreparation

Some aspects obser ved in the management

of COVID -19 cr i s i s

Challenges with goingDigital

Accelerated mindsetchanges

Legal / labor implications

Importance of global/ international oversight

Difficulties managing collections and payables

How COVID-19 situation has impacted Shared Services Centers delivery

Going through COVID-19 crisis and lockdown, how did the Service Centers located in Spain respond?

In early June Deloitte hosted a meeting among executives of multinational companies specialized in the shared services sector in

order to contrast some trends and get insight

40%

14%

14%

21%

0 to 10 days

10 to 20 days

More than 20 days

Still not completely recovered

Given the COVID-19 crisis and lockdown, most of the Service Centers located in Spain have shown great response capacity

100%

Answers from high level executives of multinational companies specialized in the sector, June 09th 2020

H o w l o n g d i d i t t a k e t o s t a b i l i z e a n d r e c o v e r y o u r S S C o p e r a t i o n s ?

Answers from Global In-House Centers, India, May 22nd 2020

0 to 10 days

Update Shared Serviceslocated in Spain

The level of infrastructure and telecommunications available in Spain

The availability of laptops

Importance of a strong pre-COVID business contingency plan

K e y a s p e c t s t h a t a l l o w e d t h e C e n t e r s l o c a t e d i n S p a i n t o s h o w a g r e a t r e a c t i o n c a p a c i t y :

On the other hand, centers located offshore have faced more difficulties due to more fragile infrastructure (Internet, utilities, etc.) and lack of information/visibility in some cases. Some operations still had not recovered weeks after.

Top speed home internet connections used widely (compared to other countries)

The active role and speed of action of IT teams

Given the COVID-19 crisis and lockdown, most of the Service Centers located in Spain have shown great response capacity

Globally, “offshore” operations are optimal locations to manage transactional and high volume functions, where primarily the lowest possible labor cost is pursued (India, Malaysia or Philippines are some of the main examples).

“Nearshore” centres are located where access to multiple languages, qualified talent, same time zone, etc. prevail.

Spain has long been a perfect example in this segment, probably only behind Poland, which continues to be the main location in Europe due to availability of resources with certain languages and their low cost.

When the main objective is to minimize costs, countries like Romania, Czech Republic, Bulgaria or Hungary are still options to consider in Europe. However, these might have much higher inflation levels.

Portugal has become in recent years one of the main competitors of Spain for offering almost everything Spain does, being “comparable” countries, at lower costs.

Aspects that were already relevant in terms of location will continue to be so

IRELANDDUBLIN

CORK

Tier 1 cities

Tier 2 cities

POLAND

POZNAN

WROCLAW

TRI-CITY

WARSAW

KATOWICE

KRAKOW

LODZ

LUBLINCZECHREPUBLIC

PRAGUE

BRNO

OSTRAVIA

HUNGARYBUDAPEST

DEBRECEN

ROMANIA

BUCHAREST

CLUJ-NAPOCA

BULGARIASOFIA

SPAINPORTUGAL

PORTO

LISBON

BARCELONA

MADRID PALMA DE MALLORCA

BILBAO

MALAGA

ZARAGOZA

Many factors make Spain a top location for Shared Services

The metropolitan areas of Barcelona and Madrid are the main areas where these centers are usually housed in Spain and for this reason they are considered Tier-1. Tier-2 cities are further down in terms of number of centers than they are in other countries.

With no doubt, access to top-level talent is one of the strengths of Spain as a location, which includes professionals with native languages, highly qualified profiles and technological skills, also supported by the abundance of good universities and business schools. The “time to hire" is much better than it is in most of the alternatives.

Spain, in addition to being a cosmopolitan country with a high quality of life, stands out for its location close to the main European markets, coincident time zone with EMEA and very good connections for continental and intercontinental flights.

89%

78%

44%

44%

33%

33%

33%

22%

22%

0%

Access to qualified talent with native languages and cultural skills

Quality of life

European time zone & travel distance to most european key markets

Value added/ transformation capabilities

Ecosystem SSC/ Talent/ Consulting firms/ Recruiters

Labor arbitrage

Capacity to host multifunctional centres or CoE

Availability and cost of real estate

Capacity to host large size transactional centres (+500HC)

Government support and incentives

Which of these factors make Spain

a TOP location?

Which factors make other locations better than Spain?

The two main aspects (and probably the only ones) where other locations surpass Spain are a lower labor cost and the lack of support from public institutions.

The limited level of support from the government not only includes a lack of subsidies or direct aid, but also the shortage of generating stability, promoting labor flexibility, recognizing the strategic value of the sector and enhancing specific education fields.

While Spain generates and attracts young and international talent, further actions should be taken to maintain and continue attracting that talent.

Which factors make other locations better than Spain?

67%

56%

11%

11%

11%

11%

11%

0%

0%

0%

Government support and incentives

Labour arbitrage

Capacity to host large size transactional centres (+500HC)

Value added/ transformation capabilities

Availability and cost of real estate

European time zone & travel distance to most european key markets

Ecosystem SSC/ Talent/ Consulting firms/ Recruiters

Access to qualified talent with native languages and cultural skills

Quality of life

Capacity to host multifunctional centres or CoE

Trends and opportunities in the post-COVID era

LOCATION CRITERIA TREND IMPACT POST-COVID

RISKPolitical, financial, macro-economical

Populist governments and anti-European movements

Traditional locations continues to thrive

Untapped locations will be less solicited

Human ResourcesExperienced, graduates

Competition for (tech) talentGig Economy and contractors are solicited.Less availability at Tier-2 & 3

Flexibility will be key. Lay-offs from industry are expected for traditional roles

Infrastructures & hazardsOffice, telecom

WFH increasing and demand for office space and is decreasing

Many SSC operate (partly) in serviced offices

WFH will only increase

AccessibilityCar, plane, train

Morning in – evening out: extension of HQ

Mostly tier-1 locationsWill accessibility stay this important?

Operating EnvironmentBusiness regulations

Industry associations are gaining power

Traditional locations continues to thrive

Regulations will be more employer friendly

Location appealQuality of life, expats

Quality of life and healthcare is increasingly important

Mostly tier-1 locationsWill only increase

Costs, tax and incentivesPayroll, rent

Payroll cost differential between locations is eroding

Inflation is now more important than actual salary

Untapped locations are less solicited

T h e e v o l u t i o n o f t h e k e y l o c a t i o n c r i t e r i a w h e n d e c i d i n g t h e o p t i m a l l o c a t i o n f o r a S e r v i c e D e l i v e r y C e n t e r r e i n f o r c e s T i e r - 1 o p t i o n s

Main location criteria and how they are expected to evolve in a post-COVID environment

Opportunities and challenges for Spain as a location for Service Centers in the immediate future

Regarding the impact that the pandemic may have in the immediate future, on the one hand, the centers in Spain have been able to respond quickly thanks to their top-level infrastructures and telecommunications. On the other hand, the international image has been affected as a consequence of the health crisis management, also generating economic, labor, and fiscal uncertainty in relation to what lies ahead. Although this might affect Spain as a receiver country in the short term, it is likely that this feeling will not last over time.

There are new opportunities in the analysis phase and everything seems to indicate that companies will continue to cover their needs from Spain because the response of the centers has been quick and effective. Although a possible threat in the new normality could be the lack of attractiveness for foreign talent if high unemployment levels are maintained, these jobless rates can also be an opportunity for these centers.

Barcelona and Madrid are very attractive locations for value-added services and services that are critical or closely related to the client. Beyond the "traditional" functions (Finance, HR, IT, Procurement, ...), many Centers of Excellence are being created in Spain in areas such as Analytics, Cybersecurity, Digital Marketing, Digital Finance, Robotics, Supply Chain and Artificial Intelligence.

Barcelona and Madrid and their

metropolitan areas are once

again on the radar for a large number

of operations

Areas in which organizations should focus on thriving post COVID-19

Flexibility and scalable (and unscalable) service models

Comprehensive digitalization

Agility and operational responsiveness (Including BCP / DR)

Ecosystem and partnershipmodels

Automation and transformation

Some insight on the priorities post COVID-19 in the Shared Service Centers

Real time data availability

What will be the main transformation opportunities for the global delivery models in the near future?

75%

63%

38%

38%

38%

25%

13%

13%

0%

0%

Agility

Accelerate digitalization &

reduce human dependency

Transformation capabilities

Provide value added to Business

& Business partnering

Cost efficient delivery model (quality,

cost, productivity & variabilization)

New talent sourcing/liquid talent

Proximity to HQ/Business

Cost reduction

Better business continuity plan

Reduce offshoring exposure

Which of these areas will be the most critical in the medium term, in the "new normal“?

The current situation has meant that all business functions have been interacting remotely for months. Centers already located in Spain could have post-COVID opportunities to manage new services that until now had not been considered.

Although most meetings are temporarily being managed remotely, geographical proximity and the ability to be closely located to both headquarters and the main European markets will soon be key again. Likewise, the ability to react, already demonstrated, and cultural and language affinity will continue to be vital.

In the short-term, it will be essential to promote agility, flexibility (including the variability of the cost structure), innovation, collaboration (internal and with third parties) and automation.

There are many opportunities ahead.

Spain has a great opportunity as the optimal location for highly-specialized services focused on value-added

activities where enhancing corporate culture and the ability to transform operations will be key

Short Term: 3 – 6 months

• Focusing on Business critical processes

• Re-engineering processes to enable remote working & collaboration

• Developing adapted leadership skills

• Adapting the office for social distancing and safety

• Improving flexibility and working capital management

• Reinforcing Controls and compliance

• Revisiting Business Continuity Plans

• Providing support to the Business through recover and thrive phases

Long Term: 2 years +

• Delivering business value beyond transaction processing

• Having a seat at the Executive table

• Being truly insight driven

• A fully flexible and agile approach to processes and the workforce

• True Business partners• Expansion of service offering

• Right-sizing the office

• Agility of processes

• Increasing digital and automation capabilities

• Testing Business Continuity Plans

• Revisiting delivery models (captive, hybrid, outsourcing)

• Re-shore – Right-shore

Medium Term: 6 months – 2 years

What’s next in the Shared Services Journey

Who to contact

José María RojoManaging PartnerBusiness Process Solutionsjorojo@s2g.deloitte.es

Sergi LemusPartnerBusiness Process Solutionsslemus@s2g.deloitte.es

Lydia GonzalezPartnerBusiness Process Solutionslidgonzalez@s2g.deloitte.es

Ignacio Ruiz de LoizagaPartnerBusiness Process Solutionsiruizdeloizaga@s2g.deloitte.es

Gaëlle OrdronneauSenior ManagerBusiness Process Solutionsgordronneau@s2g.deloitte.es

The making of this document has relied on the voluntary participation of a group of well-renowned professionals in the sector. Said participation has had the objective of sharing and enriching the initial basis of the analysis.

The content, conclusions and recommendations described in this document do not necessarily reflect the opinion of Deloitte or the contributing experts.The document has been prepared for informative purposes only and it is based on information gathered from different sessions, reflecting a series of general observations. Deloitte will not accept any responsibility arising as a consequence of decisions or actions adopted based on the content of this document.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte provides audit, consulting, legal, financial advisory, risk management, tax, and related services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 244,000 professionals are committed to making an impact that matters.