As evidenced by results in the Deloitte survey, GBS centers continue to move beyond transactional-only services into more advanced capabilities. Centers often start with initial transactional back-office scope and then incorporate additional functions and advanced capabilities as they prove value to the business. Client examples include starting with accounts payable/accounts receivable (AP/AR) activities—and then adding financial planning and analysis and upgrading from IT support to technical capabilities. For this reason, successful GBS centers tend to grow in scope and scale over time, even in parallel with efficiency gains.

To make a sustainable GBS center location decision, organizations should consider the market’s ability to support both the current defined scope and potential future opportunities. This includes analyzing the talent supply, labor cost, and the precedent in the GBS sector for each of the relevant capabilities. These varying inputs can be assessed across potential future-state scenarios to inform the location decision. Planning for growth helps ensure the location can continue to meet business needs and deliver value for years to come.

Capability spotlight

Talent supply data can be analyzed by transactional and advanced GBS capabilities to ensure a selected location meets current and future needs for the organization. Here’s an example for three core GBS functions in Bucharest, Romania.

For regional and global GBS centers delivering advanced services, more mature markets tend to offer the deepest talent pools, if at a higher cost point. But that doesn’t mean that GBS organizations should write off tier II and tier III locations entirely. In fact, considering these markets in conjunction with major hubs can be part of a sustainable long-term location strategy.

GBS organizations are increasingly expanding within current countries to tier II and III markets. This has been an ongoing trend for large organizations in India, but it’s now occurring around the globe. In Europe, for example, Airbus expanded from its Lisbon GBS center in Portugal to Coimbra, and Deloitte has opened a satellite office for our Bucharest delivery center in Iași, Romania. These sites offer increased access to talent, especially to recent graduates from local universities. They may also offer 10% to 25% cost savings, depending on the city, relative to major markets. Importantly these locations can leverage the existing GBS leadership, recruiting and legal infrastructure, and branding in-country, minimizing market entry costs and effort.

In a slight variation of this strategy, smaller or less well-known organizations may also consider entering directly into tier II and III cities. The required talent is increasing in these markets due, in part, to the distribution of the workforce triggered by remote work. And they can avoid having to compete directly with the top-branded GBS centers in mature markets. Select examples include Material Sciences Corporation’s recent entry in Querétaro, Mexico, and Primient’s new center in Łódź, Poland.

Market spotlight

GBS organizations are increasingly expanding to tier II and III markets within their existing footprint. GBS market examples in Portugal and Mexico are provided below (non-exhaustive list).

Most mature GBS markets are competitive, but they are not all created equal. At the extreme end, some markets have experienced sustained talent competition and/or cost increases for many years. In our experience, though, many existing GBS markets still offer an attractive long-term trajectory for new entrants.

To assess the potential trajectory of the location, we typically target four variables related to market dynamics: sector growth, attrition, wage escalation, and talent attraction.

Sector growth: Number and type of recent GBS entrants, existing center expansion/ramp-up, and the perceived impacts on the market.

Attrition: GBS center attrition rates, including within target functions, in recent years for similar operations.

Wage escalation: GBS wage escalation rates in recent years, midyear adjustments (where required), and impacts to cost arbitrage opportunities.

Talent attraction: The market’s ability to supply talent in line with GBS sector growth, either by retaining talent in the local market or attracting talent from within the country or region.

As these variables are based on in-market data and qualitative insights, we assess these trends with our clients during due diligence visits in prioritized markets to inform the final location decision.