Why are Japanese Firms Not Embracing Shared Services?

Caveat – In this discussion, SSC refers to shared service centers providing back office functions like Finance, HR, IT etc.

A quick analysis of data by SSON (from SSON Analytics digital data tools: SSC & BPO Atlas) shows alarmingly low rates of adoption of Shared Service Centers (SSCs) by Japanese firms.

While US companies have more than 3000 SSCs spread across the globe (40% of them in low cost offshore countries), and Germany 400+ – contrast Japan with only 89 SSCs.

The third largest economy of the world is lagging far behind in adopting the shared services model.

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It baffles me. A country, which has been epicentre of innovation and efficiency for decades, has missed the bus on outsourcing and SSCs.

Low adoption of shared services centers is generally attributed to
1. Language/cultural barrier
2. Tendency to do “everything by themselves”
3. Organizational problems & decision making
4. Conservative approach
5. and perhaps a few more…

In a globalized world, the competitive dynamics faced by Japanese firms are similar to those of other global corporations, hence there is always a need to look at a cost effective modus operandi.

Japanese firms will do well for themselves if they get out of the mind-set of “doing everything by themselves”.
There are certainly examples of successful Japanese technology corporations that have adopted a global service delivery model: NEC, Fujitsu, NTT, and Hitachi have large delivery centers in offshore locations.

Several Japanese automotive and manufacturing firms have also set up production and R&D units in low cost locations outside their home country – which proves that if desired, the SSC model can work.

It’s time that other Japanese buyers of services realize the benefits of adopting a global operating delivery model.
How can SSC adoption increase?

Here are a few things that Japanese firms can do to overcome the concerns around shared services, and build confidence to tap into the SSC market:

A. Market View: An outside-in view of how other companies have successfully built and transformed SSCs into a strategic unit. Learn from their journey. Help jump-start your journey by leveraging other’s experience. Whether mistakes or successes, learning from other’s journeys is key to flexibility and adaptability.

B. Location Strategy: Scout for the right location that offers talent, capability, scale and is also a match to the organization’s cultural and business objectives.

C. Regulatory Considerations: An important aspect during strategic analysis. Involve an expert to understand regulatory/tax implication of setting up a SSC in another country. It impacts your business case and helps you meet local country requirements

D. Choosing the right Operating Model: It is extremely important to select the right operating model that suits your organizational culture and business requirement. Emulating other’s models would be a mistake. One size does not fit all. What works for other organizations may not work for you.

E. Have a Business Case from the Start: There has to be a convincing business case comprising of financial as well as non-financial and strategic considerations. Make sure that as you start your journey you measure yourself against this business case

Last but not the least, the role of Leadership is extremely important. Identify the sponsors early and ensure that there is proper buy-in at the senior-most level. The success of the program comes from strong alignment.

Contributions from the Japanese industry in Shared Services is long awaited. It is an opportune time for Japanese organizations to invest, learn and contribute for the benefit of the industry. Who knows, the Japanese may set new frontiers and examples just as they did in auto manufacturing and the semiconductor industry.

Sometimes one has to fail to succeed. To quote a famous Japanese proverb “nanakarobi yaoki” (Fall down Seven Times, Stand up Eight).