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How to outsource corporate services and consolidate vendors the right way

21 October 2024
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If a multinational organisation has a global or even regional footprint, it will at some point consider outsourcing many in-house services or consolidating vendors.

The primary benefits of outsourcing and vendor consolidation are well known and include reducing administrative burdens and costs. Other significant benefits are perhaps not as well-known as they should be and may be lost when evaluating global corporate services providers.

There are also significant, well-known challenges related to outsourcing and switching vendors, such as developing and implementing new operational practices.

This article outlines some the primary benefits and challenges of outsourcing and vendor consolidation — and how to effectively address these challenges — to help multinational organisations develop sound vendor-consolidation strategies and conduct due diligence on providers.

The benefits of outsourcing corporate services and consolidating vendors

Virtually no business leader at a multinational company needs to be told that outsourcing corporate services — such as accounting, taxes, global payroll, company secretary, and HR and other advisory services — can lead to efficiencies and cost savings. Still, it’s worth briefly summarising these and other benefits for those considering outsourcing or consolidation.

  • Simplified administration and operations. Vetting, managing and paying local vendors in each country of operation strains internal resources and increases the risk of errors. Consolidating vendors can significantly reduce these burdens and risks while streamlining operations.
  • Reduced costs. Reduced operational costs are closely connected with increasing operational efficiencies. In addition, contracting with a single provider for multiple engagements in different countries promotes transparency and control and provides more opportunities for negotiated rates.
  • Clearer communication and accountability. When a multinational organisation uses a single global provider, the lines of communication are clear, which promotes the quick resolution of problems. It’s also easy to hold a single contact accountable. Finally, an organisation will need to conduct fewer audits and quality reviews when assessing the performance and controls of a single provider versus multiple ones.
  • Enhanced compliance and access to local expertise. One of the riskiest, most burdensome elements of international expansion and operations is keeping up with and following the laws and regulations of each country of operation. A single provider that has local expertise in countries around the world can keep its clients apprised of and compliant with changing compliance obligations. It’s also easier to assess third-party controls when managing a single provider.
  • Scalability. Using a single global provider that offers a range of services and unified platforms eliminates or greatly reduces the need to vet and hire new local providers in the event of continued cross-border expansion or when winding down unnecessary entities. This also promotes strategic flexibility and quickness to market. 
  • Easier platform integration. Reducing the number of vendor platforms greatly decreases administrative burdens, including those related to technical integration and to internal training and ongoing management.
  • Improved data management and security. Using a single global provider that employs robust data controls and reporting protocols makes reporting easier and more consistent across the organisation. It also reduces the possibility of data breaches and non-compliance with regulations, such as the EU’s General Data Protection Regulation.

The challenges of vendor consolidation

The challenges of switching vendors must be carefully considered when developing corporate strategies and vetting providers. For many in operations, just the mention of switching global payroll, accounting and other service providers is likely to summon images of late nights at the office, disgruntled employees (and potentially clients), and other unpleasant thoughts. But it’s important to understand what’s involved in consolidating vendors to ensure a successful transition. Here, then, are some of the main challenges of switching to a single global corporate services provider.

  • Existing contract obligations. Many organisations look to change providers when a contract renewal is approaching. When switching to a global corporate services provider, however, an organisation may have many existing contracts — including those related to payroll, tax filings, HR advisory and more — in many countries, all with different terms and termination dates. Understanding and fulfilling these terms can lead to unanticipated expenses (such as early termination fees) and administrative burdens.
  • Internal resistance. Switching providers often means changing processes, platforms, communication practices and more. Employees are also typically asked to complete trainings and other tasks associated with transitioning while they fulfil all their day-to-day duties. These burdens can result in employee resistance to the transition.
  • Know-your-customer obligations. Fulfilling KYC obligations is an unavoidable element of switching providers. Reputable corporate services providers can facilitate the KYC process— such as through artificial intelligence or a central repository of data — but KYC obligations are almost by definition onerous and should not be underestimated.
  • Platform integration and new processes. As with the KYC process, there is no getting around the hard realities of integrating technology platforms. Switching providers typically means new platforms and migrating data in compliance with applicable data protection regulations. Moving to new platforms also creates new business processes, and there may be a period of transition when the platforms must be used in parallel, which can lead to significant administrative burdens.
  • Training. Switching to a global provider necessitates widespread employee trainings to understand new platforms and processes, which will temporarily reduce productivity and may negatively affect employee morale.
  • Resistance from existing providers. In some cases, such as when switching payroll providers and migrating payroll data, an organisation may be at the mercy of its existing providers. An existing, outgoing provider that doesn’t meet deadlines or fulfil requests can negatively affect transition budgets and timelines.

Meeting the challenges of vendor consolidation

As we’ve seen there are significant challenges to switching to a single global services provider, but it’s important to keep in mind that the challenges are manageable, and the long-term benefits of consolidation typically far outweigh the short-term burdens.

During the RFP process, a reputable global services provider will not diminish the challenges of vendor consolidation. In fact, it will make the challenges clear and use their own technical and operational experience to help guide you through the transition. Here are some steps to take to effectively manage the transition to a single global corporate services provider.

  • Form a vendor consolidation stakeholder team. Before beginning the vendor consolidation process, an organisation should form a team of stakeholders from significant functional areas and countries of operation. Common stakeholders include those from HR, payroll, tax, legal, procurement and finance.
  • Map and evaluate existing vendors and contracts. Before evaluating global corporate services providers, an organisation should gather important third-party vendor information, including the services provided, countries of operation, major contract obligations (including termination dates and any penalties for early termination) and whether the levels of service are satisfactory.
  • Research global service providers and perform due diligence. Conduct research on global corporate services providers to fill your specific needs, such as global payroll, tax and accounting, HR and expatiate advisory services, legal entity establishment and maintenance, and fund administration.
  • Streamline the RFP process. Prepare simple, uniform requests for proposals that target only the information you need to make your decision. Simple, concise RFPs allow you to compare similar data across responses and reduce your administrative burdens. Consider asking for information on providers’ technical platforms, security controls, implementation plans and timelines, whether they can invoice in a single currency, their global footprint, along with the full scope of their services.
  • Select a vendor and obtain approval from leadership. After conducting due diligence, the stakeholder team should document its findings and recommend a vendor. The team should submit its findings — including the projected organisational cost savings and high-level implementation plan — to corporate leadership for review and approval. It’s essential to obtain the support of leadership to achieve the support of the employees who must implement the changes.
  • Develop a transition plan. Working with the selected global provider, develop a detailed transition plan, with areas of responsibility and timelines, which should be continuously managed and updated as needed. The plan should account for data migration, integration testing, any new roles and responsibilities, communication strategies and trainings.
  • Continuously communicate with internal stakeholders. It’s essential to clearly communicate the transition plans with affected employees, including those who will help implement the changes (such as employees who work on payroll) and those who will be affected (such as anyone receiving a paycheck). Give employees plenty of advance notice, provide regular updates, and ensure that they can easily ask questions and provide suggestions and other information.
  • Notify and work with existing, outgoing providers. To help ensure a smooth transition, clearly communicate the coming changes to your existing, outgoing vendors. Negotiate exit terms where necessary and set the expectation of continued professionalism on both sides of the engagement.
  • Provide training and support. Work with the new provider to develop and implement a training plan, which may include live online trainings, written and video materials, artificial intelligence tools and more. Provide support for your employees and help them prioritise tasks to ensure clients aren’t negatively affected by the implementation.
  • Set service level measures and regularly monitor vendor performance. Conduct regular meetings with the global service provider, ensuring that they’re meeting service level commitments and promptly resolving problems. The meetings should address both day-to-day service delivery as well as any changes in corporate strategy and evolving best practices related to corporate services.
     
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