4   
External Assessment

 

4.1  Economic Forces

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In 2016, the Global GDP rate
hit a six-year low at 3.1% (ILO, 2017 World Employment and Social Outlook:
Trends 2017). With the GDP downward performance, concerns have been raised
about how the economy could generate more jobs, improve quality of employment
for those employed and how gains on growth are shared (ILO, 2017).

4.1.1 OPPORTUNITY:
Lower Labor Cost and Labor Availability

 

It is very attractive to do business in a country
with low labor cost. As for the case of companies in shared services industry,
this is a major benefit as of its objectives service is cost savings.
Philippines is one of the countries with the lowest minimum wage (Bloomberg,
2015).

Figure 1: Cheaper Wages (data as of 2015)

Source: Bloomberg
and Everest Group

 

Along with low labor cost is the labor
availability. Most of the time, these two are tied up in consideration for
choosing a location for investment. According to International Labour
Organization, the global unemployment rate was expected to rise to 5.8% in 2017
from 5.7% in 2016. The 5.8% represents over 201 million labour force.

 

Source: ILO’s Trends
Econometric Models, November 2016.

 

The Philippine Statistics Authority July 2017 Labor
Force Survey data shows that the Philippine unemployment rate is 5.6% or 2.4
million Filipinos. 21.3% of unemployed were college graduates. This means that new
investments could create job opportunities to these numbers of Filipinos. 

4.1.2 THREAT:
Decrease in Oil Prices

 

Oil prices have suddenly dropped from 2014 from over $100 per
barrel to under $35 at the end of February 2016 (Rogoff,
2016). Factors that contributed to the low oil prices include lower demand and
over supply. The lower demand from China, which has the largest country by
population and emerging countries such as Russia, India and Brazil impacted
significantly the oil prices. The local production of U.S. and Canada reduce
their imports of oil which is another cause of downward oil prices (DePersio,
2015). Another cause of low oil price was the Saudi Arabia’s decision to keep
its production stable since it could withstand a longer lower oil price as it holds
the largest oil reserve in the worlds.

 

Figure : Oil Price Per Barrel

Source : Bloomberg

 

Chevron Corporation is a global energy company and one
main source of its revenue is derived from the oil business. The sudden drop of
oil prices in 2014 made the organization decide to suspend exploration of its
major capital projects and divest some of its businesses that it considered to
be not income generating in the long run.

 

In 2016, most of the finance and accounting processes
of Chevron Canada downstream business handled locally have been migrated to Manila
Shared Service Center (MSSC) and Buenos Aires Shared Service Center (BASSC). In
the same year, one of Chevron Canada’s merchants expressed its interest to buy
the refinery and marketing business. After careful evaluation, the organization
had decided to sell these businesses effective October 2017. The recently
migrated processes to Manila and Buenos Aires ceased to operate as the business
has been divested. This recent divestment of Chevron Canada downstream business
was due to the low oil prices, thus, making it a major threat.

 

4.1.3 THREAT:
Volatility of Exchange Rates

 

Looking
in a 10-year trend of Philippine Peso per US dollar rate, the peso had a record
low in 2012 averaging 42.2288 and an all-time high of 50.4037 in 2017. The Philippine
Peso per US dollar rate from August 2017 to January 2018 has increased by 1.08%
(www.exchange-rates.org).  

 

Figure : Philippine Peso Per USD Dollar

Source : XE Currency
Charts

 

 

The exchange rates movement is one of the considerations
of offshore companies deciding to invest in a country as it affects budgeting
and planning. For MSSC whose annual budget is quoted in US dollar and equipment
and supplies are sourced abroad, the volatile exchanges rates has a great
impact in carrying out its business.

 

Note: add
comparison of Argentinian peso against dollar

             

4.2  Socio-cultural, Demographic and
Environmental Forces

4.2.1 Location of Business

 

An article in SSON the following items are important
in deciding location of a shared service center; compensation costs, staff
availability and turnover, infrastructure costs, tax and regulatory costs,
government support and the political climate, labor pool and educational
system, language proficiency, physical proximity, experience and maturity in
the industry, security and data protection and the comfort factor (Holz, 2012).

 

According to Cushman & Wakefield “Where in the
World? Business Process Outsourcing and Shared Service Location Index 2015”,
the Philippine ranked 3rd in 2014 and 2nd in 2015 as the
top destination of BPO and shared services in the world. The method of rankings
was based on the following criteria; 30% conditions, 20% risk and 50% costs. Conditions
include infrastructure, education and English proficiency. Risks include
economic stability, political stability, corruption perception index and energy
security. Lastly, costs include labor, building costs, inflation and property
cost.

 

4.3  Technological Forces

4.3.1 OPPORTUNITY: Emerging Technologies

 

The use technology platforms in meeting the
requirements of shared service business are essential in today’s digital age. Data
analytics, cloud computing, robotics process automation are some of the latest
trend in the shared services. One of the top priorities in investments is
Robotics Process Automation (RPA) (KPMG, 2017).

 

Robotics Process Automation (RPA) is computer-coded
software that automates business process by performing rule-based task using
robots (bots) that interact with systems the same way as a human user. The
benefits of RPA include improved quality and accuracy, increased productivity, and
cost reduction (PwC, 2016). With the aid of RPA, the human portion would
involve analysis of data and this would mean that the employee could now focus on
providing more value adding services.   Global Shared Services Market – Forecasts and
Opportunity Analysis by Technavio (2017, August 10). Retrieved January 10, 2018, from
Business Wire: https://www.businesswire.com/news/home/20170810005056/en/Global-Shared-Services-Market—Forecasts-Opportunity  A Snapshot of the Philippines Shared Services &
BPO Market  (2015). Retrieved November 5, 2017, from IQPC: http://www.iqpc.com/media/1003253/46272.pdf  Chevron Philippines (n.d.). Retrieved November 5,
2017, from Chevron corporate website: https://www.chevron.com/worldwide/philippines  Chevron Argentina (n.d.). Retrieved November 5,
2017, from Chevron corporate website: https://www.chevron.com/worldwide/argentina Manila Shared Service Center (n.d.). Retrieved
November 3, 2017, from Inside Chevron website:  Buenos Aires Shared Service Center (n.d.).
Retrieved November 3, 2017, from Inside Chevron website: Houston Finance Shared Services (n.d.). Retrieved
November 3, 2017, from Inside Chevron website:  Shared Services: Multiplying Success (2016).
Retrieved November 3, 2017 fromhttps://www.pwc.com/ph/en/consulting/consulting-publications/shared-services-multiplying-success.html  New Opportunities, Challenges And Technology
Continue To  (2016, September 8). Retrieved November 5, 2017, from SSON website: https://www.ssonetwork.com/sourcing-modelsstrategy/articles/new-opportunities-challenges-and-technology Philippines remain as one of the top destination
for BPO and Shared Services in the world (2015). Retrieved November 3, 2017
fromhttp://www.callcenterfocus.com/2015/05/philippines-remain-as-one-of-top.htmlhttp://blog.unite.com.ph/2016/08/02/philippines-remain-as-one-of-the-top-destination-for-bpo
-and-shared-services-in-the-world Cushman &
Wakefield, Where in The World Business Process Outsourcing (2015). Retrieved
November 3, 2017 from http://www.cushmanwakefield.com/-/media/global-reports/Where%20In%The%20World_Business%20Process%20Outsourcing_low_2015.pdf
  Setting Up an Offshore Shared
Services Center – Location, Location, Location (Part 1) by Frank Holz (2012
July 9). Retrived November 3, 2017 fromhttps://www.ssonetwork.com/business-process-outsourcing/articles/setting-up-an-offshore-shared-services-center-locaState
of outsourcing, shared services, and operations industry 2017 by KPMG (April 2017).
Retrieved November 3, 2017 from http://www.kpmg-institutes.com/content/dam/kpmg/sharedservicesoutsourcinginstitute/pdf/2017/business-operations-2017-hfs.pdf PWC
Multiplying SuccessSpeedtest Global
Index (December 2017), Retrieved January 1, 2018 fromhttps://www.speedtest.net/global-index How the Philippines
Got Asia’s Worst Internet Service by Ralph Jennings (2016 February 23).
Retrieved October 10, 2017 from https://www.forbes.com/sites/ralphjennings/2016/02/23/meet-asias-internet-laggard-the-philippines/amp ILO: Global unemployment expected to
rise by 3.4 million in 2017 (2017 January 12). Retrieved November 2017, from http://embargo.ilo.org/global/about-the-ilo/newsroom/news/WCMS_541128/lang–en/index.htm What’s behind the drop in
oil prices? by Kenneth Rogoff (2016 March 02). Retrieved November 3, 2017 fromhttps://www.weforum.org/agenda/2016/03/what-s-behind-the-drop-in-oil-prices/ Why did oil prices drop so much in 2014? By Greg
DePersio (2015). Retrived November 3, 2017 from https://www.investopedia.com/ask/answers/030315/why-did-oil-prices-drop-so-much-2014.asp  “Boletín de Estadísticas Laborales”. Ministerio de Trabajo. Retrieved 20 August 2017.”Official
Website of National Wages and Productivity Commission”. Retrieved 24 September 2017.”$15 Minimum Wage”. seattle.gov. 1 May 2014.”Minimum
Wage Change – Spotlight”. Dol.state.ga.us. Georgia Department of Labor.
Retrieved 2013-06-13.”Federal minimum wage will increase to $7.25 on July
24″. United States Department
of Labor. Retrieved 5 November 2012.