Growing market conditions call for higher levels of efficiency and increasing effectiveness when multinational companies enter overseas markets. Shared service is an effective way of improving efficiency and quality by moving certain functions performed by affiliates to one central entity, including purchase, HR, tax and finance, etc. – which in doing so, will yield greater benefits to affiliates. In particular, while shared service can be included in foreign market entry strategies of multinational companies in many ways, it is crucial to consider setting up shared services in entering overseas markets.
Shared service is an important tool to achieve the efficiency in the area of international transactions. At the same time, it can be adopted by companies whose business activities are performed by multiple domestic affiliates. The recent trends indicate that the coverage of shared service is expanded to include functions performed by an entity owning diverse resources that are commonly applicable for affiliates (e.g. holding company)
In order to determine the adoption of shared service, the followings must be considered: i) a clear definition of services to perform; ii) how to calculate costs incurred to provide such services in a reasonable manner; iii) how to determine an appropriate mark-up on cost of functions performed; and iv) documentation to support the three foregoing items. These are key considerations which are crucial for multinational enterprises to operate a shared service unit in a stable and efficient manner and shared service costs can be recognized for tax purposes in their respective countries.
Drawing on the wealth of know-how and experiences on shared services, Samil PwC can help companies with strategic planning and adequate documentation to ensure the launch of shared service to meet its primary objective.