Finance & Accounting Outsourcing Market - Beyond Costs moving to Transformation

According to an article in www.the-outsocurcing .com written by Saranya Sundararaja, Senior Research Analyst at Beroe Inc., the Finance & Accounting BPO market is expected to surpass US$ 25 billion in 2013, and grow at a CAGR of around 8% between 2012 and 2017. The overall Global BPO market is estimated to be US$304 billion and the share of F&A BPO of the total market is 8%. Most of the organizations (75%) have outsourced their FAO mostly termed as P2P (procure to pay), O2C (order to cash) and R2R (record to report). The key factors driving the growth of this market are primarily cost savings (ranging 25% - 40% on current cost base), labor arbitrage (low cost locations labor cost is one third of the developed markets labor cost), efficiency focus, standardization, innovation and innovative technologies. Most of the Fortune 500 companies outsource primarily transactions related to Accounts Payable, Accounts Receivable, Payroll and General Accounting. A growing number of technology companies are leveraging third-party service delivery, with the number of global services agreements rising from 20 per year to 50 a year over the last ten years.  The average length of contract [5 years] and average size of contract ($4.7 million for F&A) is relatively unchanged, according to recent Everest Group research. The largest buyers of FAO services are Telecom, Manufacturing and BFSI, however, in terms of growth, Telecom, Media and Publishing, and Retail are facing highest growth (CAGR of 8-10%).

F&A BPO Market has matured over the years and with the entry of new players like small, medium and large players over the years, the market also has become highly competitive. Most of the F&A outsourcing contracts these days have either outcome based pricing model or gain sharing model where the pricing is tied to achieving certain specific outcomes or goals. Clients are demanding more from the vendors other than cost savings they want the vendors to participate in their business transformation and create significant impact. Financial Planning and Analysis, Budgeting, Forecasting and Internal Audit are some of the processes that are being outsourced to third party vendors which are high risk and high pay in nature. In terms of business transformational activities like Financial Process Consulting, Change management and supporting innovation roadmap, the level of outsourcing has increased by 20% to 25% over the last 3 years, according to Saranya Sundararaja, Senior Research Analyst at Beroe Inc. Another important aspect is the integration of analytics into the F&A BPO where some of the vendors are also offering predictive analytics and other advanced data analytics offerings along with the traditional Reporting to clients as well. Indian BPO Vendors have built significant market share in the F&A BPO market over the years and they now have to build skills or acquire skills that help them in offering high end judgment based services to the clients and move up the value chain.

Finance & Accounting Outsourcing market maturing & seeing stable growth in 2013

According to Everest Group, Financing and Accounting Outsourcing: Annual report 2013, the global multi-process FAO market grew at the rate of 10% to reach ACV of US$4.3 billion which highlights the fact the market is matured and stabilizing and is further substantiated by the fact that over 65% of the ACV growth in 2012 was contributed by contract extensions/renewals. Cost reduction and process improvement are the primary drivers for adoption but standardization, scalability and flexibility drove FAO adoption further, emphasizing a cost+ value proposition highlights the Everest Group report. As the traditional markets matured the vendors are forced to move to under-penetrated markets but Europe led the market increased FAO adoption and mid-market and small buyer segments also increased their adoptions significantly in 2012 led to moderate growth in 2012. Competition in the FAO market is intensifying as the share of the top three service providers declined from 68% in 2002 to ~50% in 2012. Some of the key players in the FAO market are Accenture, Aditya Birla Minacs, Aegis, Capgemini, Cognizant, Datamatics, EXL Services, Genpact, HCL, HP, IBM, iGATE, Infosys, IQ BackOffice, NCO, Quatrro, Serco, Steria, Sutherland Global Services, TCS, Wipro, WNS, Xchanging, and Xerox. ( Data Source: Everest Group)

One of the significant trends is the rise in Adoption of end-to-end process but buyers continue to remain cautious and adopt a phased approach to F&A outsourcing. Some of the new focus areas that are emerging are Analytics, risk management & compliance and F&A services are increasingly getting industry-specific. The Everest report also highlights buyers are increasingly adopting non-advisor-led competitive bidding route for sourcing F&A services. India continues to be the predominant hub of offshore delivery and most of the vendors both global and Indian are striving to build a balanced onshore-nearshore-offshore model. Technology augmentation model is becoming the predominant approach where in the vendors are developing technology infrastructure and also adopting emerging technologies like cloud computing, mobility, social media and big data analytics to offer innovative service offerings to clients. Outcome based pricing model and platform-based solutions are also gaining traction. Service provider performance is up-to-the-mark against the metrics important to FAO buyers, resulting in high satisfaction levels. However, buyer organizations have highlighted some areas of improvements for service providers to work upon. Vendors are shifting their focus to building technologies and service offerings through adoption of emerging technologies like cloud computing and offer cloud-enabled F&A technology that can be delivered as a BPaaS solution.

Sri Lanka Outsourcing Industry 2011 – Forecast 2015

The Sri Lanka IT & BPO industry is projected to grow by 26 % in 2011 with export earnings of $ 392 m in 2010. The industry has set a target of $ 1 b revenue with employment for 100,000 by 2015. This would mean doubling its current earnings of US$ 500 million during the course of the next four years .According to SLASSCOM the total software earnings of USD 294 million are produced by 27,000 people and on the BPO side, 13,000 people produce USD 98 million. There are nearly 300 IT/BPO companies like WNS, RR Donnelly, Amba Research, and HSBC currently operating in the island. The government is keen to provide favorable conditions to outsourcing companies so as to encourage investment, the industry has been granted a 12-year tax holiday. AT Kearney has listed Sri Lanka in its top 50 nations for outsourcing destinations, at 29.

According to ICRA Lanka report, The Information Technology (IT) industry in Sri Lanka includes the hardware manufacturing and software development sectors and the Information Technology Enabled Services (ITES), includes the Business Process Outsourcing (BPO) industry. The total size of the Sri Lanka’s IT market is estimated at US$386 million in 2011, and is expected to grow to US$742 million in next five years. Sri Lanka is not a significant exporter of IT services. The total exports of IT services in 2010 amounted to a little over US$300 million. Sri Lanka’s addressable computer hardware market is estimated at US$265 million in 2011, and is projected to reach around US$489 million in 2015, spending on software remains low, with the estimated addressable market of US$47 million in 2011 to US$98 million in 2015 and IT services spending is estimated to be around US$74 million in 2011 accounting for about 19 percent of Sri Lanka’s total spending on IT to US$155 million in 2015.

Sri Lanka is becoming an attractive location for 'Finance and Accounting Outsourcing' (FAO) with the world’s second largest pool of management accountants and wages lower than India. This according to SLASSCOM which has published an industry report on the FAO sector in Sri Lanka prepared by PricewaterhouseCoopers and sponsored by Association of Chartered Certified Accountants. Sri Lanka has the second largest pool of qualified CIMA (Chartered Institute of Management Accountants) members outside UK. It also has about 80, 000 accountants in training. Global companies, including UK Accounting and Legal Services Center of WNS, Investment Research Center of Amba Research, UK Banking Center of HSBC, and Finance & Accounting Center of RR Donnelley, have set up their delivery centers in Sri Lanka. Also higher education in accountancy is offered by five main professional accountancy bodies, 15 state universities and numerous foreign affiliated private universities operating in the country.

To achieve the one billion dollar target Sri Lanka IT-BPO industry has to improve its infrastructure, and the English-speaking population. Sri Lanka provides a good opportunity to cut costs but there is a shortage of supply of skilled and qualified graduates particularly in the IT field. With the US economic slowdown and European debt crisis, there is a possibility that the IT- BPO industry in the country may slowdown. Most of the work done here is done for US and UK clients. With support from Sri Lankan government the Industry is looking forward to achieve the billion dollar revenue target.