The lure of a lower cost base and an abundance of well qualified graduate accountants in India are just two of the factors making Business Process Outsourcing (BPO) of finance and administration an increasingly attractive proposition for large organisations seeking to streamline their operations offshore. Indeed the Indian market is not only taking a greater share of the total outsourcing market but there are early signs that certain providers are extending their services from transaction systems into the more sensitive areas of management information, budgeting and planning.
The Indian outsourcing sector has blossomed far beyond it early capability rooted in IT technology outsourcing (ITO) and call centres. These days, Indian providers and for that matter outsource providers in the Philippines ; Malaysia and Eastern Europe are just as likely to bid for more demanding work around key financial transaction processes.
Following a recent visit to India , Peter Moller, partner in charge of UK outsourcing advisory services, at Deloitte, the accounting and consulting firm, told FSN, "The Indian market is definitely getting into BPO. When I last visited back in 2003 it was difficult for the suppliers to demonstrate clients, credentials and case studies but the latest evidence based on my visit in November shows that the market has taken off in the last two years."
Genpact, a $493 million turnover company majority owned by GE and with more than 26,000 skilled associates is held up as a model of Indian success in the BPO market by Moller and Duncan Aitchison, Managing Director of TPI, the outsourcing advisory firm.
Moller told FSN, "They are storming the market with massive cost savings to clients of around fifty percent. When comparing the global outsourcing leaders with Genpact it's a bit like comparing a national airline, for example, British Airways with a low cost airline such as EasyJet. The operating model is so different, yet they use recognised methodologies such as Six Sigma to deliver their projects like everyone else. They are blowing away the traditional competition in this market. The global players are simply struggling to compete on cost."
Indeed, earlier this month Genpact, signed a five-year contract to provide selected finance and accounting activities for Kimberly-Clark Corporation as part of the latter's global competitive improvement initiatives. Genpact will support the company's global operations in the areas of accounts payable and travel expenses, pricing administration, accounting-to-reporting and supply-chain accounting.
Ian Maginnis, Kimberly-Clark vice president of business support delivery said that "Genpact is highly regarded by numerous multinational clients as a partner that provides top-quality service in finance and accounting services."
But Aitchison qualifies labelling Genpact as an Indian provider, "It originally spun off from GE so it has a history in business process capability and has operations around the world. It is not a typical Indian provider. Many of the large Indian providers such as Tata, Infosys and Wipro came from a more technical background," he says.
However, Michael Arben of LogicaCMG cautions that cost should not be the overriding factor in deciding on a BPO provider. He told FSN, "You have to ask what value they are adding to the business beyond cost reduction," he says.
Cost cutting is not the only reason for the growing popularity of BPO. Compliance and regulatory change, especially in the financial services sector is also a strong driver. "Many financial institutions are entering a phase of diminishing returns on assets and they are looking towards BPO to squeeze a higher return from their existing asset base so that they can concentrate on developing new capabilities," adds Arben. "BPO in itself is not strategic but it can turn into a more valuable proposition if, for example, it encourages a greater willingness to modify and improve processes more widely," he told FSN.
LogicaCMG practices what it preaches and as a leader in outsourcing, the Group has transferred most of its finance and accounting transaction processing to an offshore site in Bangalore, leaving management reporting to be managed out of the UK. Commenting on the project, Kevin Radley UK chief operating officer and finance director says, "When I made the decision to offshore our F&A transaction processing it was vital that there was no degradation in financial control both during transition and when the new service went live." However, Adrian Cole, also of LogicaCMG says that a key feature of the success of this project was down to having the right resource within LogicaCMG to control the transition – something that many outsourcers find difficult to guarantee.
Moller agrees. "There are a lot of very bright graduates in the sector in India, many with post graduate qualifications. The region adds about 2 million English speaking graduates a year, but there is a shortage of good project manager resource," he says.
Furthermore, the rapid growth in the sector is fuelling salary inflation and relatively high attrition rates though Moller believes that the risks may be overstated. "Attrition can be quite high but it depends on the city. Bangalore is very competitive but other areas open up which are not subject to the same pressures," he told FSN.
But not everyone is convinced that the BPO sector is growing quite as fast. Nigel Roxburgh, Research Director for the National Outsourcing Association told FSN, "We believe that the market is growing only in line with expectations." On the other hand, LogicaCMG's Arben believes that the BPO market is over-hyped. "Every year is expected to be the year that the BPO market takes off but it never quite materialises," he says.
Nevertheless all parties agree that the BPO market is growing. "Customer focus on the efficiency of the back office and the need to improve profitability isn't going to go away," says Aitchison. "Furthermore CFOs must be willing to undertake outsourcing if they are going to demand it from other areas of the business,"
But there are signs that the BPO market is now extending beyond pure transaction processing and into more sensitive areas of information management. Roxburgh told FSN, "Organisations start with relatively uncontroversial areas such as accounts payable but grow towards more sophisticated and sensitive areas of accounting and reporting as confidence builds in the relationship with the supplier. The market has matured on both the client side and the supplier side and there is a realisation by clients that an outsourcing provider can be just as secure or even more secure in some circumstances than an in-house function. In reality even transaction outsourcing is highly dependent on the supplier and over the course of several years information changes hands that the client would not like to see in the public domain."
"There is a large supply of high quality professional accountants in India very familiar with the latest global accounting standards. When clients see this they are more comfortable about letting outsourcers handle more sensitive and complex areas of their accounting," adds Roxburgh.
Curiously, finance and administration outsourcing is more of a European phenomenon than a US practice. "F& A is definitely anchored in Europe but I'm not sure why," says Aitchison. It could be that HR outsourcing, popularised elsewhere is too difficult in the Europe because of cultural and legislative changes so the market has concentrated on finance and administration instead." LogicaCMG's Arben, believes that the rigour of Sarbanes Oxley compliance is another factor that has discouraged US companies from taking the plunge.
Regardless of these obstacles, BPO seems to be in the ascendancy. Low cost providers, allied to highly skilled resource pools are tipping the scales in favour of considering offshore providers of BPO. Companies that do not confront the issue may place themselves at a competitive disadvantage in the long run. Historic concerns around the reliability, skills and confidentiality are giving way to a rapidly maturing offshore market capable of taking on the largest clients and fighting off stiff competition from global outsourcing providers. It seems that BPO in finance and administration is no longer the high risk option that it used to be.
