by: Sarah Joson
Wednesday, July 18, 2012 | Outsourcing News |
Finance and accounting outsourcing (FAO) is predicted to grow by 11% this year, even if the global economy is still on its way to recovery.
An article published at GlobalDeliveryReport.com discusses the recent findings of global management consulting firm Everest Group regarding the FAO market. Factors that are set to drive the growth of the FAO market are the upcoming renewal of contracts, diversification of business sizes venturing into FAO, and the growing number of clients coming from Latin America and Asia Pacific.
Practice Director of BPO Research at Everest Group Abishek Menon said the actual contract value (ACV) of the FAO market will reach USD 4.5 billion, largely due to contract renewal activity. Furthermore, contracts that are set to be renewed were primarily long-term deals and will amount to $14 billion this year.
Menon noted that since the global economy is improving, small and medium players are more open to buying shorter outsourcing contracts and FAO services.
Rise of high-value services in FAO
Before, only basic finance and accounting functions were being outsourced, but according to Menon, “judgment-intensive” processes such as financial planning and analytics (FP&A) are gaining traction. Proof of the rise of FP&A services is the study done by Everest Group, indicating that in 2007-2008, 50% of FAO contracts were FP&A and grew 61% in 2010-2011. Another prominent FAO process in 2007-2008 was risk management which took up 19% and grew almost 50% in 2010-2011. Internal audit services also grew during that period.
Majority of FAO contracts are from traditional industries such as manufacturing, high tech/telecom, and financial services. The professional services industry is seen to be getting more interested in FAO. Menon also said India is the leading provider of FAO services.
Different FAO delivery models
Different FAO functions make use of delivery models according to the specifications of a project. As stated by Menon, the captive model, coupled with shared services, is the favorite of FAO buyers. In the near future, captive services and basic third party outsourcing services will be simultaneously used to align processes, but in general, the fusion of captives and shared services will take the center stage.
The fate of FAO relies on mergers & acquisitions, technology
The FAO provider arena is predicted to get smaller if mergers and acquisitions (M&A) increase. Even with the anticipated tight competition amongst providers, small and medium-sized businesses (SMBs) will be seen buying more FAO services.
Another crucial factor identified by Menon is technology. Providers will soon work around what their buyers have and purchase technology as needed, instead of purchasing technology as an initial investment. He added that FAO vendors will soon establish technology depending on the industry.