The Finance and Accounting Outsourcing (FAO) business is expected to rebound from pre-recessionary growth levels to clock 20% plus growth to reach US$ 3.7 bn, according to the Finance & Accounting Outsourcing Annual Report 2010, by Everest Group, a global consulting and research firm. The year 2009 witnessed significant onshore FTE ramp-ups (especially in U.S.) implying the growth of an onshore-nearshore-offshore delivery mix. However, the maximum growth from an offshore / nearshore standpoint took place in India (both tier 1 and tier 2 locations) and S.E. Asia. It is interesting to note that captives continued to be key M&A targets for suppliers.

Annual Contract Values (ACV) growth slowed to 11% in 2009, as compared to 20% plus growth rates observed in 2006-2008, according to the study. In the next 3 years, US$4.8 bn in FAO contracts are up for renewal. The study also reveals that although the number of contracts signed was lower in 2009 compared to recent years, organic growth through contract extensions picked up significantly and contributed to almost 40% of the ACV growth in 2009. Only 9% of end-of-term contracts were terminated, largely due to macro-economic conditions such as buyer bankruptcies and lower transaction volumes.

Gaurav Gupta, Principal and Country Head India, Everest Group said, “It is heartening to see that the year 2010 promises to be a stronger year for FAO and even in challenging economic environment buyers showed their commitment to the FAO model. As the global economy revives, most suppliers are reporting stronger sales pipelines. Everest’s report also identified five suppliers as ‘2009 FAO Star Performers’ based on their relative movement on Everest’s PEAK Matrix, of whom 4 are companies with Indian origin. Approximately 80% of F&A work is delivered out of offshore and nearshore locations and the overall FTE strength of FAO grew by over 30% in 2009. The maximum growth took place in India (both tier 1 and tier 2 locations), S.E. Asia, and in onshore destinations.”

The FAO market growth continues to see aggressive adoption across manufacturing, consumer packaged goods, retail and high-tech sectors. Telecom and pharma are emerging sectors with the highest growth rates.

Other highlights include:

• The domestic outsourcing market in Asia Pacific including Australia and India witnessed strong activity in 2009
• Asia Pacific (including India-to-India market) started to emerge as a source geography for FAO deals in 2009 registering YoY TCV growth of ~45%
• Global sourcing leverage continues as a component of the FAO solution with an average of around 80% F&A work being delivered out of offshore and nearshore locations

Established leaders Accenture, ACS-Xerox, Capgemini, Genpact and IBM account for nearly 65% percent of the FAO market’s ACV. Other suppliers included in the analysis include Cognizant, Compass BPO, EXL, HCL, HP, iGate, Infosys BPO, Intelenet, KPIT Cummins Infosystems, Outsource Partners International, Patni, RMS, Steria, TCS, Vengroff Williams & Associates (VWA), Wipro and WNS.

In this year’s report, Everest highlighted five suppliers as ‘2009 FAO Market Star Performers’: Genpact, IBM, Infosys, Wipro and WNS. These suppliers demonstrated the strongest movement forward across the following two dimensions in 2009:

• Market success in 2009 based on ACV growth, number of contract signings, and value of contract signings in 2009
• Capability advancements in 2009 based on expansion of scale, scope, delivery footprint, and technology investments

The Star Performers designation relates to year-on-year performance for a given supplier and does not reflect on overall market leadership positions. Those identified as the 2009 Star Performers include both leading suppliers and major contenders.

Commenting on the report, Saurabh Gupta, Research Director, Everest Group, said, “Moving forward, successful suppliers will continue to identify and refine target buyer segments, meet client needs in terms of global delivery capacity and service, bring technology and process solutions that more closely link process operations with business outcomes, and focus on client relationship management.”