So far, the primary Finance and Accounting (F&A) processes targeted for global delivery have been accounts payable, payroll, accounts receivable, fixed-asset accounting, management reporting and transactional portions of the general-accounting process. Going forward, offshore adoption is likely to extend into key processes, such as cost or project accounting, taxation and management analysis.

Moreover, while the offshoring of transactional processes generally yields a 20%–25% cost reduction in the overall F&A functions, the offshoring of key processes has the potential of a 35%–40% reduction in costs. In transactional processes, 60%–80% of the cost savings arise out of labor-arbitrage opportunities. While there are growing concerns that labor arbitrage may become minimal in a short time, our analysis suggests that within Finance and Accounting Outsourcing (FAO) it will remain significant for the next 20+ years.

The FAO market has matured to include a large number of third-party suppliers. This has emerged from different roots, such as a spinout of captive centers into third-party suppliers — such as GECIS becoming Genpact, British Airways captive turning into WNS and HP taking over P&G’s operations; existing F&A suppliers such as IBM, Accenture and ACS investing in offshore capabilities; and offshore-centric suppliers such as Wipro and TCS entering the FAO space.

Click here to see enlarge Image

The list of FAO delivery locations has also been increasing. This growth is expected to continue as suppliers enhance their offshore scale by complementing their established presence at traditional delivery centers (such as Bangalore, Mumbai and Prague) with Tier-2 locations (such as Kochi, Chandigarh and Brno).