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TREASURYLEADERSHIPCOUNCILAUGUST2003www.tlc.executiveboard.comLITERATUREREVIEWOutsourcingFinanceandAccountingOffshore2003CorporateExecutiveBoardOVERVIEW:OFFSHOREACCOUNTINGOUTSOURCINGASANEFFECTIVEBUSINESSMODELOverseasoutsourcingmayprovemorebeneficialthanoutsourcinglocally,asoffshoreoutsourcingreducescostsbeyondthepotentialofU.S.orEuropeanproviders,whilemaintainingservicequality.ThetwomostcommontypesofoffshoreoutsourcingareInformationTechnology(IT)andBusinessProcessingOutsourcing(BPO).AmajorcomponentofBPOisfinanceandaccountingoutsourcing—themanagementofthetransactionprocessingandprocedure-drivenfunctionsoffinanceandaccountingbusinessunits.1Inarecentpoll,CFOsagreedthatanexcessiveamountoffinance’stime(39percentonaverage)isspentontransactionprocessing.Accounting,therefore,isthefastestgrowingsegmentofBPO,2amarketthat,accordingtoGartnerDataquest,willgrowfrom$71.3billionin2001to$113.9billionin2006.3Thisreportoutlinesthemeritsanddrawbacksofoutsourcingtheaccountingfunctionandprovidesachecklistforimplementationofanoutsourcingarrangement.TheappendixlistsIndianfinanceandaccountingoutsourcingproviders.Keyfindingsincludethefollowing:Financeoutsourcingoverseasisagrowingtrend.Financeandaccountingoffshoreoutsourcingisagrowingtrendthatnotonlybringscostbenefits,butinmanyinstancesproductivitygains.Offshoreoutsourcinglowerscostsandimprovesproductivity.Whenproperlyimplemented,offshoreoutsourcingenhancesthecostandproductivitybenefitsofoutsourcing.Onesizedoesnotfitall.Outsourcingmustbeviewedasaprocessandnotashort-cut.Contractsandimplementationmustbeplannedandexecutedwithattentiongiventonuancesofeachoutsourcingarrangement.Indiaisaprivilegedprovider.Currently,nearlyhalfofalloffshoreoutsourcingdealstargetIndia,whiletheremaininghalfgomainlytoIreland,SouthAfrica,China,thePhilippines,MalaysiaandAustralia.41CapGeminiErnst&Young,“ExecutiveEdge:OutsourcingServices,”www.capgemini.com(2003).2Ibid.3Ibid.4SmartProsLtd.,“DeloitteStudyFinds$356BillionOutsourcingTrend”www.SmartPros.com(April18,2003).CONTENTSOVERVIEW:OFFSHOREACCOUNTINGOUTSOURCINGASANEFFECTIVEBUSINESSMODEL(PAGE1)GENERALTRENDSINOUTSOURCINGACCOUNTING(PAGE2)OFFSHOREOUTSOURCINGANDCOUNTRYASSESSMENTS(PAGE4)BENEFITSOFFINANCEOUTSOURCING(PAGE7)ADDEDBENEFITSOFOFFSHOREOUTSOURCING(PAGE8)DRAWBACKSOFFINANCEOUTSOURCING(PAGE9)ADDITIONALDRAWBACKSOFOFFSHOREOUTSOURCING(PAGE9)IMPLEMENTATIONOFANOUTSOURCINGARRANGEMENT(PAGE10)APPENDIXA:INDEXOFINDIANCOMPANIESOFFERINGFINANCEANDACCOUNTINGOUTSOURCINGSERVICES(PAGE12)TREASURYLEADERSHIPCOUNCILPAGE22003CorporateExecutiveBoardGENERALTRENDSINOUTSOURCINGACCOUNTINGOutsourcingfinanceandaccountingprocessesisagrowingtrend.SinceBPAmocooutsourceditsaccountingactivitiestoAccenturein2000,accountingoutsourcinghasgrownintoa$7billionindustryintheU.S.alone.AccordingtoGartnerDataquest,themarketsizeforoutsourcedaccountingserviceswillreach$15billionby2004.Furthermore,inasurveyof280seniorcorporateexecutives,AccentureandtheEconomistIntelligenceUnitfoundthatapproximately30percentofrespondentsareoutsourcingatleastsomeoftheirfinanceand/oraccountingfunctions.About70percentsaidtheyexpecttheiruseofthirdpartiesforfinanceandaccountingfunctionstoincreaseoverthenextthreeyearstoreducethetimeallocatedtotransactionprocessing.5Morecompaniesareoutsourcingfinanceandaccountingprocessesasaresultoftheproductivitygainsthatoutsourcingachieves.Organizationst...