Despite sluggish economic performance across the globe the FAO (Financial and Accounting Outsourcing) market is thriving and establishing itself in new geographical locations. India emerged as the global hub for FAO delivery during the 90s and early 2000s, and still accounts for nearly 70 percent of the market. However, according to research from the Everest Group, the FAO delivery-location landscape now has a truly global footprint.
In 2009-2010, expansion of the delivery footprint was a major investment theme among service providers. New locations in South America, Africa and Asia Pacific emerged where providers have developed global delivery networks to address requirements around language skills, time zone proximity, and cultural sensitivity.
According to a white paper by IBM – “A new way of working”, Work is no longer bounded by co- worker proximity or time zone. It also involves a much broader set of „workers? – not just employees, suppliers and partners, but customers, freelancers and an increasingly capable network of smart devices and interconnected systems, all tied together by business processes that span organisations, time and distance. Outsourcing is an integral part of this story
One location that has been receiving a lot of recent attention in terms of the FAO market has been the Philippines. According to Gigi Virata the Research Director of the Business Processing Association of the Philippines (BPA/P) the FAO market in the Philippines grew by 30 per cent in 2010, where 75 organisations, including captives and third-party provide services and are employing around 60,000 staff. (The total BPO market in the Philippines employs about 500,000 people). Virata comments, “Our world class universities and colleges right across the Philippines turn out over 100,000 highly regarded business-related graduates a year, making the Philippines one of the top 3 countries, after China and India and tied with Poland, to produce such volumes of quality graduates among competitor BPO locations.” As demand increases it would appear that the Philippines at least is able to supply educated talent.
It is fast becoming an accepted fact the education system in the Philippines is comparable in class to first world countries around the world. Virata underscored this point and she went on to proudly say that, “Anecdotal evidence from locators tell us that the excellence of our Certified Public Accounts is better than in other locations where they have operations. A regional bank said that their first group of CPAs (100%) perfected their in-house processes in one week, compared with the one year it took the CFAs in their older offshore site to perfect the process.”
One reason for the establishment of new locations is due to resource constraints as established locations near saturation. The demand for talent is fast outstripping supply in established locations while operating costs continue to escalate. While FAO was largely considered a horizontal BPO offering, over time, service providers have increasingly shifted their focus on specific industries, both in terms of service offerings and sales strategy, to drive greater penetration.
A recent study by EquaTerra quoted 84 percent of respondents stating that cost savings was the dominant driver for implementing FAO. (BPO 1.0) Other drivers included improved quality in processes, access to a broader base of talent skills and technology, and to enable greater financial flexibility. It seems that most FAO contracts have met their initial objectives. 86 percent of the EquaTerra study respondents indicated that FAO contributed positively to meeting the initial drivers of the project.
In the long term most organisations expect FAO to continue delivering cost savings. However, as a popular location reaches capacity where there is greater competition for talent and resources in that location costs can start to quickly escalate. The EquaTerra study highlights how additional cost reductions are becoming more difficult to achieve over time. As well as established locations reaching saturation point, major initial savings from FAO have been achieved, one time outsourcing benefits captured, and practical minimum costs thresholds have been realised.
It is important that FAO buyers and their service providers strive to ensure cost savings goals are met.
They must also balance cost reduction goals against the potential for F&A process improvement and enhancements, including:
Expanding FAO efforts into more strategic and less transactional areas where quality is a premium and overall cost pressures are less relevant/acute
Enabling cost-effective process improvement in F&A core areas
Introducing new capabilities, technologies, etc. at lower cost levels than is viable using internal resources
Using FAO to support growth initiatives in a cost effective manner
As cost will be a major factor in driving future FAO activity, FAO service providers will continue to expand their market footprint to find locations that can provide them with the necessary talent pool and resources.
Source: The Sauce
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