Friday, 5 February 2010

Outsourcing in 2010

Wilma Inventor Miranda
Free Enterprise
Business Mirror
http://www.businessmirror.com.ph/index.php?option=com_content&view=article&id=21470:outsourcing-in-2010&catid=25:bankingandfinance&Itemid=61

THE year 2010 is bringing about a rosy picture for the outsourcing industry. For the past years, I have always relied on the predictions of Everest Research Institute and I am not disappointed. As one who is not only actively involved in the outsourcing industry by profession but also as an advocate of the industry through my writings and through forums I organized for the Financial Executives Institute of the Philippines (Finex), I am careful on the resources from which I base the information I pass on to my readers and to the public as a whole.

Every start of the year I would write an article on the state of the outsourcing industry for the coming year. These articles were only focused on the finance and accounting outsourcing (FAO) sector because of the lack of space, and because this is the area where the services of our company is involved.

According to Everest Research Institute, 2010 will witness new contracts which will translate to a 20-percent growth in finance and accounting fees. In terms of expansion of scopes and renewals, there will be a 15-percent probable growth. This, despite the tough times in 2009 and the expected cost rationalization of certain industries in 2010. However, demand will become diverse—aside from the manufacturing and CPG industries, demand for outsourcing services will also increase from utilities, financial services and media. Geographically, demand will sprout in increasing number from Continental Europe and Asia-Pacific beyond the United States, which is the usual big customer.

Services will be more on by phases approach rather than a “big bang” approach, as Everest Research Institute termed it. Contract would be more of average in size with a modest shift toward large deals.

In the Philippines, I can see a big potential for growth. In December alone while I was still enjoying my holidays, I was receiving calls from potential clients who were looking for a complete outsourcing of their whole accounting department (not just in certain phases). With these kinds of calls, I really don’t mind if my holidays are interrupted— those are very much welcome interruptions.

This year will also see more of an end-to-end processing such as P2P (Pay to Procure), O2C (Order to Cash) or R2R (Record to Report) rather than piecemeal or functional processing. The past years, majority of the offshore outsourcing were more on AP processing (more of the functional type rather than end-to-end) since this is more efficient for a company to outsource rather than doing it in-house, especially if the provider is in another country. But this year it will not be only AP processing but more of P2P.

As I mentioned in my last month’s article, knowledge processing and the demand for analytics will be on the rise in 2010. This is a higher level type of processing examples of which are regulatory compliance, internal audit, risk management and other specialized F&A services. Not many outsourcing providers can offer these services because of the lack of expertise.

Although the past years saw a gradual emerging of platform-based FAO offerings, this year such services will have more demand from the market. This is because there is an increased competitiveness and suppliers have to come up with their own market differentiators, which could come in the form of innovative solutions such as these platform-based offerings. Other innovative solutions can come in the form of specialized services and industry-specific offerings.

In the same paper of Everest Research Institute, it foresees 2010 as a year for a revival of growth for the Philippines and India. However, this growth will lead to temporary shortages in talent and sharp increase in wages and attrition. Nevertheless, this will be a good problem for the industry, the problem being a consequence of a potential growth. The best thing the country can do is to find ways to avoid or overcome those problems so that 2010 will truly be a banner year for the outsourcing industry in the Philippines.

Globalization is the name of the game these days, and because of outsourcing, the Philippines has been in the map recently, being one of the favorite offshore destinations of companies abroad. Like India, we are making a name for ourselves, and look how far we have gone. From an unknown tropical island, we have emerged as one of the popular countries in outsourcing.

(Wilma Miranda is the chairperson of the publications committee of Finex. For comments, please e-mail her at wimiranda@kpso.net.)



Free Enterprise is a rotating column of members of the Financial Executives Institute of the Philippines, appearing every Wednesday and Friday.

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