Why Outsource

• October 15, 2020

Offshoring of Finance and Accounting functions – A Strategic tool for success

Finance and Accounting are critical to the survival and success of any business. Traditionally, every business had an in-house accountant or team of accountants, to manage the firm’s bookkeeping and accounting. However, rising costs and the lack of competent personnel led to offloading of these vital tasks to independent contractors – locally available bookkeepers and accountants. This can be referred to as ‘Local Outsourcing’.

The next disruption to this bookkeeping and accounting setup came with the wave of offshore outsourcing spreading across continents.

What is ‘Offshore Outsourcing’?

With Offshore Outsourcing, the only difference is the locally outsourced activities will now be managed by parties based out of geographies remote to one’s business.

‘Offshore’ & ‘Outsourcing’ has been combined to arrive at ‘Offshoring’.

Offshoring emerged and is driven by a firm’s never-ending search for efficiency and cost-reduction. Support activities that are not customer-facing could be easily offshored at a fraction of the cost and without a drop in the expertise level.

Moreover, this provided the opportunity to firms to re-engineer their existing processes – examine what is important and do away with the repetitive tasks. The result is a complete focus on their core business. No Wonder, Offshoring is now commonly identified as a strategic tool utilized by organizations to reconfigure their activities across geographic locations.

As per Knowledge at Wharton, World Bank relocated its finance back-office activities from Washington D.C to India way back in the early 2000s. According to the then director of the World Bank, this move not just led to cost savings; it helped them to re-engineer the business by eliminating a backlog of expense forms and accounts-payable items.

The Big Four audit firms have been routinely offshoring finance and accounting to India since the early 2000s. Cost savings may have initiated big organizations like General Motors, BP Amoco, Citigroup, British Airways, and World Bank to take the Offshoring route. However, rapid technological advancements, the availability of skilled human capital, and the allied cost savings has positioned offshoring as a viable and cost-effective strategic tool for all small and medium businesses as well.

Let us look at why companies outsource?

As per Deloitte’s Global Outsourcing survey, conducted in 2016, the primary drivers to outsource can be listed as follows

To sum this up, it is a cost-effective tool to execute your business needs, onboard the requisite skills, gain control over your business and improve your bottom line. All at the same time.

The advent of the Gig economy and long overdue recognition of Remote working

With computers becoming mundane, there had been a growing prevalence of workers logging in remotely to assist and complete their workplace responsibilities. However, they were still part of the traditional workforce.

But, with the advent of the Gig economy – where independent workers contract with organizations for short term engagements and derive their remuneration by piecing together discrete earnings – Remote working is finally receiving its long-overdue acceptance.

Let us consider some statistics:

• There has been a 115% increase in telecommuting over the last 10 years
• According to Forbes, over 50% of the US population has transitioned successfully to remote work. Here, remote work implies completing one’s work outside of the traditional office environment
• According to the CEO of Intuit, In 2017, the gig economy in the US was about 34% of the workforce and it is expected to be 43% by the year 2020.
• Harvard Business Review states that approximately 150 million workers in North America and Western Europe have transitioned to becoming independent contractors.

Besides, Have you heard of ‘virtual companies’ or ‘distributed companies’?

These are companies that have no physical offices. Each worker telecommutes from their respective locations. This phenomenon is widespread throughout the US and Europe and is catching up globally.

All of these statistics point to the relative global prevalence, safety, and acceptance of remote working or remote contractors.

In light of these findings, it is surprising that many small and medium businesses are hesitant to outsource their bookkeeping and accounting tasks to an experienced and competent team of professionals? They may be remote. But, their expertise and availability can help you in transforming the most challenging division of your business into a rewarding arrangement.

India – A highly developed Offshore location?

India is the most preferred offshoring location.

As per HFS Research, the Finance and Accounting Offshoring market stood at $30.4 billion in 2017. It is further expected to grow at a CAGR of 6% from 2017-2021. Of this, India commands almost 50% of the market. (need more stats)