As developing countries produce an ever-increasing number of university graduates and technology makes it simpler to work with teams remotely, offshoring company operations has become increasingly popular. A 2012 report from BDO found that 46 per cent of business leaders in the Asia-Pacific region plan to outsource in the next decade, and 40 per cent of those plan to offshore. Finance and accounting services make up about 10 per cent of the global business-process outsourcing market, and we may see that increase in the coming years - Global Industry Analysts estimates this figure could grow to 70 per cent. Though offshoring of financial services is becoming more prevalent, it may not be right for every company.
The benefits of offshoring
One of the most obvious benefits of offshoring is saving on labour costs. The hourly rate for an accountant is much lower in India and other Asian nations than in Australia, and the huge labour supply means that average wages will remain low for the foreseeable future, even in areas where wage inflation is occurring. Some companies have been able to cut their labour costs by 30 to 70 per cent through offshoring. At the same time, these companies are providing sources of stable income for members of disadvantaged populations.
In addition to cutting labour costs, offshoring allows companies to simplify their finance and accounting services and focus on their core competencies. Offshore companies can handle increasingly complex tasks, as some of them even employ accountants who studied in Australia and are extremely familiar with Australian tax law. Currently, payroll accounting, accounts payable, and accounts receivable are the most commonly outsourced finance services, but companies are moving toward outsourcing more strategic practices including budgets and forecasts. Offshoring companies often have access to state-of-the-art technology, which would be expensive to bring in-house and train internal employees to use.
The downside to offshoring
Though companies expect to save money when offshoring finance services, these savings don’t always materialise. Studies have shown that half of organisations that shift processes offshore fail to generate the expected financial benefits. While wages will be significantly lower, it’s important to consider the hidden costs of transitioning to working with an offshore vendor, including vendor selection and negotiation, employee training, and managing contracts over time.
Security issues are at the forefront of concerns about offshoring finance and accounting services. While secure log-in and encryption certainly reduce the risk of security breaches, having sensitive information outsourced could become a problem if a company goes into liquidation. Perhaps the biggest challenge that arises is the general perception of offshoring, both internally and outside the company. Account managers have had trouble believing that overseas team members could produce high-quality work, and some clients may be concerned that overseas workers are unskilled or under-qualified.
Though offshoring is becoming a widely employed, increasingly successful practice for companies around the world, general perception is taking time to catch up. While it’s not the right decision for every company, offshoring your finance team could free up much-needed time and resources which could be used to further your company’s mission. If this sounds right for you, stay tuned for our upcoming article about when to offshore and how to do it right.