Finance offshoring: The next phase

Although many companies have turned to offshoring their finance and accounting services, most of them are still not getting the highest value they can out of them.

by McKinsey Quarterly Online
Last Updated: 23 Jul 2013

In such cases they are missing the big cost savings and efficiency gains that can be made. Today vendors have become much more sophisticated in their offerings and can help companies cut labour costs by as much as 30 to 70 per cent for outsourced functions and raise productivity by at least 5 per cent a year.

Companies that outsource more than the typical accounts-payable and time-and-expense work are reaping the most gains. One US company believes it will have relocated 75 per cent of its finance function including procure-to-pay, order-to-cash, record-to-report, financial reporting, planning and analysis, treasury and taxes.

For many, it will be better to start the off-shoring process immediately rather than waiting until all processes and supporting IT applications have been perfected at home. They will gain as much as one and a half to two times the net present value by off-shoring first, and then perfecting the applications. That way they get the immediate benefits of the offshoring without having to wait the typically four years or so for the benefits of "process-redesign and automation exercises" to accrue.

India is not going to be the only place to offshore, especially since the huge demand on its services industries will create a likely labour shortfall of 500,000 by 2010. Some companies like Genpact, a former GE subsidiary, have developed a multi-location model with finance and accounting services offshored in China, Hungary, India, Mexico and Romania. P&G used Costa Rica for the Americas and Newcastle and Manila for Europe and Asia.

Source:
Getting more out of offshoring the finance function, Michael Bloch, Shankar Narayanan and Ishaan Seth
The McKinsey Quarterly Online, April 2007
Review by Morice Mendoza

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