Site unseen? Does offshoring destroy jobs, or does it create cost savings that will allow a company to maintain high-value rotes back home? Sanjeevan Valanju examines the trend and considers how to mitigate the risks that come with packing off key functions abroad.

Author:Valanju, Sanjeevan
Position:Some factors to remember before outsourcing

'They say they're currently processing tax returns, doing accounting work and managing payroll, but they're ready to work on monthly management accounts and provide management information systems, too."

This sort of remark is being heard more and more in the CFO's office or at strategy meetings in UK and US firms today. The term "offshoring" is now in common use and much has been written about the reasons behind it. The types of activities being outsourced abroad in the financial services industry, for example, range from general ledger accounting, payroll processing and mortgage loan servicing to treasury management, equity research and even investment management. There are also several specialist industry-specific functions that can be transferred outside the organisation, such as share-transfer registry work, superannuation fund accounting and trust administration accounting.

The economic case looks compelling. The US banking, financial and insurance services industry is estimated to have saved close to $6bn (3.3bn [pounds sterling]) in the past four years by offshoring to India. Consequently, its costs are seven to ten per cent lower than those of its European counterparts. And it's not only the multinationals that have caught on; it can also make sense for small and medium-sized enterprises that need to recruit more qualified people but can't afford western salaries. There are reverse economic benefits as well: in the US, the cost savings created by outsourcing helped companies to create jobs and register quality and productivity gains of up to 20 per cent.

Despite this, off shoring is often perceived as a threat. The main concerns are that it comes at the expense of control, confidentiality, service quality--and jobs. Some of these fears are justified, but there are ways to mitigate potential risks. As Patricia Hewitt, then secretary of state for trade and industry in the UK, said at a CBI conference in late 2003: "It's much easier to see the short-term benefits of protectionism than to see its long-term costs to consumers and business competitiveness."

Companies are improving their understanding of the issues of process migration, technology deployment and quality control. They have realised that they can offshore a great deal of work and use their existing workforce on more specialist projects with higher charge-out rates, thereby increasing profits already bolstered by cost savings. The ability to access competent, intelligent people with defined accountabilities, yet not have them on the payroll, is another key advantage.

India is an extremely popular outsourcing destination and has proven capabilities at managing a range of processes of varying complexity in finance and accounting. The subcontinent offers vibrant capital markets, world-class investment management and financial services expertise and a talent pool of more than 200,000 qualified accountants, which is being augmented by over 50,000 new graduates every year. Indian accountancy firms are adapting...

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