VideoAsk Philip Chu what he thinks of outsourcing, and he doesn't hold much back. "We've tried it twice before, and the results were not good," says the CFO of Datacraft, a Singapore-based IT service provider. His first try involved human resources. "Our HR function was spread across many countries and wasn't being professionally run, so we thought, 'Let's outsource it.'" The outcome was a project that cost Datacraft more than it had been spending on HR previously and that soon became a grievous distraction for management. "We ended up devoting more effort to HR than we did originally and I was the one who had to provide the outsourcer with the data."
Later, Datacraft outsourced tax planning and preparation. It was another disappointment — a costlier function that created new problems for Chu. "At the end of the day we received penalties for things that had been done incorrectly with our taxes," says the CFO.
Given this unhappy history, it would be no surprise to hear that Chu has ruled out any chance of outsourcing his finance operation. But he hasn't. On the contrary: he predicts that one year from now he will have turned over his accounts payable and procurement functions to an outsourcing firm.
This is not to say that Chu has become a believer. He doubts that outsourcing will save him much and isn't looking for process improvements beyond what he's already achieved through a recent shared services effort. Drawing a lesson from his experiences, he vows to dedicate an internal staff member to manage the vendor relationship.
Instead, he will do it for a simpler reason: the threat of losing his best employees. "Staff turnover is my number-one problem," says Chu. "It's very hard to recruit new staff these days, and if you ask your top talent to do routine stuff like transactions, they will leave. But if I outsource it then they can spend their time on more exciting work." He will redirect his staff — he'll keep the same number of employees after outsourcing — away from three-way matches and toward analytical projects in support of business growth. There's plenty to do: Datacraft is growing 20% a year.
Like Chu, many Asian-based CFOs have mixed feelings about finance and accounting (F&A) outsourcing. They are skeptical about the advertised cost savings and wary of delegating essential — if uninteresting — finance activities to a third party. And even as their peers in North America and Europe warm to the idea of F&A outsourcing, local finance executives know that such projects will be harder for them to pull off. The business case is murky: it's hard for most Asian companies to achieve anything close to the savings available to a US company outsourcing to India. And putting finance operations — typically scattered across ten or more countries with as many languages — promises to be arduous for both vendor and client.
Yet there's rising pressure on CFOs to consider outsourcing, for reasons ranging from the workforce issues cited by Chu to an urgent need for better financial controls. Indeed, the market for such services in Asia appears to be at a turning point as providers sign on new clients here. But is F&A outsourcing right for the region?
A Hard Sell
Consultants and outsourcers have been preaching the benefits of F&A outsourcing for years, but beyond payroll and retirement plan administration, the practice has been slow to catch on. One of the earliest deals was a major agreement between Accenture (then Andersen Consulting) and BP in 1991. BP handed over almost all of its North Sea finance function — from data entry to forecasting — to the consulting firm. This contract helped Accenture launch its finance outsourcing business and led to predictions that many others would soon follow. Few did.
That has started to change. As a previous CFO magazine story explained, big Western companies are starting to overcome their reluctance, partly because of compliance pressures and a desire for cost savings, and partly because of a feeling that the F&A outsourcing business is mature enough that signing up is no longer the gamble it once was. "Companies are much more eager now," says Bob Cecil, a managing director with EquaTerra, an outsourcing advisory firm. "Last year there was a lot of industrial tourism, but now people are signing contracts."
That eagerness has been slower to reach Asia. According to a review conducted a year ago by Everest Group, a consulting firm that advises companies on shared services and outsourcing, a mere six F&A outsourcing deals have been announced for Asian-based firms up until April 2006. Another eight had been added by March this year, a sign that the market is finally picking up steam. Another 21 have been signed elsewhere but extend to the Asian operations of multinational firms. While the outsourcing providers dream of a host of Asian-based deals emerging soon — and are investing to meet this projected demand — the current field still looks thin.
And one of the original six — an eight-year F&A contract between Singapore's Neptune Orient Lines and Accenture — is now defunct. According to Alan Wong, regional finance officer for Neptune Orient, the company opted to bring the project in-house as of November of last year, moving the work from one global center back into three regional facilities. Accenture confirms the early end to the contract, which it says was amicable.
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