New market study reveals the ranks of providers growing as companies establish their niche in the fast-growing FAO domain.

by Lisa Maio Ross

According to a recently published report by Cambridge, MA-based market research firm FAO Research, Inc. (www.faoresearch.com), the current finance and accounting outsourcing (FAO) supplier mix consists of seven different types of service providers described in Fig. 1 .
1. Traditional U.S.-based, hard-core technology and services experts such as IBM, EDS, ACS, and Hewlett-Packard;
2. Long-time service providers with a consulting heritage and deep information technology (IT), business process outsourcing (BPO), and consulting/process reengineering expertise such as Accenture and Perot Systems;
3. European-based outsourcing service firms (Xansa);
4. Large, global India-based BPO and ITO suppliers (Progeon/Infosys, TCS, and Wipro);
5. Multinationals that commercialize their internal service practices into independent companies (Genpact, formerly part of GE);
6. Pure play BPO providers (ExlService and WNS); and
7. Niche FAO services firms (Outsource Partners International-OPI Global).

The most significant F&A outsourcers on a global scale, according to the report, are listed in Fig. 2 . They provide the fullest scope of services to the greatest number of industries across the widest breadth of geographies. They have a long track record of providing outsourcing services and possess strong capabilities surrounding risk management, contract governance, process transition, systems management and processing expertise. Service providers included in this category, as mentioned above, include: IBM, EDS, ACS, Hewlett-Packard, Accenture, Perot Systems, Xansa (although solely focused on Europe), Progeon/ Infosys, TCS, and Wipro. They differ in so many ways and have unique strengths and cultures that have made them among the strongest candidates to win FAO engagements.

Highly capable in delivering FAO services but representing a newer market entrant, commercialized outsourcers, highlighted in orange in Figure 1, are providers such as Genpact (formerly GE Capital International Services). It became a standalone, commercial venture in 2004 and has moved up the value chain to compete with some of the largest outsourcers in the world. Its lower cost structure (built on its numerous India-based and other offshore locations) and experience running GE’s worldwide F&A business since 1997, have helped propel Genpact onto the short lists of numerous forthcoming FAO engagements.

Service providers focused exclusively on the BPO domain are highly focused on winning FAO business, since outsourcing is all they do (highlighted in purple). Suppliers such as ExlService and WNS, both with Indian-offshore heritages, offer full-scope F&A services within defined segments in the U.S. and Europe. ExlService, for example, grew 117 percent in one year, while WNS was ranked No. 1 in NASSCOM’s list of BPO firms. As they beef up their portfolios, bandwidth, and partnerships, these providers are winning a fair share of FAO contracts from companies within the Fortune 500/Global 1000 for whom they are the “right” fit. In addition, there are firms such as Outsource Partners International (OPI) focusing exclusively on the provision of FAO services.

The final segment of service providers, highlighted in gray, is expected to move into the FAO landscape this year, according to FAO Research. While existing FAO suppliers expand and become more competitive, emerging vendors are strategizing heavily to share in the growing FAO market. The research study identifies four additional types of FAO service providers that include:

1. Major ITO and BPO service providers that launch FAO offerings;
2. Niche-focused finance and accounting (F&A) service firms expanding their outsourcing portfolios;
3. Accounting/F&A consulting firms
boosting their offerings on an outsourced basis; and
4. Offshore-based BPO firms gaining deeper F&A functional expertise.

The natural progression of a healthy marketplace is growing competition, which clearly is evident from the table below that presents important features of leading global FAO service providers. For these suppliers, BPO account for a major portion of their business, with FAO positioned as a key contributor to their future success. Most offer FAO services globally, seek business from the Fortune 500/Global 1000 (Perot Systems specifically targets the mid market, some of which may fall into these categories), and serve multiple industries.