FAO spending up 35pc in '08, touches $3bn

BANGALORE, INDIA: Finance and Accounting Outsourcing (FAO) contracts signed in 2008 reached $3 billion – the strongest year ever for new FAO spending – representing a 35 percent growth over 2007.

Everest Research Institute’s annual study of the FAO market, 'Finance & Accounting Outsourcing (FAO) Annual Report 2009', predicts continued strong growth in 2009. FAO market, representing nearly US $20 billion in Total Contract Value (TCV), fundamentals continue to be strong and both clients and providers of F&A outsourcing are positioned better now than ever to capitalise on key opportunities.

The economic recession fueled large market FAO activity, but mid-market engagements slowed noticeably according to the study. FAO activity in the financial services sector also dipped last year, from fifteen to seven percent, as buyers held a ‘wait and see’ approach.

Meanwhile, activity continued to be strong with traditional adopters, including manufacturers, and emerging industries such as media and entertainment.

Katrina Menzigian, vice president, Everest Research Institute, said: “FAO has experienced double-digit growth for three consecutive years. Beyond new contract signings, organic growth from existing engagements and contract renewals also contributed significantly to last year’s growth. Despite economic uncertainties, the value proposition remains very strong for direct cost savings and business impact benefits that tackle economic pressures. Although mid-market activity dropped, we believe it will pick back up as cost-cutting pressures mount."

Study findings include:

- Western Europe is emerging as a hot-bed of FAO activity. New, rapidly emerging delivery regions include Central and South America, China and Southeast Asia, as well as tier-two and tier-three cities in mature delivery regions that include India, and Central and Eastern Europe.

- FAO contracts worth $7 billion are up for renewal in the next three years.

- Accenture, IBM and EDS accounted for 42 percent of multi-process FAO contracts and 59 percent of multi-process FAO TCV signed in 2008.

- Other suppliers with strong reports last year were ACS, Capgemini, Infosys BPO, TCS, Wipro and WNS.

Saurabh Gupta, research director, Everest Research Institute, said: “While the leading FAO suppliers are holding onto their market positions, major contenders are closing the gap and emerging players are feeling the squeeze. As competitive intensity increases, the need for suppliers to differentiate offerings is extremely high, which ultimately enhances value for the buyer.”