Farewell, Finance

A Singaporean holding company whose main assets are run from the U.S., and an American corporation that generates half of its revenues from the Asian region, have taken very different approaches to offshoring the finance function.

To hear it from Lim How Teck, the days of the finance function as we know it may be over. In his utopian vision, a sizable multinational — say with sales of US$5.5 billion — could get by with no more than a staff of 50, including the CFO, at its global headquarters. “Treasury, management accounting, and financial accounting need maybe only ten people each,” says the finance chief of Neptune Orient Lines (NOL), which happens to be a global company that made that much in revenues last year. “The rest will be doing tax, insurance, risk management, and compliance — that’s it,” he adds, kicking back in his chair.

But what of the staff who deal with the nuts and bolts of working capital and bookkeeping? They can all be based offshore — and not on the company’s payroll.

In the controversial world of offshore outsourcing — or offshoring, as some call it — much of the attention has been given to corporate IT systems. Arguably, finance chiefs saw the idea mainly in terms of dollars and sense — how much they can save by moving jobs to remote locations, where the same set of skills can do the same amount of work for a fraction of the local cost. Increasingly, though, outsourcing is reaching familiar territory, and if many a CFO follows the trend, they may soon be practicing their golf swings on what used to be their finance floor — after they’ve sent labor-intensive finance processes thousands of miles away.

For now, those who have done it are the exception, not the rule. The market for business process outsourcing (BPO) — which includes finance, personnel and call-center functions — is still immature. While some value the IT services market upwards of US$500 billion, the BPO market, says US consulting firm Gartner, should reach just US$130 billion this year. And of this, only US$3 billion would be contracted out offshore, say to India, China, or the Philippines. And while this year’s figure is 65 percent greater than last year’s, Gartner says operational concerns will constrain the adoption of offshore BPO until 2007, after which a more robust growth is expected.

Two Roads

But those who choose to wait and see may be missing out on further potential savings and improved operational efficiencies — the kind that NOL and Agilent Technologies now claim to be experiencing. The two companies could not have approached outsourcing more differently. The first is a Singaporean holding company whose main assets are run from the US; the other is an American corporation that generates half of its revenues from the Asian region. NOL chose to outsource its finance function to a third-party provider; Agilent went with the “offshore insourcing” model, industry jargon for actually owning the unit that does the work for the other global entities. NOL chose to outsource in Shanghai; Agilent is doing it in a New Delhi suburb.

Both, however, have relinquished completely all finance-related transactional processes to the offshore centers — payables, receivables, financial accounting, and fixed-asset accounting. The results, which both admit are just starting to show, are promising. For NOL, Lim says that an immediate benefit is a saving of around US$100 million a year. For Agilent, Carmelo Leung, financial controller for Asia Pacific, claims a reduction in finance cost from 2.5 percent of revenues two years ago — Agilent’s turnover in fiscal year ending October 2003 was US$6.1 billion — to near 1 percent, which he considers the industry standard. “We’re a lot more competitive now,” says Leung.


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