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Will Outsourcing Fly?

More Asian companies plan to outsource finance. But is there enough value to be gained?

Ask 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?

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