Tim Coakley, CFO of Agfa’s North American health-care business, is in no hurry to use an offshore outsourcer. A few years ago, executives at his parent company — a Belgian imaging-technology specialist — had considered offshoring some processes, but decided to focus on operational performance improvements instead. “We wanted to make sure our internal shop was in good order before we considered an offshore provider,” he says. “We felt that if we gave them less than perfect processes, we would be trading one headache for another.” Agfa hasn’t changed its views, says Coakley, despite a benchmarking study showing his unit’s finance costs are higher than they should be. If anything, he adds, offshoring has moved further down Agfa’s priority list as the company continues to adjust to a major global reorganisation.
Coakley is not alone in his reluctance to outsource offshore. In a new survey of 181 US finance executives by CFO — CFO Europe‘s sister magazine — more than half of the respondents said they have no plans to outsource offshore. But what’s striking is that the survey suggests that the mood is changing. Thirty-six percent of respondents said their companies are using offshore outsourcing, twice as many as in 2004.
No wonder offshore service providers and industry watchers are upbeat about what can now be offshored, and how. Equaterra predicts strong growth this year, based on a global survey of outsourcing advisers and service providers in the fourth quarter of 2007. Seventy percent of the advisers cited a general increase in demand for outsourcing — up 24% from the previous year — and 57% of the service providers expect increased demand in the first quarter of 2008, 5% more than last year. Service providers, meanwhile, reported growth in their new deal pipeline — 59% cited an increase, up 13%. As for offshoring, research firm Gartner estimated the size of the market for offshore IT and business process outsourcing at nearly $35 billion (€24 billon) in 2006, and forecasts a market of $70 billion to $100 billion by 2011.
Why do the sceptics now seem outnumbered? It could be that the market has simply grown up. As companies and service providers gain more experience at offshoring, they’ve improved how they manage the process and grown more confident as a result. Views on which functions can be offshored have expanded, with everything from traditional call-centre work to legal research on the table. “It’s become a global bazaar,” says Raffy Ohannesian, of DLC, a finance and accounting services firm. “Whatever you need, you will be able to find it at a lower cost, with a minimal or acceptable level of quality degradation, or sometimes even improvement.”
Learning from Experience
The way many executives now think about offshoring reflects this new maturity. “There is significantly more awareness,” says Vivek Sharma, a director at THL Partners, a private-equity firm. Sharma helps portfolio companies to choose and manage offshore partners. “People no longer ask basic questions like, ‘How can someone do this sitting in China?’ They ask, ‘How should I make this work?’”