Legal and Accounting Outsourcing to India

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I. Background

BPO is the leveraging of technology or specialist process vendors to provide and manage an organisation's critical and/or non-critical enterprise processes and applications. The most common examples of BPO are call centres, human resources, accounting and payroll outsourcing. Business process outsourcing may involve the use of off-shore resources.

- The Wikipedia dictionary (en.wikipedia.org)

The difference between using BPO instead of an application service provider (ASP) lies in the allocation of risk. Using BPO involves the transfer of a certain amount of risk to the company providing the service. In an ASP model, you are only provided with access to the functionalities for performing the task through use of software. Whereas when you use BPO, you engage the services of a separate company that provides the software, manages the process, employs people to provide the service and is responsible for delivering the service.

In simple terms, BPO refers to the delegation by an entity of some of its in-house operations to a third party, in order to benefit from lower costs / better efficiencies. It also frees up a company’s capital. It allows the company to focus on its core activities by deploying its resources effectively. In other words, a company that is retaining internally, processes that could have been outsourced, is wasting valuable resources.

The biggest savings could be achieved by offshore outsourcing from countries that have high costs of operation to countries that have a cost advantage. Given this, we see most of the BPO providers in countries like India, China, Russia and other Asian countries.

India in particular is well placed to provide BPO services given its numbers of highly educated, skilled, English speaking workers. Indian companies also have the technology and software expertise to provide outsourcing services. Besides, the fact that India is a stable democracy with established legal and judicial systems also provides a measure of confidence to its overseas customers. In 2003, there were more IT engineers in Bangalore (150,000) than in Silicon Valley (120,000) (Source: Business Week Online, Dec 8, 2003). A.T. Kearney Inc. predicted in 2003 that 500,000 financial-services jobs would go offshore by 2008. Not only IT and financial services, there is a whole range of business processes that are being outsourced to India with companies enjoying huge cost savings. McKinsey forecasts indicate that by 2008, IT services and back-office work in India would increase to $57 billion annual export industry employing 4 million people and accounting for 7% of India's gross domestic product. (Source: Business Week Online, Dec 8, 2003). Some studies show that the global market for outsourcing finance and accounting operations alone is expected to grow at a 9.6% compounded annual growth rate and exceed $47.6 billion in 2008.

This report focuses on the outsourcing of Accounting and Legal work to India.

II. Rationale for legal and accounting BPOs

Some of the benefits of outsourcing legal and accounting processes to India are as follows:

1. Significant cost savings
Salaries for skilled accounting and legal staff are much lower in India compared to Western countries due to differences in cost of living. Fintax Experts India, a financial service BPO, also mentions savings on employment taxes and other overheads.

2. Flexibility / Scalability
Companies that outsource accounting and legal processes will have the flexibility to upscale or downscale these operations as required, driven by business needs. When these processes are handled in house, companies have to deal with the problems of recruiting more during the busy times and the attendant problems of downsizing during less busy times. Whereas when these same processes are outsourced to India, there is a vast resource of available skilled manpower that can be tapped on based on business requirements.

3. Focus on core activities
Companies that outsource accounting and legal work to India can focus on their core business activities and leave these back office operations to the BPO. Back office operations are high maintenance, but at the same time, they cannot be ignored – they are usually critical to the business, though not the core activity of the business. Not only companies, even CPAs and law firms, could outsource some of their work to BPOs. They can continue to offer their customers a whole spectrum of services. But they could focus on doing higher end, value added services that yield higher margins, while using BPO units in India to process the lower end, low margin services.

4. Technology
BPO service providers in India are usually backed by high-end technology that makes it possible for them to provide quality services. Encrypted web enabled software, servers, scanners and secure networks allow quick and accurate data transfers. Multiple servers in different locations provide effective disaster recovery systems. The other advantage is with technology getting outdated at a fast pace, companies can reduce their investment in technology for areas that are outsourced. The BPO service providers, on the other hand, have the resources, the expertise and the desire to have state of the art technology and solutions for the services they provide.

5. 24 X 7 Operations
Companies in the USA and Europe can reap the benefits of having 24X7 operations, due to differences in time zone. While their local employees sleep, their Indian BPO service providers could still carry on work. They could get overnight delivery of work, if necessary.

6. Control
Companies could still keep complete control on the data and / or their customer accounts. They could retain all the original files and documents, with only the back office work being done by the BPO. Some BPOs even provide the option of working with remote access to the company’s server. Alternatively, they would get the data uploaded to their own server or get the data scanned and sent by secure e-file share systems. Employees at the BPO service providers usually sign a non-disclosure agreement, which also protects confidentiality of the data.

Some experts also point at some long-term benefits to outsourcing, which are:

• Greater ability to budget for the outsourced function over the period of the outsourcing agreement
• Greater creativity in problem solving
• Results flowing from better management of core business operations
• Better management, contracting and outsourcing integration skills

(Source: http://www.cyfuture.com/business-process-outsourcing.htm)

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