FAO to become $100bln industry by 2020

New Delhi, Nov 13 (UNI) The Finance and Accounting Outsourcing (FAO) business in India will register a mani-fold increase in business volumes and is likely to become a 100-billion-dollar industry by 2019-20.

The current FAO size, outsourced to indigenous financial industry is estimated at about two billion dollars, recording a compounded annual growth rate (CAGR) of 30 per cent.

The growth rate was backed by outsourcing orders received from US and EU companies due to economies of scale.

''This is evident from the fact that the number of 'live' FAO contract signed in the last 20 months stood at about 180, which were less than half before 20 months,'' Assocham President Anil K Agarwal said while commenting on the findings of a paper on Future FAO in India'.

The paper added the FAO opportunities will reach phenomenal heights for mid-market companies also, even as the current FAO market continues to grow at a 30 per cent growth rate for the next 10 years.

Presently the FAO market pioneered by global 100 companies, will quickly expand and fatten the list to global 500 in which smaller companies will play a crucial role, it said.

The mid-market in FAO will begin to overtake the enterprises level market in the next couple of years, due to size of mid-market companies and the attractive one-to-many economics achievable with smaller customers.

It added that as processes and technology are maturing, FAO providers are increasingly able to offer value beyond just cost-cutting. In addition to compliance and reporting, the adoption of standard tools, processes, and best practices can offer additional demand-driving benefits such as reduced working capital (through better management of cash and receivables) and reduced operational and financial risk.

The paper said that there are three factors due to which the FAO will be more profitable for well positioned service providers.

Firstly, FAO industry is more likely to enjoy more economies, second, the deals are based on relationships between an outsourcing provider and the finance department of a buyer and, third, their economics are driven more by labour arbitrage.

The Indian FAO providers now account for nearly 30 per cent of all FAO contracts signed until now with several successfully competing against the global outsourcing giants.

For several years, India has been firmly established as the prime offshore location for FAO work. Now the Indian providers are moving beyond roles of supporting non-Indian providers and instead making a concerted mark and commanding a significantly increasing share of global FAO industry, the paper said.

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