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Finance and accounting outsourcing market to make gains in 2012

The finance and accounting outsourcing market is expected to grow by 10-15 per

After a slow 2011, the finance and accounting outsourcing market is expected to grow at a rate of 10-15 percent this year, according to a new analysis from independent research firm the Everest Group.

The global FAO market practically exploded in 2010 with 18 percent growth, but saw a tempering last year when outsourcing grew by just 11 percent, the report finds. Annual contract values hit $3.8 billion in 2011, most of which - 70 percent - was driven by contract renewals and extensions.

The traditional offshore/nearshore model for the FAO market is changing, as well, according to the report. As competition heats up, a more global delivery system is becoming the norm. Asia-Pacific, in particular, has emerged in recent years at a major adopter of FAO contracts, though the United States remains the primary market. Here, the SMB sector - defined in the report as those companies with less than $1 billion in annual revenue - doubled its FAO contract activity.

“Competition in the FAO market is gaining intensity,” said Saurabh Gupta, vice president of the Everest Group. “The market share of the top three providers has reduced from 65 percent to 50 percent over the last five years. Over the past two years, providers have continued to build up scale and invest significantly across various F&A capability dimensions, most notably around technology. However, service providers’ ability to understand the client context continues to be a significant credibility gap.”

Nearly half of all the FAO contracts signed last year involved some form of technology augmentation. According to the report, these can include service provider add-on tools such as workflows, interfaces, document management, business process management, business intelligence and user portals or dashboards.

The coming year holds the promise of continued growth and expansion in the FAO market. Roughly $7.3 billion worth of contracts are up for extension over the next few years, according to the report, leading to continued organic growth sectorwide. There is also a significant opportunity for third-party service providers to improve their market share. During 2011, these groups only achieved 5-10 percent of their potential market penetration.

An FAO market analysis from HfS Research indicates market leaders may be using drastically different strategies when it comes to FAO engagement. While consulting, technology and outsourcing firm Accenture has been going after "large-scale enterprise clients," rival IBM has done quite well by expanding its operation into the small- and mid-sized market.