Western Cape Business News

Send  Share  RSS  Twitter  15 Oct 2008

OUTSOURCING: It can be a Positive Experience


Recent Western Cape Business News

THE overall outsourcing experience appears to be a positive one as companies seek to stay afloat amidst a grim economic outlook which has shaken their confidence and weakened their balance sheets.

This is according to Natasha van Wyk, associate director, Global Compliance & Human Capital Services at Ernst & Young who says that the information age is enabling new outsourcing players to exploit the different stages of an organisation’s value chain, and that there are clear signs that broadening confidence in the outsourcing industry will lead to its adoption over an increasingly wide range of business processes.

“With inward investment into South Africa and the rest of Africa growing exponentially, more multi-national entities are facing the challenge of setting up businesses throughout the African continent. The challenges they face are managing and growing their businesses in multiple countries whilst providing a seamless and consistent service as well adhering to various legislation requirements. Outsourcing their non-core functions becomes an imperative,” she says.

Van Wyk says outsourcing either internal audit or compliance functions to specialist companies enables management to focus on strategic issues to grow their businesses with the comfort of knowing that their back office compliance requirements are being met by specialists in this field. Organisations will benefit from a level of performance and delivery that is contractually agreed resulting in management time being freed up to focus on more immediate business objectives.

“Some companies are outsourcing their statutory reporting and tax compliance function because it is difficult for their financial managers to keep up to date with changes in accounting, auditing standards and tax legislation. Some were finding difficulties with statements such as IFRS 2 on share base payments which need to be accounted for and disclosed on the local subsidiaries financial statements,” she adds.

Outsourcing is favoured as a business tool across European organisations, according to a new survey of more than 600 decision makers in European companies. The Ernst & Young European Outsourcing Survey 2008 highlights that 70% of respondents already outsource at least one function of their business, with 20% set to increase their level of outsourcing in the next two years, as they increasingly view it as a means to gaining a competitive edge.

The report, which surveyed senior decision makers at companies with a turnover of at least 100 million euros across France, UK, Germany, Italy, Spain and Belgium, also found that cost savings (49%) and better quality through the hiring of specialists (33%) were cited as the biggest reasons for outsourcing.

Cost savings was, unsurprisingly, the top reason for outsourcing across the surveyed countries, however, better quality through specialist skills (33%), improved strategic organisation (28%) and more flexibility (25%) were close behind.

She says there is some concern that business cases for outsourcing are often not met in relation to cost savings, and the tide may be turning with companies realising that cheaper isn’t always better.

She concludes: “Many executives are realising that outsourcing is about corporate growth and maximising the use of available resources. Outsourcing back office functions to low cost locations, for example, could provide substantial savings, but forms only part of the bigger picture that also encompasses improvements in quality to make the organisation fit for future growth.”

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