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Outsourcing: driving efficiencyand growthGrant Thornton International Business Report 2014

Outsourcing: driving efficiency and growthContents Introduction Outsourcing today Drivers Obstacles Encouraging outsourcingOutsourcing trendsThis report draws on 3,300 interviews with businessleaders in 45 economies to better understand businessattitudes to outsourcing: Why and what functions arebusinesses outsourcing? What is preventing businessesfrom outsourcing? And how can theseobstacles be overcome?Drivers to outsourceImproving efficienciesReducing costBetter access to expertiseEnsuring business continuity57%45%45%Business processes outsourced46%TaxIT44%32%27%Unwillingness tolose control of akey processThe high cost ofimplementationToo complex or risky tocontract out services55%40%global businesses whocurrently (or plan to)outsource businessprocesses49%Obstacles to Pacific36%HR &PayrollOutsourcing: driving efficiency and growth 2

Outsourcing: driving efficiency and growthIntroduction1006%firms offeroutsourcing servicespercentage ofglobal revenuesBusinesses have been outsourcing key processes to third parties formany years, but it was perhaps around the turn of the 21st centurythat the term ‘outsourcing’ started to gain traction. Around this time,businesses began to outsource to other countries – a process knownas ‘offshoring’ – with large emerging markets such as India offering16%significant cost savings through access to huge cohortsof cheap,tech-savvy, young people.The process of offshoring has drawnpolitical and public attention withconcerns raised that it was destroyingdomestic jobs. Some level of ‘reshoring’has since taken place, but the cost andefficiency drivers to outsource businessprocesses remain strong. Indeed,outsourcing services now account for closeto 6% of Grant Thornton global revenues,a figure which is climbing all the time.This report gives fresh insight intoattitudes towards outsourcing amongstmid-market businesses. It is a processwhich tends to be associated with majorcorporates but the survey shows thatdemand is strong amongst smaller peers:two in five currently (or plan to) outsourcebusiness processes, rising to half in LatinAmerica and close to two-thirds insouthern Europe. Around three-quartersof businesses globally would not consideroffshoring, but larger businesses (those11%with 250 employees) are more likely58%to consider both outsourcing andoffshoring. Tax,ITandHR-payrollare15%the most popular functions that businessleaders are currently outsourcing withimproving efficiencies and reducing costthe major drivers.The results also reveal that the majorityof mid-market business leaders show noinclination to outsource businessprocesses. Very few have had a poor pastexperience of outsourcing, rather they aremainly put off by an unwillingness to losecontrol of a key process and perceived highset-up costs. However, many businesseswould reconsider their position if theyneeded to cut costs, find efficiencies orsaw their workload increase significantly.Please contact your local Grant Thorntonoffice to discuss the outsourcing needs ofyour business.Outsourcing at Grant ThorntonPrincipal services16%26%Bookkeeping/accounting services (incl. tax)11%HR &45%Payroll26%58%45%15%Business process outsourcingOther11%6%11%6%6%6%6%6%35Principal firms303525302025Sweden 20BrazilFrance5Source: Grant ustraliaPoland0South Africa-5-10Q3-2012 Q4-2012 Q1-201Outsourcing: driving efficiency and growth 3Q3-2012 Q4-2012 Q1-2013 Q2-2013 Q3-2013 Q4-2013

Outsourcing: driving efficiency and growth“Businesses seeoutsourcing as an opportunityto increase efficiency andkeep headcount low with futuregrowth prospects still somewhatclouded by uncertainty of therecovery in Europe.”Outsourcing todayThe IBR results suggest that outsourcing is reasonably popular in the mid-market: 40% of businessleaders globally either currently or plan to outsource business processes, climbing to 43% of larger businesses,where economies of scale mean outsourcing can have a greater impact. This rises to 64% in southern Europewith businesses in Spain (70%) and Italy (62%) amongst the most likely to outsource. Outsourcing is alsoprevalent in Latin America (51%) – especially Argentina (64%) and Brazil (53%) – and Africa (Botswana68%; South Africa 48%). By contrast, just 26% of businesses in southeast Asia are keen on outsourcing withbusinesses in the Philippines (4%) and Vietnam (12%) amongst the least likely to be looking at it globally.Tax services (49%) are the most likely function to be outsourcedglobally, rising to 64% in North America and 58% in the G7and Latin America. 53% of larger businesses outsource taxservices (compared with 46% of smaller peers) and it is also themost outsourced function in Asia Pacific. This compares withjust 13% of those outsourcing tax services in the Nordics.IT services (46%) rank second globally; 52% of businessesin Europe currently (or plan to) outsource IT, driven by largeproportions in the Nordics (66%),eastern Europe (63%) andsouthern Europe (54%). HR-Payroll (36%) comes thirdglobally, driven by the 55% of North American businesses;40% of larger businesses outsource this function, comparedwith 33% of smaller competitors. A further 36% of businessesoutsource (or plan to outsource) other services which couldinclude financial planning and bookkeeping.However, mid-market business leaders are more warywhen it comes to outsourcing a back-office function toanother country. Offshoring is most popular in southernEurope where 13% are already doing it and another 21%say they would consider it. By contrast, 82% of businessesin Latin America and 80% of those in Asia Pacific wouldnot consider offshoring. Larger businesses (26%) are morelikely to consider offshoring than smaller peers (20%).Ignacio de SopeñaGrant Thornton SpainDo you currently (or have any plans) to outsource any business processes? (% al37%BRIC51%LatinAmericaSource: Grant Thornton IBR 201448%SouthAfrica42%AsiaPacificOutsourcing: driving efficiency and growth 4

Outsourcing: driving efficiency and growthDriversHow important are the following drivers in your decision to outsource back-office services?Globally, businesses which outsource are principally looking forefficiencies (57%) and to reduce costs (55%). With low-cost labourgenerally less prevalent in developed economies compared withdeveloping peers, it is notable that business leaders in North Americaand Europe are more likely to cite these drivers. In North America,70% cite reducing cost and 69% improving efficiencies; in Europethe proportions are 63% and 67% respectively.These drivers are also central to thedecisions to outsource of businesses indeveloping economies but they are alsodriven by a desire to allow staff to focus onthe core strategies, such as gaining marketshare. This emerges as the key outsourcingdriver in Asia Pacific (excl. Japan; 57%),Latin America (56%) and the BRICeconomies (51%).Business leaders in developing economiesalso see outsourcing as a way of accessingexpertise that might not necessarily be asreadily available locally; 46% of BRICbusinesses cite better access to expertise asan outsourcing driver, compared with 39%in the G7, and 45% cite mitigating riskthrough using specialists, versus 35%across the G7.There is some variation in theoutsourcing drivers for smaller and largerbusinesses. Larger businesses are morefocussed on reducing cost and improvingefficiencies (both 58%) while smallerbusinesses are more likely to be lookingto use outsourcing providers to ensurebusiness continuity (48%) – perhapsbecause departures are often more keenlyfelt in businesses with lower headcounts– free up staff to focus on core strategy(44%) and reduce headcount (37%).“Tapping into theskills and expertise offeredby outsourcing providers canhelp businesses focus ontheir core activities, boostingproductivity and results, providingthem with a competitive edge.”Madeleine BlankensteinGrant Thornton BrazilBRICGlobalG7Improving efficiencies495753Reducing cost505553Ensuring business continuity454538Better access to expertise464539Allowing staff to focus on core strategy514334Mitigating risk through using specialists454235Reducing staff headcount393532Ability to cut outsourced staff more easilythan employees333330Source: Grant Thornton IBR 2014Outsourcing: driving efficiency and growth 5

Outsourcing: driving efficiency and growthObstaclesAmong the three-fifths ofbusinesses with no plans tooutsource, the major obstacle is anunwillingness to lose control of akey process. This is cited by 44%of respondents (rising to 49% inlarger businesses) and emerges asthe chief impediment in everyregion except Latin America.Interestingly, this is more of anissue in developed markets with50% of those in the G7 citing thislack of control as an obstacle,compared with just 35% in theBRIC economies. This obstacle ishighest in North America (58%)and also elevated in Europe (47%).Costs are also perceived to be achallenge: 32% globally (and 34%in larger businesses) cite the high costof implementation as an obstacle tooutsourcing. This is a particular issue inthe developing economies of southeastAsia (53%) and Latin America (38%),but almost as high in Europe (36%)and in North America (33%). Just14% of business leaders are negativelyinfluenced by a bad past experienceof outsourcing, although this rises to28% in Latin America.In Asia Pacific, the lack of a strategicplan to outsource (28%) also rankshighly, suggesting the issue is not on theagenda in many boardrooms across theregion. Meanwhile, business leaders inEurope (29%) and North America (30%)are concerned that they would have tolay off staff if they moved back-officeprocesses out of house. This links backto the fact that businesses in developedeconomies are using outsourcingprincipally to cut costs. By contrast,peers in developing markets are more likelyto be looking to access additional expertise;in other words, augmenting rather thanreplacing existing people.“There is a popularmisconception thatoutsourcing a process meansa company loses control. In fact,outsourcing can actually helpleaders take a step back andgain a clearer picture of howthe business is performingagainst its strategy.”Samantha GeorgeGrant Thornton UKWhat are the major obstacles to your business in outsourcing?44%Unwillingness to losecontrol of a key process32%The high cost ofimplementation27%24%22%21%14%Too complex/riskyto contract servicesLaying offexisiting staffLack of suitableoutsourcing companiesLack of strategicplan to outsourceBad past experienceof outsourcingSource: Grant Thornton IBR 2014Outsourcing: driving efficiency and growth 6