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41 (136) 2019
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Finance & related services

Trends in the outsourcing sector

By Dagmara Witt-Kuczyńska, operations director, TMF Group
Header dagmara witt kuczy ska

 

The outsourcing sector is constantly changing, reflecting the fluid needs of companies.
Four main trends currently impact the sector – changes in legislation, globalisation, automation and the increasing scale of outsourced processes.

 

Changes in legislation

Changes in legislation determine and shape clients’ needs. An ever-more complex business environment will result in more clients willing to outsource processes to mitigate risk connected with non-compliance. In Poland, recent changes in time and attendance regulations, for example, caused an increased interest in time and attendance (T&A) solutions.

One of the most significant drivers of outsourcing sector is complexity. A recent report by TMF Group, the Global Business Complexity Index, ranked complexity in 76 jurisdictions worldwide according to how unpredictable the business environment is and how difficult it is to operate in them. A common theme was that jurisdictions with frequently changing legislation, usually scored higher on the rankings – suggesting they were more complex in the short-term. Complex jurisdictions require detailed local knowledge of how to enter and operate in them. Outsourcers working in this sector may successfully fill this gap.

Globalisation

Outsourcing, like other sectors, is subject to globalisation. Although it is very much concentrated on local compliance, globalisation as an international trend impacts the way outsourcing is developing. For many companies, foreign investment is a natural way to expand. Cooperation with an outsourcer with a regional or international presence would ensure meeting the same standards, delivering consistency among different countries.

A growing trend of companies willing to operate regionally or globally, with one provider, has been observed. Therefore, the market has been prone to international expansion through greenfield or brownfield investments, M&A processes or cross-border strategic partnerships to meet the aspirations of entrepreneurs wanting to go global.

Automation

Automation is a trend impacting practically all sectors. ‘Automate or die’ has become true for many processes, especially the labour-intensive ones, to free up resources for more abstract and complex activities. For the outsourcing sector, automation is an opportunity and a challenge. Automating internal processes leads to standardisation and increased efficiency. For external processes, it leads to expanding the offering and addressing clients’ needs in supporting services. Although operational activity is a central interest for companies, no true expansion can be achieved if their support services are not fit for purpose. Managers who are aware of the risks connected with the failure of support functions, such as in HR or finance, are more likely to outsource these functions. However, they also have specific requirements of IT systems and processes, and by integrating the system of the outsourcer with internal ones and ensuring data flows among the systems, this will lead to decreasing administration engagement of operational staff.

Increase in the scale of outsourced processes

There has been a rise in movement from tactical to strategic outsourcing. More and more companies are willing to outsource entire processes so that the outsourcer can become a true business partner, creating additional value for the company. This trend is correlated with increase of specialisation – there is less incentive for companies to develop competencies within the organisation if another entity can do it quicker, better and at lower costs, as a specialist in the field. Nowadays, due to rapid changes happening on several levels, keeping up with all of them is costly, inefficient and could be a business risk (in the case of regulatory compliance changes). Therefore, companies with growth ambitions, need external parties supporting the growth, or at least eliminate the barriers or mitigate the risks in the economic environment.
 

The outsourcing sector is continuously evolving to address an increasingly complex world. The ability to respond to constantly changing clients’ needs requires the outsourcing sector to be one step ahead. The general trends as outlined above shape the sector, however, the underlying message for outsourcers is to support clients using their specialist skills and knowledge, so that the client can focus on what is most important to them – which is their core operational activity.

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