Outsourcing of Accounting Functions, 2020

“According to RAEX’s regular, 12th ranking of major companies providing the outsourcing of accounting functions, this services sector performed the worst in 2020 as compared to the whole research period: there is stagnation, actually. Outsourcing providers have hopes for growth due to the lessons that businesses have learnt while operating during the pandemic.” Vartan Khanferyan

RAEX’s 12th regular ranking of major companies providing the outsourcing of accounting functions has shown a decline in the growth rate of its members' consolidated revenues. The total revenues of the major representatives in this sector reached a record 13 billion rubles by the end of 2020, although increased by only 3% (with inflation at 4.9%, according to Rosstat) in terms of comparable indicators.

The economy’s forced shift to online business processes was supposed to spur interest in outsourced accounting services, being remote by default. But unlike other sectors, such as auditing and consultancy, which have seen more tangible growth, the lockdown has hampered the outsourcing segment expansion.

A total of 84 entities are listed in the current rating. Although most of them (65%) ended the period under review with a positive revenue result, the decrease in the growth of the remaining participants was enough to dampen the overall leap.

The pandemic has created new demand drivers for remote services. However, for outsourcing providers, the demand for services has not increased immediately but will be gradually growing within one or two years.

OUTSOURCING ON LOCKDOWN

The low growth of financial and HR accounting providers is not encouraging: in the last years, the dynamics was more intense: as at 2019 and 2018, the market grew by 9% and 12%, respectively, while seven years ago, in 2013, the growth was at 24%. Thus, the change in the revenue of the ranking participants over the last year was the lowest in the ranking history.

Business, tax and HR accounting is still a specific and often closed domain, and deciding on the outsourcing of such business processes, especially during a crisis, is quite a slow process.

The reasons for slowdown include the decline in the country’s business activity among economic entities in 2020, particularly foreign economic entities. “Tightening legislation, sanctions and new business requirements distract foreign companies from the Russian market. According to our estimates, in 2020 alone, the number of Russian companies set up by foreign investors fell by more than a third. This undoubtedly reduces the number of potential customers. The pandemic has also affected the timing of decision-making: many projects were frozen and top managers were only prepared to resume them once the situation in Russia and the world could stabilize,” said Sergey Tiunov, BDO Unicon Outsourcing managing partner.

INFECTIOUS HABIT

Apart from the experience gained by businesses over the pandemic, the digitalisation and upgrading of information technology and services is an extra incentive for outsourcing orders.

“Many companies prefer to have employees working remotely and on a mixed basis rather than lease premises, hence there is a growing demand for an electronic document management service for employees, as well as for providers’ digital solutions to maintain uninterrupted business processes and provide cost reduction for accounting functions,” Sergei Tiunov says.

WHO NEEDS THAT

The trade sector remains a key customer for outsourcing services. On the one hand, it has historically been the main client of outsourcing providers; on the other hand, it is the industry most affected by the pandemic. According to ranking participants, the revenue from accounting outsourcing services rendered to trade customers amounted to at least RUB 2 billion in 2020.

Usual major customers for remote accounting include the oil and gas industry, as well as the communications industry, with revenues reaching at least 405 million roubles and 352 million roubles, respectively.

A little less – 344 million roubles – was the income of the ranking participants from accounting services for healthcare organisations. According to the ranking leaders, choosing outsourcing for secondary functions of state healthcare institutions has been relevant for several years, in particular as part of the state programme entitled “Healthcare Development.” Similar to the experience of cleaning and transport services outsourcing, healthcare institutions have offered to engage providers in outsourcing the accounting and personnel functions.

“The demand for outsourcing by healthcare institutions can be linked to the increased workload on staff during the pandemic, when it was important to provide full support to core processes. Another crucial factor is the development of automation in the industry: companies need highly skilled financial and IT specialists, who are quite expensive to find, train and pay. In this way, outsourcing helps to quickly find the insufficient resources and gain access to the provider's knowledge base,” said Ludmila Shusterova, Deputy CEO for Transformation and Strategic Development at BDO Unicon Outsourcing.

At the same time, private pharmaceutical companies have also seen an increase in demand for outsourcing services. “We have extensive experience working with major pharmaceutical businesses, so we clearly see how clients’ needs are changing: today they are not just interested in outsourcing secondary functions, but also in other benefits of outsourcing: modern IT tools, Employee Self Service solutions, electronic HR document management and others,” Lyudmila Shusterova says.

Source: RAEX