The document, titled "Outsourcing and issues in First Time Outsourcing" by Shripad Kulkarni, delves into the concept of outsourcing, a prevalent business strategy that organizations employ to enhance efficiency, curtail costs, and concentrate on their primary business operations. Outsourcing is particularly advantageous for several reasons: Cost Savings: By outsourcing, organizations can significantly reduce expenses associated with in-house staff, infrastructure, and technology. Particularly, offshore outsourcing to countries with lower labor costs can lead to substantial financial savings. This strategy also eliminates the time and cost associated with talent acquisition. Specialized Expertise: Outsourcing offers organizations the opportunity to tap into specialized knowledge and skills that might not be readily available within their internal teams. This is especially true for sectors like IT, finance, and legal services. Operational Efficiency: By delegating non-core tasks such as HR, payroll, and IT support to third-party service providers, organizations can focus more on their core business functions, leading to improved operational efficiency. Scalability: Outsourcing offers a flexible model, allowing businesses to scale their operations up or down based on their current needs. This flexibility is especially beneficial for startups and smaller enterprises. Addressing Employee Attrition: High employee turnover rates pose a significant challenge for many companies, especially multinational corporations. Despite investing heavily in new talent, employers often face high attrition rates. Outsourcing can be a solution to this problem, offering cost benefits and helping to mitigate the challenges of employee attrition, ultimately leading to improved employee satisfaction and retention. The document further explores general market statistics related to outsourcing, the specifics of outsourcing in accounting, finance, and related services, and the challenges faced during first-time outsourcing. The conclusion likely wraps up the discussed topics, although specific details from this section were not provided in the snippet. The content also cites various sources, including Callzilla, Consero Global LLC, and Time Doctor, indicating a well-researched foundation.

1. Outsourcing and issues in
First Time Outsourcing

2. CA. Shripad Kulkarni
B.Com., F.C.A.
Practice Head : Process Management & Outsourcing
shripad.kulkarni@kirtanepandit.com
Process Management - Accounting of onsite/
offshore for Indian and Overseas Companies,
Experienced in Manufacturing, Hospitality and leisure
industry; handling large assignments of Financial
Accounting, Reconciliations, MIS, Payroll, Fixed asset
management, Inventory management, costing and
virtual services to SME segment and Virtual CFO
services for Indian & International Companies.

3. Contents
Sr. No.
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2
3
4
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Particulars
Outsourcing
Need for Outsourcing
Outsourcing - General Market Statistics
Outsourcing of Accounting, Finance and Allied services
Issues in first time outsourcing
Conclusion

4. Outsourcing
01
Outsourcing is when a company hires a third party to perform their task; in other words,
when a company employs another company to fulfilling its tasks, it is termed as
outsourcing.
It is a technique of appointing another firm or company for a specific task. To simplify, we
can say that it is the business practice to set specific third-party to give services previously
done by the company’s staff. The foremost cause of doing so is to cut down the costs and
increase the company’s profitability.
It also involves the distribution of labour so that the company outsourcing can focus on
more important subjects and also have expert services for other areas which are not
directly affecting the business but are important and indirectly affects the overall business.
It is a matter of controversy in many countries. Some believe that it causes a decline in
domestic jobs, whereas some believe that it allows the business to assign assets to the
companies where they can be most effectively used.
Cost savings
Increased flexibility
Improved efficiency
Uninterrupted services
Multiple services under one roof
Access to specialized talent pool
Employee attrition being taken care of
Shift from ʻPeople’ oriented to ʻProcess’ oriented approach
Reduced dependency on specific human resource
Outsourcing offers several benefits, including

5. There are several types of outsourcing that organizations can utilize, depending on their
business needs and requirements. Following are some of the common types of outsourcing:
Knowledge
Process
Outsourcing
(KPO)
Recruitment
Process
Outsourcing
(RPO)
Outsourcing Manufacturing
Outsourcing
Facilities
Management
Outsourcing
Business
Process
Outsourcing
(BPO)
Information
Technology
Outsourcing
(ITO)
02

6. Need for Outsourcing
03
Outsourcing is a popular business strategy that organizations use to improve efficiency,
reduce costs, and focus on core business activities. Following are some of the key reasons
why organizations outsource
Cost savings: Outsourcing can help organizations save money by reducing the need
for in-house staff, infrastructure, and technology. Offshore outsourcing to countries
with lower labour costs can result in significant cost savings. It will also save time and
ultimately cost, getting invested in talent acquisition.
Access to specialized expertise: Outsourcing can provide organizations with access to
specialized expertise and knowledge that may not be available in-house, particularly
in areas such as IT, finance, and legal services.
Increased efficiency: Outsourcing can improve operational efficiency by allowing
organizations to focus on their core business activities, while third-party service
providers handle non-core activities such as HR, payroll, and IT support.
Scalability: Outsourcing can provide organizations with flexibility to scale up or down
their operations based on their business needs. This can be particularly useful for
startups and small businesses.
Remedy to Employee Attrition: Every employer invests heavily in new talent and
expects them to stay for long term while adding value to the business. However,
despite this expectation, high employee attrition rates have become a major concern
for employers worldwide, particularly for multinational corporations (MNCs). To
address this issue, MNCs can consider outsourcing to companies or firms where they
can enjoy cost benefits and mitigate the problem of employee attrition and improve
employee satisfaction and retention.

7. However, outsourcing also comes with some risks and challenges, such as loss of control,
communication difficulties, and cultural differences. Therefore, it is important for
organizations to carefully evaluate their outsourcing needs, select the appropriate service
provider, and establish effective communication and governance mechanisms to ensure
that outsourcing is successful.
Improved quality: Outsourcing to service providers with specialized expertise can
improve the quality of work delivered and lead to better outcomes for the
organization.
Risk management: Outsourcing can help organizations manage risks associated with
non-core activities, such as compliance with regulatory requirements, cybersecurity,
and data privacy.
04

8. Source - https://www.zippia.com/advice/outsourcing-statistics/
Outsourcing –General Market Statistics
05
45% of companies have planned to increase their outsourcing since the pandemic,
often focusing on finding skillsets they can’t access in-house.
The cloud allows around 90% of companies to embrace more outsourcing
opportunities by enabling teams to reach a wider range of distributed professionals.
By the end of 2023, IT outsourcing should exceed a spend of $1.3 trillion as companies
increase their search for digital transformation experts.
The number one reason for outsourcing for 70% of companies is cost reduction, as
outsourcing lowers the costs associated with hiring in-house staff.
Around 24% of small companies say they outsource to increase efficiency levels.
Many small businesses also use outsourcing to access specialist skills.
Business process outsourcing is set to hit a value of $620 billion by 2032, as companies
continue to work collaboratively with contractors.
Global Market size of outsourced Services 2000-2019
$45.6B
$40B
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$50B
$60B
$70B
$80B
$90B
$100B
$110B
$52.4B
$60.1B
$64.8B
$70B
Revenue
(in
billion)
$77.1B
$80.5B
$87.5B
$91.3B
$95B
$99.1B
$104.6B
$82.9B
$88.9B
$88.9B
$92.5B
$85.6B
$76.9B

9. Source - The 2021 Kearney Global Services Location Index
India –Preferred Outsourcing Destination
India has emerged as the preferred outsourcing destination by providing quality solutions
at a low cost. During the past several years, India’s economy has become one of with the
quickest growth rates in the world with an average annual growth of almost 7% over past
10 years. It is one of the world’s fastest growing major economies. As per the recent survey
conducted in US, 82% of the US based companies have given preference for India as their
most preferred choice for software outsourcing. China and Philippines also offer low cost
services and fast turnaround time, however, India is the country which provides unmatched
quality and has the largest number of skilled resources. India's technological capabilities
have grown significantly, and it can now handle more complex and advanced projects
beyond just back-end work like data entry and customer support.
Country GSLI Overall Country Rankings
Rank
06
Indonesia 6.21
2.78 1.26 1.34 0.83
Brazil 6.05
2.37 1.69 1.32 0.67
Vietnam 6.05
2.77 1.20 1.40 0.68
United States 5.97
2.49 2.03 1.15
0.40
United Kingdom 5.97
2.49 2.08 1.11
0.85
Philippines 5.96
2.82 1.32 1.15 0.67
Thailand 5.91
2.46 1.24 1.52 0.69
Egypt 5.62
1.15 0.67
1.05
2.75
Poland 5.63
2.15 1.18 1.58 0.72
Colombia 5.66
2.42 1.18 1.42 0.64
Estonia 5.73
2.04 0.83 1.95 0.91
Mexico 5.82
2.33 1.39 1.43 0.67
6.22
Malaysia 2.49 1.26 1.64 0.83
6.8
China 1.99 2.3 1.47 1.04
7.09
India
4
5
6
7
8
9
10
15
14
13
12
11
3
2
1 2.83 2.18 1.17 0.91
Financial Attractiveness People Skills and Availability Business Environment Digital Resonance

10. Outsourcing of Accounting, Finance and allied services
Today’s business environment is highly disrupted and unpredictable. Operating a
small proprietary firm, a start-up or any multinational organization has been quite
challenging in this business environment. In this scenario, managing the finances of
business, it’s accounting, auditing activities and other allied activities has been more
chaotic leading to the path of mismanagement and non-compliance by many
businesses.
While adapting to the dynamic and disrupted business environment, it is the need of
hour for every business to upgrade its finance department. This leads to energy,
capital and resources spending on training staff, investing in high cost software,
employing qualified professionals to manage these tasks effectively.
Thus outsourcing the Accounting, Finance and allied services is seen as emerging
area from last decade.
With the recent technological advancements, the traditional way of doing things may
not necessarily be the best way of tackling the company’s finances. By outsourcing
their accounting tasks, companies will make use of a professional finance team that’s
perfectly able to handle all accounting activities, relieving the organization from the
drawbacks of having full-time employees while still enjoying the benefits. Such
services include -
07
Outsourcing in
Finance,
Accounting and
Allied services
Accounting & Compliances
Payroll Processing
Reconciliation Services
Resource Augmentation /
Co Sourcing
Inventory Verification
Fixed Asset Verification
Audit Support Services
Virtual CFO Services, etc.

11. Issues in first time outsourcing
Outsourcing for the first time can present several challenges, and it's important to be aware
of these issues before embarking on an outsourcing initiative.
One of the biggest challenges of outsourcing for the first time is finding the right
outsourcing partner. There are many providers to choose from, and it can be difficult to
assess their quality and reliability. Some companies may be tempted to choose the
provider with the lowest price, but this can be a mistake. It's important to thoroughly vet
potential outsourcing partners and look for a provider that has a proven track record of
delivering high-quality services.
Finding the right outsourcing partner
Solution
Reputation: Look for a provider that has a good reputation in the industry and can
provide references from satisfied clients.
Expertise: Choose a provider that has expertise in the specific area you want to
outsource. For example, if you want to outsource your IT services, look for a provider
that specializes in IT outsourcing.
Location: Consider the location of the outsourcing provider. If the provider is located
in a different time zone or speaks a different language, communication can be
challenging.
Price: While price should not be the only factor you consider, it's important to choose
a provider that offers competitive pricing.
08

12. Communication can be challenging when outsourcing to a company that is located in a
different time zone or speaks a different language. This can lead to misunderstandings,
delays, and errors. To mitigate this issue, it's important to establish clear lines of
communication and set expectations from the outset.
Communication barriers
Cultural differences can also create challenges when working with an outsourcing partner.
Different cultural norms and business practices can affect the way work is done and can
cause misunderstandings. To mitigate this issue, it's important to be aware of cultural
differences and to establish clear guidelines for working together.
Cultural differences
Solution
Use video conferencing: Video conferencing can help to bridge the communication
gap when working with an outsourcing provider in a different location.
Establish clear communication channels: Set up regular meetings with the
outsourcing provider to discuss progress, address concerns, and provide feedback.
Use written communication: Use written communication, such as email or messaging
apps, to ensure that important information is documented and can be easily
referenced later.
Provide clear instructions: Provide clear instructions and expectations to the
outsourcing provider to ensure that they understand what is required.
Solution
Understand the culture: Take the time to learn about the culture of the outsourcing
provider to understand their business practices and communication style.
Be patient: Be patient when working with the outsourcing provider and be willing to
adapt your communication style to accommodate cultural differences.
Establish clear guidelines: Establish clear guidelines for working together, including
expectations for communication, deadlines, and quality standards.
09

13. Outsourcing involves giving up control of certain business processes or tasks to an external
provider. This can be difficult for some businesses, especially those that are used to having
complete control over all aspects of their operations. To mitigate this issue, it's important to
establish clear expectations and to monitor the outsourcing provider's performance closely.
Loss of control
Solution
Define clear expectations: Define clear expectations for the outsourcing provider,
including performance metrics and quality standards.
Monitor performance: Monitor the outsourcing provider's performance closely and
provide feedback regularly.
Build trust: Build a relationship of trust with the outsourcing provider to ensure that
they are involved in the business with right intentions.
Outsourcing can also pose security risks, especially when sensitive data or confidential
information is involved. Since first-time outsourcers often tend to focus on low costs or
cheaper labour, they may neglect to inquire about the data security or safety protocols
Security risks
Solution
It's important to carefully vet potential outsourcing partners and put in place
appropriate security measures to protect your business.
Inquire about the company’s data security protocols before hiring them.
Company should have prevention systems to protect sensitive data against
malicious traffic over the internet
10

14. One of the primary reasons people outsource their business processes is to save costs.
However, it’s important to note that the lowest price won’t always benefit in the long term.
Hiring the right outsourced or offshore team is just as important. When you outsource with
the sole intention of cutting costs, you may compromise on the quality, defeating the whole
purpose of outsourcing.
Prioritizing cheaper labour over quality
Solution
Instead of being guided just by the vendor prices, company can focus on the other
important benefits of outsourcing.
This includes specialized talent, increased flexibility to meet your goals, more
capacity for core competencies, ability to scale rapidly, etc.
Every business transaction requires a solid contract (in case of any service quality issues).
However, first-time outsourcers (especially small businesses) can be unaware of this and
proceed to work with companies without signing a contract. In such a case, it can be difficult
to clarify expectations and set quality work standards. It could also lead to
miscommunication and eventually impact your business process.
Disputes due to lack of detailed service agreement
Solution
Company should draw up a rough outline of the kind of services they are looking for.
If they have already hired a outsourcer without written agreement, company should
speak to them and negotiate a new outsourcing contract at earliest.
This agreement should include – service to be rendered, project milestones with time
frames, technical resources required, modes of communication and collaboration,
contract duration, payment, ownership, etc.
11

15. The entity that is planning to outsource its activity for the very first time, is very often not
aware of the various outsourcing pricing models that operate in the industry.
Below are the various outsourcing Pricing Model that the entity should be aware of:
Inadequate information on Outsourcing Pricing Models
Solution
Variable Rate Pricing Model: The entity can opt for a variable rate pricing structure,
where it can pay a fixed basic rate, and also have the flexibility to pay more for
additional/ higher services or pay less when the market price goes down.
Fixed Rate Pricing Model: The entity pays a fixed charge throughout the course of the
outsourcing contract.
Performance based Pricing Model: The entity will pay the firm based on their
performance. If the entity is satisfied with service provided, they will have to reward
the firm with incentives. If they find the services unsatisfactory, the firm will pay a
penalty.
Cost plus Profit Pricing Model: The entity will have to pay the firm the actual cost
along with a fixed percentage.
Bundling Pricing Model: This type of payment structure is usually opted for in the
outsourcing of IT services. As an outsourcing client, the entity will pay a fixed price for
two or more IT services/products which are bundled together.
Profit and Risk Sharing Pricing Model: When the business objectives in the project are
met, both the entity and the outsourcing firm will be able to enjoy the profits.
Likewise, loss will be equally shared.
12

16. Conclusion
Overall, outsourcing can be a great way to reduce costs, increase efficiency, and
access specialized expertise. However, it's important to be aware of the potential
challenges and take steps to mitigate them.
If outsourcing is new to the entity, it probably will face some challenges first, which is
why it is so important to choose an outsourcing firm that you can trust. A reliable
outsourcing firm is a company with enough cases that prove their expertise, positive
feedback from their clients, and a devoted team of professionals who will be there to
walk you through each step.
13

17. 14
References
Callzilla
https://www.callzilla.cx/blog/the-different-types-of-outsourcing-which-is-the-best-fit-for-your-business
Consero Global LLC
https://conseroglobal.com/resources/what-is-outsourcing-with-finance-as-a-service
Time Doctor - https://www.timedoctor.com/blog/mistakes-of-first-time-outsourcing/

18. Overview of Kirtane & Pandit
Kirtane & Pandit LLP, Chartered Accountants (KPCA) is an Accounting, Auditing &
Consulting firm with a widespread established network of financial experts across India.
With the “Step ahead, Always” motto, we partner your growth journey with the delivery of
sound financial solutions & value added approach.
With an extensive experience of 65+ years, we deliver a wide range of professional
services in the areas of Assurance, Accounting & Advisory to listed & reputed companies
from varied industries across the globe.
We are a registered member of PCAOB, SEC, USA & feature as an A category firm of RBI
and C&AG.
30+ Partners
Operating across India
with 7Offices
6+ Decades of Experience
700+ Employee Strength
Client spread across
30+ Industries
Global Reach across
17+ countries
India
DR Congo
China
South Korea
Jordon
UK
France
USA
Australia
Saudi
Arabia Oman
UAE
Turkey
Egypt
Mozambique
Zambia
Italy
Netherlands
Belgium
Austria
Kenya
15

19. www.kirtanepandit.com
kpca@kirtanepandit.com |