BANGALORE, INDIA: Continued expansion of finance and accounting outsourcing (FAO) service providers, broader acceptance of the value proposition, and existing success stories are driving a strong FAO market that grew 22 percent in 2007 and is predicted to maintain a double-digit growth pace, according to the Everest Research Institute's annual study of the FAO market.

Future growth in the FAO market will also be driven by a combination of expanding supplier capabilities and the expansion of FAO buyer segments.

The multi-process FAO market is estimated to be US $2.2 billion (annual contract value), according to the institute's study, Finance & Accounting Outsourcing (FAO) Annual Report 2008.

Despite the strong growth, only 5 percent of the market potential has been tapped. However, maturing FAO delivery models are spurring rapid growth in the underpenetrated sectors of the market.

Consequently, mid-market organizations, Continental Europe and several industries (such as media & entertainment, retail, healthcare services) that have historically constituted a small share of overall FAO market share have started to outsource F&A aggressively.

The study explores and defines FAO market size and buyer adoption; current contract characteristics; supplier landscape; and emerging growth drivers. Other factors that will sustain the FAO market's annual growth of 20-plus percent are explored in the study, including:

Growth in Continental Europe, the fastest growing segment by geography with a 58 percent increase in annual contract value between 2003-2007 and corresponding growth of European delivery centers.

Spending by mid-market buyers continues to grow as a share of total FAO spending, representing 18% in 2007 

Outsourcing judgment intensive activities and end-to-end process-driven approaches as the result of buyer maturity

Specialization in banking, insurance, manufacturing, travel and transportation and other industries

Technology innovation as a pivotal component in FAO solution design and global sourcing to gain additional process improvements, specialized tools and expertise beyond expected labour savings

Significant renewal activity given that contracts worth US$5 billion are up for renewal in the next three years

"FAO has experienced two strong years with 2006 and 2007 sustaining double-digit growth both years, which is another reason we're seeing a lot of new suppliers coming into the market and stirring up competition," said Katrina Menzigian, VP, Everest Research Institute.

"Competition is at an all-time high with 20-plus suppliers vying for share in a strong, barely penetrated market with a large number of contracts and potential revenues up for renewal over the next few years."