Sramana Mitra: Your ADP paychecks are well rolled out into the segment itself, but the other accounting functions are not, I presume.
David Schnitt: If you look at ADP paychecks, they are partial outsourcers. Potentially they are payroll processors. The still rely on somebody having an in-house payroll department that seeds their systems with hours, rates, salaries, and changes. If you look at the numbers there, you will find that the cost of maintaining an in-house payroll department is much higher than using an ADP or paychecks. When we work with a client, we take over and manage the entire process from end to end. We are able to achieve better results, a better process, and greater cost reduction because we are looking holistically at the entire process.
SM: Tell us a bit about what trends you see in the industry.
DS: The trends in the outsourcing industry are very long. They take a long time to play out. We started the company in 2002, and we knew back then that the wind was at our backs in terms of growth and that people were going to become more comfortable with outsourcing as time went on. We have seen that happen. Broadly speaking, as time has gone on, companies have become more and more comfortable with the idea of outsourcing.
That takes on a few different flavors. First of all, more companies are comfortable with outsourcing and therefore are outsourcing. We also see that the ones that are interested in outsourcing are more interested in outsourcing multiple processes as opposed to just one process. The big long-term trend in outsourcing is for companies to make a strategic decision that they are not going to try these processes in-house, but they are going to outsource them to somebody who can do it better and at a lower cost. It doesn’t matter what segment of the market you are looking at, we see that it is growing substantially in different markets.
SM: This is even true for small companies. This whole startup movement has created immense outsourcing in the small company segment as well. We have case studies of different startup companies. One of my favorites is a startup company that does more than $5 million a year with three employees. They outsource everything.
DS: And we see that the trend is strongest among mid-sized and small companies. A lot of the big companies have already outsourced most functions, but the mid-sized and small companies traditionally haven’t. That is where the growth is. We see companies that are focused on full outsourced accounting for certain industries, and they are going for smaller companies for those certain industries.
One of the other trends of companies we have seen in outsourcing is that companies are increasingly becoming more sophisticated about what they are looking for. It used to be that companies thought, “I should outsource because I am growing and I can’t deal with this” or “I am shrinking and I need to save money.” Now we see that companies are much smarter and are saying, “Strategically, why am I doing this stuff? This doesn’t make sense.” Or, “I am having trouble finding the talent that I need to do this well.” We actually just closed our first client that is headquartered in the Philippines for our finance and accounting services. We do a lot of payroll for Asian companies. This company came to us and I said, “Why are you interested in outsourcing?” They said, “Because there are so many outsourcing companies here in the Philippines we can’t get employees to do this work at all. They are all getting used up by the outsourcing companies. We thought we might as well outsource, too.”