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Emerging Trend: Telecom Companies Opting To Outsource Finance and Accounting

|Includes: HP Inc. (HPQ), IBM, INFY

By: Audrey B.

Companies are continuously looking at outsourcing non core functions in order to address constraints on budget and increasingly limited resources. With recent current events including unrest in the middle East and now the earthquake and tsunami in Japan, affecting the global economy including oil prices and the energy market, some companies such as telecommunications companies may now opt to outsource functions such as finance and accounting outsourcing of accounts payables and accounts receivable collections in order to ease financial burdens.

Early this month, on the 3rd of March, Australian telecommunications company Telstra (ASX:TLS) featured in various news agencies when the Australian Financial Review ran a story that the company is looking to outsource 1200 jobs.  According to reports, Telstra has supposedly begun talking with different firms including IBM (NYSE:IBM), HP (NYSE:HPQ), Tech Mahindra (NSE:TECHM) and Infosys (NASDAQ:INFY) for back office outsourcing related to finance and accounting as part of a restructuring initiative called Project New, that will move the jobs overseas.  The company however, has denied the report but did confirm that it is in the market for back office outsourcing services.

In a related move, reports of other outsourcing companies, Salmat (ASX:SLM) and Vertex have announced lays off when Telstra scrapped its contracts with the providers.  Salmat, on the 7th of March announced that Telstra has pulled out of its call center services contract with the company, which could lead to 742 lay-offs unless the company manages to land a new contract.  The same goes for Vertex who announced the next day that it may lay off 250 people from its call center.  Reports are saying that Telstra may be taking their business to offshore outsourcing companies instead.  With Telstra’s recent interest in offshore outsourcing and given its own foray into federal outsourcing, the move may likely not be paying off yet for the company which is leading it to move some of its non-core process offshore to outsourcing companies offering lower prices for the services, including finance and accounting and call center services.

Tata Group telecommunications subsidiary, Tata Teleservices (BOM:532371) meanwhile, has signed a partnership with outsourcing company, Intelenet Global Services for back office services and customer support in the finance and accounting, business process outsourcing domain.  According to the release by Intelenet on the 8th of March, the five year contract heralds Intelenet as the first Indian player to foray into the F&A BPO market within the telecommunications vertical.  Similar to Telstra, Tata Teleservices cites further expansion as the reason for its outsourcing partnership, although Tata Teleservices will be looking more into expanding its telecommunications offering rather than expanding into a new vertical like Telstra.

In light of recent developments, telecommunications companies will likely follow in Telstra’s and Tata Teleservices footsteps and address finance and accounting first as a function to outsource. However, it is likely that with the growing global unrest and economic conditions unlikely to stabilize as soon as many would like, outsourcing will be increasingly adopted by more companies, not just telecommunications firms, and not just in the finance and accounting vertical.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.