Everest: More Multinationals Are Outsourcing Payroll, Yet LatAm Seen as Not Mature Enough

An increasing number of North American and European multinational companies are outsourcing their payroll functions to foreign BPO providers,  a recent study conducted by the research firm Everest …

An increasing number of North American and European multinational companies are outsourcing their payroll functions to foreign BPO providers,  a recent study conducted by the research firm Everest Group reveals.

“North American companies propelled the Multi-Country Payroll Outsourcing (MCPO) market that saw explosive growth of over 30 percent CAGR growth from 2008 to 2011,” says the report.

The report said it found a lot of buyers interested in outsourcing payroll to Latin America, but due to the relative immaturity of the market there, few companies were seriously investing in the options it provides.

Everest Group estimates the MCPO market at US$600 million and says the increasing rate of buyer adoption could boost the market up to as much as $1.3 billion by 2014. The market for payroll outsourcing, according to Everest, is most likely to grow at 20 percent over the next few years.

Cost reduction, improved management control, risk management, compliance and business expansion are some of the factors that are driving companies to outsource payroll functions.

“Multinational companies are increasingly adopting MCPO to cover their operations in the Asia Pacific and EMEA (Europe, Middle East and Africa),” said Rajesh Ranjan, vice president, Everest Group. “While we expect the MCPO market growth to remain strong, we’re still in the midst of a weak economic climate that is prompting buyers to leverage a phased adoption approach.”

Multiple technology models are at play in the MCPO market. Key factors, including employee population distribution, are found to be influencing the choice of a technology model.

Technology is vital to the MCPO offering. Therefore service providers are investing heavily in various technology platforms.

“While phased adoption offers the flexibility to implement third-party payroll in one region then expand to include another, the downside is loss of volume discounts that could be gained with a larger contract,” Rajesh added.

Increased market maturity and availability of wider options are likely to instigate some buyers to look for switching opportunities instead of auto-renewal in their ‘second generation considerations.’

“The service provider landscape continues to evolve as a result of new entrants, markets exits and mergers and acquisitions,” said Ranjan. “Partnerships remain an intrinsic part of providing MCPO services.”

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