A product of the communications revolution, offshoring is something new and growing fast. ‘Offshoring’ - the process of relocating business processes to lower-cost overseas destinations - is a growing activity (icaew.co.uk). The managament of the function is usually retained.
It started with information technology and human resources related functions. Today, accounting and other financial services face the offshoring or outsourcing revolution. According to consultants IDC, outsourcing of accounting and financial services will grow 9.6% annually for the next five years, and most will go offshore (Bellavance 2004). Normally when we think of offshoring we are thinking of contact centres with the levels of annoying cold calls our households receive and until now, professionals such as accountants have been able to consider themselves relatively safe from the growing offshore trend. A big reason for this is the disparities in financial reporting caused by differing accounting standards. This is now rapidly beginning to change, in many countries, the shift to international standards is already underway. Today, more than 100 countries either require or permit International Financial Reporting Standards (IFRS) as their accounting standard or base their own local standards on it. Canada shifts in 2011, while Brazil, Chile, India, Israel and Korea are among the countries that have also set a date for a move to IFRS (Turley 2007). Harmonization of international accounting standards means there will be no significant difference between developing and developed countries when it comes to outsourcing accounting functions – except cost (Hoque 2007).
It is estimated that more than 350,000 jobs would move in the financial services industry by 2015 (Nuttall 2007). The effect on employment for UK accountants is set to be significant. Areas of accountancy where work can be seasonal are most susceptible, for example, tax. Many firms often have to turn away potentially profitable clients during peak times because they are understaffed. Using offshoring, firms are able to get through work loads such as tax returns much faster. If we consider that in India for example, they are at work whilst UK workers are asleep. Indeed, India is a popular destination for the offshoring of business processes mainly because of it’s unique education system, which generates 200,000-250,000 engineering and computer science graduates and more than 2 million other graduates, most of whom speak very good English. According to a NASSCOM-McKinsey report, India's business process outsourcing (BPO) industry is expected to grow to more than $21 billion by 2008 (ebstrategy.com).
While the tax area of accounting profession may be more susceptible to the threats of offshoring, no area is truly safe simply because of the cost benefits available to firms who offshore. The Deloitte survey showed that offshoring has spread across nearly all business functions, with significant growth around transaction processing, finance and HR (Deloitte.co.uk).
What UK accounting faces is a situation where it is now possible for similarly intelligent, well educated, young people in India and other developing countries can now compete for the same jobs. However, these young accountants in India are willing to carry out the work for a fraction of the salary expected by a UK accountant. This seems like a simple decision for any client. However, there are still reasons why UK accountants should still be preferred. Security is one such reason due to the differing privacy and data security laws in India. In the example of tax preparation, the following quote can easily be applied to UK citizens:
"Offshore tax preparation represents a very real danger for the United States and its citizens. Many taxpayers have trusted a US tax preparer with their most personal and confidential financial information, so they are innocently unaware of being vulnerable to identity theft and fraud when their returns are actually processed in India," according to Steven K. Ladd, CEO, Copanion, Inc., a software developer serving the accounting industry (offshoringtimes.com).
UK accountants will have to step things up. Survival skills will be required under the new employment environment created by offshoring. They will have to demonstrate flexibility, work ethic, productivity, innovative skills and place emphasis on all the things they are capable of which their Indian ‘rivals’ are not. For example, UK accountants will have a working knowledge of the needs and requirements of UK customers as they will be more understanding of UK business culture. Also, whilst Indian workers will speak English competently it is not their primary language. Arguably, they might find it difficult to build a genuine rapport with UK clients. UK clients will find it easier to identify with UK accountants and vice-versa. These are some of the advantages which UK accounting must capitalise on to survive offshoring.
REFERENCES
Bellavance, Christian 2004 Shoring up Business Toronto: Nov 2004. Vol. 137, Iss. 9; pg. 1, 1
Hoque 2007 An interview with Zahirul Hoque Interview by Sarah Powell
Strategic Direction Volume 23 Number 6 2007 pp. 25-28
Nuttall, Chris 2004 'Europe set to move 1m jobs abroad in decade' . LONDON 1ST EDITION] Financial Times. London (UK): Aug 16, 2004. pg. 8
Turley, James 2007 Mind the GAAP. Wall Street Journal. (Eastern edition). New York, N.Y.: Nov 9, 2007. pg. A.18
Websites used:
Icaew.co.uk
Deloitte.co.uk
Offshoringtimes.com
Wikipedia.org
Ebstrategy.com
Sunday, 18 November 2007
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