Will offshoring affect UK based accountants?

In today’s highly competitive market accountancy firms are constantly trying to drive down costs and overheads this has lead firms into introducing offshoring. Offshoring is a technique where firms outsource particular business processes to countries where labour is cheaper and overhead costs are lower. Blue collar offshoring (manufacturing sector) is already well established and it has had a huge affect on the world’s economy, with a significant percentage of industrial manufacturing now taking place in China. Recently white collar offshoring (service sector) has started to be introduced and this move has the potential to greatly affect UK accountants.

The catalyst for this growth in offshoring has been the advancement in communication technology. The world has effectively become a “smaller” place and this means jobs are no longer geographically dependent. With the Internet, files and applications can be easily shared resulting in offices throughout the world being able to use the same tools and programmes. The education of the developing world has also been a factor in the increase of offshoring. India for example has an abundance of well-educated, English speaking young people who will work for a salary far less than that of their European or American counterparts (on average an annual salary for a person working in India is 4 times less than a worker in the UK) [5]. In addition there are businesses that are solely dedicated to help companies outsource their business processes e.g. Outsource Partners International (OPI). Companies like OPI are only going to encourage more outsourcing in the future.

These factors would suggest that offshoring is only going to increase. In fact a report by PricewaterhouseCoopers (PWC) says the U.S. financial sector is set to double offshoring by 2008 [1] Deloitte also stated in 2003 that it was looking to move 2 million jobs offshore by 2008 with estimated savings in the millions. [2] It is inevitable that offshoring is going to result in decline in job opportunities for UK accountants.

The benefits for companies that outsource business processes are numerous. Offshoring is a relatively painless process because for the most part a full integrated IT system is not required. [3] Very quickly a company can start to outsource to a cheap and reliable workforce with almost instantaneous savings. The main driver for offshoring is obviously reducing costs but there are other advantages. If labour intensive functions i.e. audit checks, tax returns are being outsourced this gives the UK based accountant more time for ‘value adding’ activities. The accountant can now spend time maintaining client relations, looking for new contracts, finding ways to improve efficiency. These tasks can be carried out freely because of offshoring and thus increasing the overall potential of an accounting firm. Time differences could also be a benefit to a company offshoring. USA and UK based companies could leave work to be done overnight letting them move forward the following day. An almost 24 hour continuous service could be provided by the firm which no doubt would be appreciated by the firms clients.

The services that offshoring threaten most are the labour and time intensive processes. These low skilled and highly repetitive services can easily be offshored as places like Mumbai are ideally equipped to deal with such workloads. Bookkeeping, VAT preparation, tax returns, payroll services and the preparation of financial statements are prime services that would suit offshoring. [4] These more tedious jobs of an accountant do not need the full level of training other services do so by offshoring these jobs it leaves the UK trained accountant ready to focus on more skilled tasks.

Table 1: American tax returns prepared in India

2002 ..... 1,000
2003 ..... 20,000
2004 ..... 150-200,000
2006 ..... 360,000

This table illustrates the exponential growth in the number of American tax returns prepared in India. Tax returns are a service ideal for offshoring and based on this table India will be providing this service to a large percentage of the world in the near future.

Companies are online to save too much money for the amount of offshoring to slow down, it is more than likely going to increase. The service sector is just like any other; it will look to drive down costs, as competition remains fierce.

The key to UK accountants surviving offshoring is to change the way they operate. As mentioned not all services are suitable for outsourcing so it therefore these areas that UK based accountants should focus on. By acting in a more strategic way an accountant can be used as a consultant helping with decision making and the efficiency of clients firms. This is a move away from the stereotypical number cruncher but the modern accountant should aim to use his time performing ‘value adding’ activities to maximise his potential and help the growth of his firm.


References

[1] Offshoring Opportunities: Strategies and Tactics for Global Competitiveness (2005) by John Berry

[2] Deloitte Says 2 Million Jobs Moving Offshore by Sharon Gaudin (2003) http://itmanagement.earthweb.com/career/article.php/2196601

[3] Offshore Accounting Bpo - Myths and Realities by Mani Malarvannan http://www.articlesbase.com/advice-articles/offshore-accounting-bpo-myths-and-realities-211753.html

[4] Top 5 Services Your Company's Accounting Department Should Outsource by Vinodh Pushparaj http://ezinearticles.com/?Top-5-Services-Your-Companys-Accounting-Department-Should-Outsource&id=46112

[5] http://tcpmag.com/international/