How will off-shoring affect UK accountants?

A common misconception is that all off-shoring involves outsourcing. This is not true. It is important to differentiate off-shoring from outsourcing, which involves the migration of management and of services to an external provider (ebstrategy.com). Rather, off-shoring refers to taking advantage of lower-cost labour by transferring the process to another country whilst retaining management.

Significant developments in the communications sector have made the off-shoring of accounting processes cheaper and easier than ever before. Nowadays, all that is required to produce a value added service is a server and an internet connection.

This has resulted in an “off-shoring” boom, or as it has also been referred to as “the new redundancy” (Loxton, 2004). Philip Middleton, financial services partner at Ernst & Young, acknowledges that more accounting service sector and research jobs are going to go offshore. In fact, he says “That is inevitable and probably desirable.” (Loxton, 2004) However who exactly is it desirable to? Obviously it is not the UK accountant who finds himself unemployed.

For years processes, such as manufacturing, have been carried out in foreign countries in order to take advantage of low labour costs. However many developing countries have spent heavily on education and training in recent times (eurospe.org), putting paid to the common impression that white collar jobs were somehow insulated from the risk of off-shoring. Recently such perceptions have changed. India for example, can now offer ready trained professionals who are willing to carry out the same work as a British accountant for a fraction of the wage (Anonymous, 2005).

Action has already been taken due to the fear of such job loss. Barclays announced a deal with the finance union UNIFI, which outlined official measures that would protect staff in the event of offshore-incurred restructuring (Anonymous, 2005). While this goes some way to compensate those who suffer as a result, it does not eliminate the problem that off-shoring causes job losses to UK accountants.

Jon Carson, CEO of Cambridge Mass realized this and tried to combine the benefits of off-shoring with those of keeping the business at home and advertised jobs at the lower rates he would have to pay for staff in India (Anonymous, 2005). While such an approach would keep UK accountants in a job, it would also adversely affect them by reducing the wage an accountant can command within this country.

However it is not all doom and gloom for UK accountants according to Middleton; “If I look around our business and ask what kind of tasks might go to Bangalore, for example, the answer is probably not a great deal. A lot of what we do requires proximity to clients - close client relationships,” he says.

I feel this is an excellent point and one which may in fact prevent the accounting profession from suffering from the off-shoring boom. For example audit and assurance is a major source of revenue for the majority of accounting firms but you could not off-shore an audit to the other side of the world. Similarly, as Middleton acknowledges, “much of the taxation and financial reporting work that makes up the bread and butter of UK practices requires an in-depth knowledge of the UK tax and regulatory climate and infrastructure.” In order to accumulate such knowledge and understanding, surely the accountant would have to live and work in this country. Both these points help construct a barrier which will prevent many accounting services from being off shored.

Having worked in an accounting firm myself, I have also seen first hand the emphasis which is put on the client relationship, and how far that “personal touch” can go. It would be very difficult, if not impossible, to offer such a level customer service from the other side of the world. This is a factor that has seen many non-accounting companies refocus their business processes to within the UK (e.g. Direct Line). Off-shoring accounting activities may allow processes to be completed at a cheaper price, but whether the quality of work will remain the same is a contentious issue. In the light of accounting scandals and the introduction of the Sarbanes-Oxley Act, many may feel “you only get what you pay for” may be the safest attitude to adopt and if that requires paying more, so be it.

As mentioned above labour-intensive, back office tasks and administration may well be off-shored and for the good of the economy, probably should. For such staff off-shoring is definitely “destabilising and uncomfortable for individuals” (Loxton, 2005). However, for the reasons outlined above, I do not envisage off-shoring having the destabilizing and detrimental effect on the accounting profession that some are predicting.


Sources Used

http://www.ebstrategy.com/outsourcing/basics/definition.htm
http://www.articlesbase.com/advice-articles/offshore-accounting-bpo-myths-and-realities-211753.html
www.eurospe.org/education/education_developingcountries

“The Off-shoring Craze” Anonymous, Human Resource Management International Digest. Bradford: 2005. Vol. 13, Iss. 3

“Analysis: Offshoring - Offshore Accounting” Liz Loxton, Accountancy. London: Feb 2004. Vol. 133, Iss. 1326