Say you buy a T-shirt off the rack – you know there’s more than a good chance it was made in China. When you slip on a pair of Nikes, you’re probably already aware that those shoes weren’t cobbled together in America or Australia. Everybody knows that the telemarketers who call you at dinnertime are seldom calling you from the same continent; but most people would expect that when they submit tax documentation to their accountant, that information would be processed, prepared and reviewed within that office – or indeed, at least within the country. Well, it turns out that increasingly those people would be wrong; because over the past 10 years, accounting and financial service firms have been turning to offshore outsourcing more and more to perform low to mid-level tasks that would normally be reserved for administrative staff and graduate students. Why are companies doing this, and what happens when we send the work normally reserved for young professionals overseas?
To begin – what is offshoring?
If you’re not quite familiar with the term ‘offshoring’, you’re definitely at least familiar with the concept. Offshoring refers to when you outsource or send away an area of your business processing to an area that is geographically removed. When Bonds closes down NSW factories and opens factories in China, that’s offshoring. While it isn’t ideal for our manufacturing industry, offshoring production operations can have significant cost benefits for Australian companies, and the practise is nothing new. In fact, it’s not just something that happens to factories; for decades, companies have outsourced support process operations such as customer care and recruitment to third-party service providers who are often based overseas.
So what’s different?
Indeed, often companies (of all sizes) will also outsource their accounting and finance responsibilities to firms who specialise in those kind of processes. But rather than handle all those tasks in-office, there is now tendency for the firms to send many of them to third-party companies outside Australia. In 2010, business observers were noticing this as a growing trend, its popularity having quickly spiked over the previous five years. Now the practise is commonplace, and one of two indispensable tools used by large firms to slash operational costs.
“it’s becoming harder and harder to set up a small family business as an accounting practice”
Dylan Mulgrew was an accountant and consultant at ShineWing Australia, a mid-tier accounting and financial advisory firm based in Melbourne. He says the reason his firm and others like it were outsourcing work shouldn’t surprise anybody – it’s the cost.
“There’s no better way to reduce it, other than automation,” explains Mulgrew (more on automation below). “Generally you’ll go to the Philippines, India, or Malaysia.”
These are all countries where wages are significantly lower. In India the average pay for an accountant is just under 235 000 rupees, which equates to about $4600. Accountants in the Philippines can expect to earn the equivalent of $6361. In Australia, the average income for an accountant is anywhere between $41,000 – $82,000 depending on skills, experience and additional qualifications but generally falls near a median average of $55,000, especially for a graduate positions.
So what kind of tasks are being exported?
“Generally it’s the grunt work that you used to have an admin person doing – now instead of an admin person sitting next to you in the office, there’s an admin person out in India who has the same qualifications as you, but is doing it for a much cheaper price,” says Mulgrew.
CPA Australia indicates that this ‘grunt work’ sent overseas comprises primarily employee payroll (27%), tax compliance and planning (21%), financial systems application support (16%) and general finance and accounting (13%).
It is important to mention that firms cannot simply send work offshore without informing their clients – there are rules and regulations concerning what can be done with certain data.
“It’s in the terms and conditions, because you can’t take data overseas without advising your customers. The fact that (you have) got Indian staff working overseas means that you have to advise them that ‘we have an Indian staff member’,” Mulgrew says. “In saying that, it’s not something that we openly promote. You’ll have plenty of people that say ‘oh yeah, we use overseas staff’, but they’ll be very hesitant to talk about the level to which they use them, let alone how crucial it is for them to have that staff.
“There’s no win to promoting that you’ve got an Indian workforce; generally clients either think straight away ‘okay, it’s going to be poor quality work’, or ‘okay it’s going to be super cheap for you, so we should be getting a discount on our price’. I remember some clients didn’t want work to go out to India, so obviously we had to charge them more.”
The firms in the best position to offshore their work are the ‘big four’: Deloitte, KPMG, Ernst & Young, and PricewaterhouseCoopers. These companies are all employers-of-choice, large organisations with well-established overseas operations. Together, they made more than $7 billion of the $20 billion accounting market in Australia last year. Dscribe spoke to a senior consultant from the big four, whose name and company have been withheld in line with media communication policies. His comments correlate with Mulgrew’s.
“To my knowledge, the largest offshore delivery centres that the big four leverage sit predominately in India and the Philippines,” says the employee. “On a project that I was working on last year, we had a large team split across Australia and India. We knew that this would be challenging if we weren’t working as one team, so the first thing we did was planned some trips for Australian employees to go and sit with the Indian team in India for a few weeks, and for them to subsequently come and sit with us in Australia for a few weeks.
“The first reason (you offshore) is that you lack the required subject matter expertise onshore. In this situation you will leverage whichever office has the skillset that you require, regardless of cost. The second is for competitive pricing.”
However, Mulgrew suggests that what firms do with that capacity for competitive pricing can also mean bad news for smaller operators.
“Because they can do that, they can take on more work at a lower price, and the clients they take are usually from the mid-tier firms. When the mid-tier firms lose their work, they have to go further down the chain. They take it from the lowest fish; they might be a single partner with a couple of staff members – just a local practice who can’t reduce their costs without firing someone, and if they fire someone they can’t do as much work. There’s just no way around it,” Mulgrew says.
“It’s becoming harder and harder to set up a small family business as an accounting practice just because they’re (larger firms are) starting to reduce their cost to the point where you can get a better service at a bigger provider who can do more work because they offshore and automate.”
Automation is the second key tool that larger firms have adopted into practise; it involves using technological systems to process tasks that traditionally would have been completed manually.
“The firm I worked for lost clients to KPMG because they brought in Robotic Process Automation (RPA). You basically push a button and it performs a task that a person would usually do, but it does it instantaneously,” recounts Mulgrew.
LBW Business & Wealth Advisors is a Geelong-based accountancy practice that has resisted the temptation to offshore, and instead turned to RPA in order to remain competitive. Maria Howson, human resources manager at LBW, explains the decision:
“As a firm we have chosen to invest in technology to become more efficient and to automate processes where possible. The focus is on freeing up the accountants to apply their actual skills and accounting knowledge for advice and services that require application of knowledge rather than transactional type of work. This then frees up the accountants to do more interesting work,” she says.
The potential for automation goes beyond the scope of minor data tasks, however. Euromoney indicates that big banks and the top-tier organisations in the financial sector are already investing in Artificial Intelligence technologies, which can be used for anything from calculating risk to investment and portfolio management.
Changing environments and employment opportunities
What do these process changes mean for graduates? Well, while assessments over job opportunities are somewhat divided, all sources agree that the roles of traditional accounting and financial service positions are definitely evolving.
“This does have an impact on graduates. In the short term it will probably mean less graduate positions, but it also means we are looking for different types of graduates – those who can demonstrate an ability to learn new things, relate to people, etc. It also means that we need to invest in accelerating the development of our graduates and find different ways of teaching them the basics that they used to learn via processes that are now automated,” Howson says.
Her statements contrast with the comments from the big four employee.
“Compared to 10 years ago, there are a lot more employment opportunities now. The biggest driver of this is the transformation in the services offered by big four firms,” he said.
“Ten years ago, big four firms drew most of their revenue from services in the accounting and finance sector. If you look at these firms today, they are all doing a lot more. There has been a huge increase in appetite in the market for consulting services on everything from human capital, to artificial intelligence, to user experience. This diverse appetite creates a lot of new opportunities for candidates at the graduate entry level.”
Marc Olynyk is a senior lecturer in financial planning and the director of industry engagement in the School of Accounting at Deakin University.
“A lot of firms are starting to offshore, unfortunately, so that’s taking away a lot of the jobs that would normally go to graduates, especially within the last five years. Firm are outsourcing the basic account preparation stuff, and financial planning is the same,” Olynyk says.
“However, I’ve just seen a report on demand of professions the other day, and accounting is still fourth in Australia in demand for graduates, so it’s still holding its own. There are more positions, but employers are becoming a lot more selective in what they’re looking for. They are becoming a lot more interested in the soft skills, rather than just the technical skills,” he explains.
Offshoring and automation are by no means evil things; in fact they are viable business practises which not only allow companies to deliver key services at a more affordable prices to their clients, but also distribute dollars to developing economies.
However Mulgrew’s greatest concern is still the pressure that larger firms can put on smaller ones because of their access to these processes; a pressure that often results in acquisition. Who regulates competitive pricing when there aren’t enough independent operators?
‘Eventually you won’t be able to go to a low-cost provider, because there won’t be a low-cost provider. That’s obviously a long-way-down-the-track phase, but it’s not something that’s completely ridiculous because that’s the practise that goes on,’ Mulgrew muses.
Luckily for low-income student journalists, online tax returns are still fairly straightforward.