IT (information Technology) outsourcing has been a major trend globally for more than two decades now. US have been a leader in the world in outsourcing due to combination of high overhead costs and strong cultural affiliation between US and Asian technology companies. Most of outsourcing work started with requirements of companies worldwide to fix Y2K bug and thus arose need for cheap software programmers. As the business model proved successful, a lot of companies outsourced their Customer service, data entry and financial services later. If US have been at the front to outsource the work, then it is India which has been major service provider. At present it is estimated that at least 285 out of Fortune 500 companies outsource some of their work to countries in Asia.
So where is the need for an Accountancy firm to outsource its work?
Like all businesses accountancy firms are there for profits and long term sustainability. Some of the major issues confronting the firms are:-
- Staff Costs form a major part of the operational costs.
- Small firms and startups have difficulty scaling their resources to meet fluctuating needs of business.
- Tougher competition in a slowing economy.
In the midst of all this accounts outsourcing market in UK is growing every year. Most of the top 100 firms are either actively involved in the process or are on lookout. The main mode of operation of these firms has been to set up captive centers in India. Apart from large accounting firms, large companies like BT and even some government councils etc actively outsource their finance and accounting work to India.
However it has been seen that only a small percentage of small and medium practices are into accounts outsourcing. There are apprehensions about various issues like staff non cooperation, software licensing, security issues, work quality, fear of redundancy of basic work etc., and these firms are trying to find a way out of these concerns. Many firms are just testing the waters and selectively indulging in the practice of accounts outsourcing to take care of busy season.
What have been the major benefits?
Operational costs are a major draw as it decreases. There is also an increase in total chargeable time of the existing staff which allows them to concentrate on high end work. Otherwise also savings from the outsourcing funds an additional full-time person with analytical capabilities for generation of consultancy work, business valuations, acquisitions, forensic accounting etc.
There are other hidden advantages also as you move from papers to a scanned documents, some sort of document management system comes into place. Moreover as you interact with service provider through emails, it forces firm to be clearer and more disciplined in their communication.
We do feel that accounts outsourcing shall continue to grow in UK at a faster pace than earlier and it shall be a major trend for the coming years for the reasons as summarised below:-
- Firms that don’t consider accounting outsourcing as an option will be at a competitive disadvantage in the near future.
- Significant cost savings are possible by moving accounting process to non-UK locations like India where the talent is capable and cost effective.
- Using emerging technologies will reduce head count, producing even greater savings.
- Firms will need to develop internal systems and discipline to achieve these changes.
- Cost is not the only motivator. So is flexibility and the ability to change.
By: Kawitansh Khanna CA (Director, Sapphire Info Solutions (P) Ltd.)