How will offshoring affect UK accountants?

With technology now so advanced that information can be transferred to the other side of the world within a matter of seconds, there are no longer any communication barriers between an accountant in Bangalore and his colleague in London or Glasgow. Offshoring of business functions from the UK to developing countries is becoming increasing common and growing at an exponential rate. With this in mind, what will the effect be on UK accountants?

“Offshoring describes the relocation of business processes from one country to another. This includes any business process such as production, manufacturing, or services.” http://en.wikipedia.org/wiki/Offshoring

Offshoring in the accounting industry is an example of the offshoring of services. Only recently has this begun to have a remarkable effect on UK accounting. During this short time it has become clear the rate at which firms are prepared to outsource so many of their business functions is greatly increasing.

There are a number of reasons for the sudden growth of this ‘white-collar’ offshoring. For several years, offshoring in the manufacturing industry has been well established and highly successful. Business processes have been transferred from factories in Europe to factories in China resulting in reduced costs and increased productivity. The accounting industry has taken note of the accomplishment of its neighbour, realising the same potential lies within its own realms.

In terms of accounting it is not offshoring to China, but to India, that is taking place. In the last 15 years, spending on education in India has more than quadrupled. As a result, India is producing some of the finest educated university graduates in the world. Even if the quality of education in India was not any better than that in the UK, due to an ever increasing birth rate, the quantity of Indian graduates is higher. As a result, professionals in India are forced to work for salaries far smaller than those in the UK. This is exploited by multinational firms who realise that offshoring can greatly reduce expenses, ultimately increasing profits.

The accounting industry has not been slow to consider the extent to which offshoring can take place. A large proportion of all accounting functions can and will be outsourced. To date, activities which have been effectively offshored are typically simple to conduct, labour intensive and time consuming. However there are some tasks which still require interaction with clients on a more personal level. Tasks requiring a greater level of skill or interaction with clients as yet remain based in the UK. For as long as client relationships are such an influential factor in accounting, these services will always be required and therefore a number of jobs in the UK will continue. However it is more likely that eventually most clients will favour a less personal service at a greatly reduced cost. In due course, the accountants who provided this service will be struck off and replaced by equally competent individuals in India. Then only a small number of jobs will remain, for tasks such as audit, which will always require a physical presence in the UK.

Distance is no longer the obstacle that it used to be. Using fairly simple computer systems, information can be transferred from one country to another cheaply, quickly and effortlessly. It is as easy for accountants at opposite sides of the world to transfer information to one another as it is to pass a sheet of paper to the desk opposite your own. The accounting profession has now become truly global. For companies with employees in London, Bangalore is merely a stone’s throw away. In effect, for larger companies, the world is now their office and is operational 24 hours a day.

Offshoring in itself has become an industry in the UK over the last few years. Companies who operate solely in the in advising clients of the potential benefits of offshoring and assisting them in restructuring are plentiful. The effect of offshoring on the IT and manufacturing industries has by now been well documented. The media already recognises a shift in the accounting job market as graduate jobs become increasingly more difficult to come by. In coming months and years, this trend will continue. PricewaterhouseCoopers recognised in 2005 that within 3 years, offshoring would double, the consequence of this has now begun to show.

The issue of offshoring in the accounting sector can no longer be ignored. In years to come, it is evident that accounting jobs will be greatly reduced. Employers simply favour the cheap, effective labour available in developing nations. In the short term, this shift will be welcomed. It will allow UK accountants more time to perform difficult business processes more effectively and possibly gain further contracts. In the long term however, those who initially embraced such change may find that it becomes a challenge to their livelihood.

References

http://en.wikipedia.org/wiki/Offshoring

PricewaterhouseCoopers - Offshoring in the financial servicies industry: Risks and Rewards.

http://www.academics-india.com/
http://www.offshorexperts.com/index.cfm/fa/buyer.outsourcing_category_directory/c/1400