How will Offshoring Affect UK Accountants?

Offshoring happens when a company relocates internal business processes to a foreign country. The company either manages these processes internally in the new country or contracts an offshoring service provider (www.accountancy.com). The process of globalisation and the increased use of IT have led to offshoring affecting the services industries (Giddens, 2006). In particular, offshoring has the potential to greatly affect the work done by UK accountants.

Giddens, (2006), stated that any service job can be offshored that displays four characteristics: it involves the heavy use of IT; its output is IT transmittable; it compromises tasks that can be codified and it needs little or no face-to-face interaction. Many accounting functions consist of the above characteristics in which can therefore be offshored including: purchasing and sales transaction processing; financial management and project accounting; payroll processing and expenses (www.personneltoday.com) and a number of tax services. An important example of this in relation to UK accountants is the fact that the BBC has outsourced its finance and accounting services saving £200 million over the lifetime of their ten year contract with Indian based Xansa (www.personneltoday.com). As this is a highly publicised company in the UK this could serve as publicity in favour of offshoring to the detriment of UK based accountants.

Further, in a report provided by PWC, it is estimated that the US financial services sector is set to double offshoring by 2008 with approximately 360,000 returns prepared by Indian vendors, garnering $40 million in revenues. The prime reasons stated for offshoring were the shortage in accountants, the gruelling tax season and the fact that there is a saving of 40 – 60% (www.valuenotes.biz). These are all valid reasons in business that favour offshoring and with the US a similar market to the UK, not a lot may be able to be done to prevent tax services being offshored, especially due to the fact that deadlines are often struggled to be met due to the end of year practice associated with tax.

Giddens (2006), states that the consequences of offshoring will depend upon the actual task that is being carried out, not the overall competitiveness of the firm or the industry in which they work or their level of education. The point that tax services may be largely offshored may be counteracted by the fact that auditing services may not be susceptible to this. This is due to the fact that this service line relies on a lot of face-to-face contact between the auditor and the customer and the auditor is often required to visit the premises of the business which is being audited.

One of the ‘pull-factors’ of offshoring is the potential monetary saving. However, if this process is used extensively it is important to consider that as a nation matures economically that the arbitrage between costs in these locations and the US/ UK will tighten. At some point, the differences could narrow to the point where no arbitrage exists at all (www.accountancy.com). While it is unlikely that the gap will close altogether it should pointed out that at a further point in time, the gap may be so small to benefit from the cost savings occurring at present. If this does turn out to be the case, there could be a potential shortage of accountancy based skills in the UK to meet the reinstated demand for services.

Continuing on from this point, the education system in the UK for potential accountants could be dramatically altered to accommodate only the services that will provide employment to graduates therefore; there could be a huge gap in the knowledge of future accountants – if they will even receive this title.

However, there are some constraints that may prevent the offshoring problem. In several countries, there are legal constraints which prevent firms from sending work outside the geographic or national boundary (infosysblog.com). Also, if the UK considers that the potential job losses could be too high, it may be possible to pass a law to make offshoring illegal (www.accountancy.com). However, I find this highly unlikely due to Gordon Brown’s favour of globalisation, Giddens (2006). UK jobs could also be protected through the use of licences to undertake a specific job, as in the US.

Similarly, there may be some reasons in which not to offshore. For example, compared to the UK, the quality of undergraduate education in India is poor and the teaching method and two-tier system have been largely criticised (Giridharadis, 2006). As a result of this, UK businesses may want to weigh up the opportunity to reduce costs with the quality of work that may be produced.

Finally, there are some survival skills that UK accountants can use to their advantage to secure their jobs. One of the most important ones may be loyalty to a company with a proven track record. UK companies are said to look favourably upon this. Also, marketing and renewal of business processes can help businesses or specific jobs being offshored (blog.fastcompany.com). However, with cost reductions a prime reason for offshoring these points may be overlooked.


References

Accountancy Q&A, November 2005, Accessed from:
www.accountancy.com.pk/articles.asp?id=161

Berry, M, BBC to Send Finance and Accounting Services Offshore to India with Xansa, Personnel Today, Assessed From: www.personneltoday.com/articles/2006/10/23/37882/bbc-to-offshore-to-india-with.html

Giddens, A, The New Globalisation – Electronic Offshoring Marks a Distinct and Challenging Phase in the Evolution of Global Economic Independence, Guardian Unlimited, November 2006

Giridharadis, A, A College Education Without Job Prospects, The New York Times – World Business, November 2006

http://blog.fastcompany.com/archives/2003/12/17/surviving_the_offshoring_trend.html

http://infosysblog.com/managing-offshore-it/2006/12/when_a_project_manager_should.html

http://www.valuenotes.biz/bpo/tax.asp