Going the extra mile

As more companies send work offshore, many are finding outsourcing overseas is just as easy as working with someone down the hall.

In late 2007, Kenneth Schultz, founder of Calgary-based accounting firm Integra Solutions Group, attended a CPA course during which the instructor sang the praises of offshoring. Like most people, Schultz was aware of the practice, but was wary of it. “We all somewhat sneered at him — politely, of course,” Schultz recalls. “But he was ready for it and he had an answer for every question we threw at him.”

After the course, Schultz got some referrals and found XCM Solutions, an accounting and tax outsourcing services provider, headquartered in Boston but operating out of India, which he hired to prepare tax returns. Schultz admits that things were a little rocky at first. “But today, outsourcing is what we breathe, drink and eat,” he says. “It’s part of everything we do daily.”

GROWING TREND

Integra is part of a global movement undergoing constant growth. As early as 2010, offshoring of accounting and financial services comprised 10% of the US$975-billion global business-process outsourcing market, according to a CPA Australia report. “How many Canadian companies practice outsourcing? I don’t know,” says Ramy Elitzur, professor of financial analysis at the University of Toronto’s Rotman School of Management. “But it’s a sizable trend, and growing.”

India continues to be the primary geographical outsourcing hub. Deloitte’s 2014 Global Outsourcing and Insourcing Survey shows that 59% of the 157 survey respondents do business with India. Surprisingly, the US is the second most popular destination, with 52% of respondents awarding contracts to US service providers, followed by China (40%), Poland (35%), the Philippines (24%), Romania and Mexico (21% respectively). Of course, these countries do not specialize in accounting services alone. They also offer, among other services, legal and call-centre offshoring services.

The offshoring industry is teeming with big-name providers, such as global professional services giant Accenture, US firms such as Hewlett Packard and IBM, and Indian companies such as Tata Consultancy Services and IT, consulting and outsourcing firm Wipro. At the time of the CPA Australia report, each had already generated anywhere from $1 billion to more than $5 billion. There are also a number of smaller players in the outsourcing business, including India’s IT services and solutions firm Datamatics, with nearly 8,000 employees, and XCM Solutions, with 350 employees.

STRICT SECURITY

It is difficult to imagine outsourcing of professional services without technology. For tax returns, for example, all relevant documents (receipts, invoices, statements, etc.) are scanned to PDF files and processed by tax preparation software, explains Glen Keenan, president of XCM Solutions and sister company Xpitax.

The documents and software are hosted on the same network that clients and outsourcing service providers connect to. XCM Solutions and many other providers house their network servers in the US or Canada, which the team in India accesses. “In many cases, nothing leaves Canada,” says John Sinclair, a partner and international liaison at Collins Barrow in Toronto, a firm that has been outsourcing since January 2016. “The workers in India are on our network,” he adds. What’s more, workflow software lets Collins Barrow track the progress of tax preparation files in real-time.

Strict computer network protocols ensure processing security. “There are more security measures in place in India than in most accounting offices in Canada,” says Sinclair. For example, unlike Collins Barrow employees in Canada, workers in India cannot enter the workplace with a cellphone, they work in a paperless environment and there are no USB ports on their computers, all of which considerably reduces the risk of information being compromised. “If an unscrupulous employee [here] wanted to walk away with important files, he or she could do it quite easily,” he adds.

MORE THAN SAVING MONEY

At first, the low cost of outsourcing contributed to the popularity of the practice. “Saving money is the main reason to outsource,” says Lisa Ellram, professor of supply chain management at Miami University’s Farmer School of Business. “Most will admit it, but some are embarrassed and will say that they do it to improve their capability.”

But according to Schultz, it is no longer a secret that all the large accounting firms are outsourcing services and, because of their high volume of business, have their own outsourcing centres, so they can rigorously control processes. “One could assume that the drive behind such units is purely economic,” he says.

At Integra, the reasons for offshoring are not the same and have more to do with the availability of human resources. “Getting staff was difficult,” Schultz says. “We could find people, but were they of the best quality? Or would they stay around?” Moreover, during peak tax season, staff in India could pick up the overflow.

As for the financial aspect, “I hoped that outsourcing would make us a lot of money,” Schultz admits. But it’s been hit or miss. Some files were profitable, while others weren’t. “We find ourselves where we would be if everyone was working out of our office.”

The situation at Collins Barrow is different. According to Sinclair, it is more about having extra staff during peak season than saving money. But, the savings are real. “A senior US tax person will cost about US$180,000; a senior in India, about US$24,000,” he says. “Add costs of reviewing, overhead, travel, benefits, the senior in India costs almost US$90,000. But we don’t have to buy them a desk, pay benefits and whatnot. So the final cost saving could be higher than 50%, but we don’t focus on cost saving.”

Despite the lower cost, the staff in India is highly qualified. “People in India are exceptionally skilled and ask questions that cause me to think carefully about my answers,” Schultz says. “If I whip up a fast answer, they’re smart enough to tell me, ‘Wait a minute!’”

Above all, those who outsource can focus more on value-added activities, Keenan says. Is that just a convenient excuse? Not at all. A 2003 McKinsey & Co. study referred to in the CPA Australia report states that in the US, every dollar spent on offshoring is expected to generate US$1.12 to US$1.14 in return. This is true at Integra, which now outsources its clients’ bookkeeping to India, thereby generating additional income.

Lastly, if outsourcing leads to job losses, reports CPA Australia, they are relatively minor — about 2% in the US.

NEW HORIZONS

Once limited to repetitive and transactional activities, outsourcing is now used for more sophisticated tasks. For instance, Collins Barrow is supported by a small audit team in India. “They are relatively junior tasks: cross-checking things, identifying prices, the repetitive and high volume jobs that our staff don’t like doing,” says Sinclair.

And there seems to be a shift in outsourcing towards more complex tasks that require more attention, from financial planning and analysis to analytics and cash management. “It’s still early days and it’s small scale rather than large scale, but it’s growing,” says Simon Tarsh, director and leader of business process outsourcing at Deloitte Consulting LLP in New York.

Outsourcing is also gaining more status with clients. According to the latest Deloitte study (May 2016), outsourcers are emerging as innovation centres for their clients, solving capacity issues, creating global scalability and providing access to intellectual capital.

BUMPS IN THE ROAD

Outsourcing relationships are not always rosy, of course. Doug Plotkin, a director at Deloitte Consulting in Boston, says that according to Deloitte’s latest survey, respondents expressed that the primary issues [they] currently face with their managed service providers [MSP] are that their MSPs are reactive versus proactive (46%), lack innovation and transformation (33%) and have high attrition/employee turnover (29%). “The survey respondents,” Plotkin says, “indicated that if they could get a mulligan [second chance] they would likely spend more time in transition (31%), create more detailed service levels (28%), and spend more time in [requests for proposal] or vendor selection (28%).”

According to Ellram, when disputes arise between outsourcers and clients, the client’s reaction has often been to simply end the relationship. “Litigating internationally is not obvious,” she says. “We have not seen any case of major fault, but it could happen,” Elitzur says.

“Disputes don’t really happen. This is a partnership,” Keenan says. “If there’s a problem, we look at it. If it persists, we analyze it and find the root cause.”

With a growing trend toward analytics, Ellram urges caution. “When you outsource services, make sure they’re not part of your competitive advantage, like an exclusive skill set or some intellectual property or process know-how,” she warns.

After a shaky start, Schultz is more at ease with his outsourcing experience. “What’s the difference between going down the hall to talk to Ray or going 12,000 miles around the world to talk with Rajiv?” he asks. “There are some differences. But for the most part, it’s just that the hallway is longer.”

About the Author

Yan Barcelo


Yan Barcelo is a journalist in Montreal.

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