Disruptive area # 2 – Labour is being sourced from less expensive countries

Manufacturing companies have been using low cost labour in developing countries for decades to produce their products. Just look at the clothes on your back. I bet very few of them are made in your current country!

The reality is that (because of escalating labour costs) most western countries have priced themselves out of markets by attempting to produce the product locally.

Up until a few years ago it was primarily ‘hardware’ based companies using this resource. Now we are seeing ‘services’ companies embrace the trend with fully resourced teams.

Most people think of this as outsourcing where in actual fact the correct term is offshoring.

Outsourcing is where you get someone else to the task who does not exclusively work for you. Accountants are a classic outsourced service. You work for many clients and they send their work to you because you are better at it than them.

Offshoring is where you set up a team (maybe starting with one person) off shore and they exclusively work for you. The banks and airlines have been doing this for years. They get themselves an office in a developing country, fill it with desks/chairs/computers/phones, hire & train some people and viola they have an office that can support their customers.

For one off projects outsourcing is the way to go however for larger ongoing tasks offshoring is the way to go.

Accountants have recently embraced the idea very quickly and are hiring people in developing countries with some degree of vigor right now.

I went on an offshoring study tour (in the Philippines) and the opening speaker said 2 things to me that got me excited;

  1. “Any job that can be done over the phone or behind a computer we can do for 50% – 90% cheaper, faster and often better”
  2. “I have been a virtual assistant for 5 years for a university professor in New York. I have gotten to know her job so well that I now mark her student papers for her”

I thought WOW. There are smart, hard workers, there is an abundance of them and they are relatively inexpensive.

If you think about an Accountants day. Most of it is spent on the phone or behind a computer. Most of the day is spent dealing with client queries and processing Accounting work. The technology products will take a lot of the processing work away and the balance can be done by cheaper labour off shore.

What is left are team members who are customer facing and adding value. The Accounting firm of the future has a local team who are customer facing (nurturing, sales and advice) and everything else (back office and processing) is done offshore.

There are 3 compelling reasons why this makes sense;

  1. An abundance of labour
  2. A labour force who are supremely qualified
  3. A lower cost structure.

Let’s take the Philippines as a case in point. It is estimated that circa 1.3M work in this space. It is growing every day. Their English is fantastic, the schooling system is very good, they are very family orientated, the time zones are reasonable and the government is right behind the initiative with infrastructure. They cannot build the office towers fast enough.

The table below highlights the salaries (March 2014) that Accountants in the Philippines are being paid. These are considered ‘middle class’ salary levels as the cost of living is so inexpensive. Compared to western salaries they are very reasonable.

Salaries in the Philippines

You can set this model up one of 3 ways:

  1.  Hire people directly who work from home.
  2. Go through a serviced office business (called a BPO) and hire the people through them.
  3. Incorporate a company and set up your own office – viable if you need 20+ people.

When hiring someone you do it via video conference (Skype, Google hangout, Go to meeting etc) and you do it the same way you already do. Place an ad, go through a recruiter, receive resumes, cull them out and hire the best for the job.

If you go through option 2 then the BPO (stands for Business Process Outsourcing) will help you hire the people. The training is up to you – again vide video conferencing or personally. They are your employees and they need to be trained in your systems and your way of doing things. They become part of your team so they need to be treated as so.

As an example my Australian team had a cooking class the other night. My team in the office in Manila did one on the same night in their city. My Australian team does daily huddles and they Skype in our team every day in the Manila office. What we do in one office we do in another.

Some people have a problem with this idea. “We must keep the jobs in our country” I hear. “What will our Accountants do if we send the work to a team elsewhere” is also another one. “What would my clients think” is a common one. Well, most Accounting firms will have different nationalities employed already. What’s the difference? You just have a team working for you in a different country in your office.

If you pare the comments down often they are either racist related comments or the person saying them has inadequacies and hang ups that their job can be done by someone else for a 10th of their salary.

All of this is globalization and a change in social behavior. I think the concept got off to a bad start with telemarketing companies calling you at home and you could not understand what they are saying. It also got off to a bad start because the term ‘outsourcing’ was created and many Accounting firms sent jobs off shore and because the person worked on the job was not working 100% for that firm there was a lot of re-work needed.

As a disruptive trend we are seeing Accountants use the available resource in the following way:

  • Hiring marketing people to do the marketing work for the firm. I know of an Australian $4M firm who has 8 marketing team members offshore.
  • Hiring client service coordinators to handle data collection and job set up from clients.
  • Hiring book keepers to do book keeping work for clients – on charging clients @ $20 per hour and making a 5 times margin.
  • Hiring data integrity people to sort out client data before it gets to the Accountant.
  • Hiring technical people who can do ‘cloud conversions’ and other software help.
  • Hiring product development people to create product for the firm.
  • Hiring administrators to do document scanning, corporate secretarial, debtor collection, filing etc.
  • Hiring Accountants to do the accounting work that does not involve client facing meetings.

Now here is the BIG one.

Businesses (your clients) are being directly targeted by Accounting firms (offshore or local ones who have an offshore team) offering accounting work from $8 – $25 per hour.

This is escalating at a great rate of knots.

As a consumer of accounting services why would I pay $200 per hour when I can get it for $20? There has to be some compelling reasons as to why I would continue paying for something 10 times as much!

The profession has to be real as to how long you can hold your prices when technology is commoditizing compliance and global markets are offering lower cost labour direct to your clients.

To hold prices you will have to add value, add value and add more value to remain relevant in the future. Accountants will have to offer valuable commentary to the data in front of them and move much more into business advisory services.

My view is that as an Accountant if you are not adding value to the data that is in front of you then your days are numbered!

This is a big disruption to the labour force of Accountants in western countries. It is also a great opportunity to capitalize on. The world is changing fast. Are you ignoring it, embracing it or hoping it will go away?

It won’t.