Globalization is defined as the process of interaction and integration between people, companies and governments of different nations. The world is increasingly interconnected through globalization. Companies are taking advantage and generating higher profits through the different opportunities that globalization presents. One of the most popular opportunities is outsourcing. Outsourcing is the delegation of some tasks or objectives to some organizational segments belonging to other entities (Arsenie-Samoil, 788). Outsourcing offers many benefits when done correctly. Many times, hiring an outside service provider will be cheaper than hiring a full-time in-house employee. Typical expenses like benefits, insurance, and pay are not paid, saving the employer money. Outsourcing also saves time because instead of employees completing trivial tasks, they can focus on more important responsibilities (Arsenie-Samoil, 791). However, there are also drawbacks to outsourcing work. Language barriers make it difficult to communicate effectively with workers. Outsourcing also means having less control over operations because there is little to no face-to-face interaction. The last major outsourcing concern is the security risk of providing business information to third parties. As the world becomes more interconnected, it becomes easier to find trusted, skilled workers in foreign countries who work for lower wages (Arsenie-Samoil, 791). The accounting and finance industry has been at the forefront of this trend, and not only the United States is involved, but the entire world. A 2010 report showed that accounting and finance made up 10% of the global business process outsourcing market, exceeding $975 billion in total (Khadem 2012).
One country that has embraced the accounting outsourcing trend is Australia. CPA Australia surveyed 227 of its members in 2010 and their results showed that 11.7% of employers sent accounting/finance work abroad. Adam Johnston and Michael Adams operate an accountancy firm in Australia that has been successful for the past two years. They were able to gain 15 new customers and increase rates by 30% during the year 2012. This was very impressive considering the economic climate they were dealing with at the time and credited their outsourcing success. Using Bank Office Shared Services (BOSS), Johnston and Adams located accounts looking for work, primarily in India and the Philippines. Now, they have a fully qualified personal accountant located in India. With cloud services, an accountant in India can have access to servers and software located in Australia. Another Australian success story is that of Mark Cottle, director of startup Frontline Accounting. Using a similar service, Cottle found a CPA located in Manila. Cottle says that he can hire 7 or 8 CPAs in Manila for the same price it would cost to hire 1 in Australia (Khadem 2012).
The United States is also outsourcing accounting work abroad, mainly to India. According to MG Fennema, a professor of accounting at Florida State University, 5% of US audit work in 2012 was done in India. This represents an increase from an estimated 1% to 2% in 2007. The Big 4 (Deloitte, KPMG, Ernst & Young and Pricewaterhouse Coopers) outsource work to India (Aubin 2012). In 2012, the 4 combined to employ 22,000 workers in India. It is a popular place to outsource because workers there are paid much less than workers in the US. In India, the starting salary for an accountant is around $10,000, while the same employee in the US is less than $10,000. The US would win about 5 times that (Aubin 2012). While some may worry that the quality of work will drop when outsourced overseas, the Big 4 companies ensure that overseas work meets the same quality as domestic work and that employees receive constant training for employees in the US (Aubin 2012).
The practice of outsourcing is more widespread than ever, but a company’s decision to outsource still needs to be well planned. Management must thoroughly understand their client’s practices and procedures. However, with the constant improvement in technology and innovation, companies can now connect to India and other regions in the blink of an eye. This makes the search for employees easier and more efficient than ever. When done correctly, outsourcing can be invaluable to businesses in many industries, especially accounting.
References
Arsenie-Samoil, Mihalache D. “Outsourcing Company Accounting.” Annals of the “Ovidio” University, Series of Economic Sciences XI.2 (2011): 788-93. website. November 9, 2015.
Aubin, Dena. “As more audit work from the US moves to India, concerns are being raised.” Reuters. Thomson Reuters, October 16, 2012. Web. November 9, 2015. < http://www.reuters.com/article/2012/10/16/us-usa-audit-india-idUSBRE89F1GC20121016#40OQWr4uBCLokkoy.97 >.
Jadem, Nasim. “Benefits of Offshore Accountants”. Weekly business review. np, May 10, 2012. Web. November 12, 2015. < http://www.brw.com.au/p/sections/professions/benefits_of_offshore_accountants_z8jyi8TwasPeviRKj7XVHM >.
