global services transformation are indian ca firms insulated? … · 2017. 10. 17. · •kpmg 700+...

Global Services Transformation – Are Indian CA firms insulated?

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Global Services Transformation – Are Indian CA firms

insulated?

Bombay Chartered Accountants Society

21 January 2015

Presented by :

Milind S Kothari

Managing Partner and Head of Direct Tax,

BDO India LLP

Current Scenario

Economy

Policy Paralysis

• Budget 2013 was the turning point in terms of the investors’ confidence in our country

• Overruling of the landmark decision of the Supreme Court in case of Vodafone and

subsequent high pitch transfer pricing cases have led to erosion of confidence in doing

business in India to a great degree

Awakening of the Giant

• The new BJP government led by Mr Narendra Modi that came to power in May 2014 has

made several high pitch announcements of policy changes that should facilitate renewed

interest in ‘Doing business in India’ by the Global business community

• Although there has been a lot of traction at policy level, there has not been a significant

change at the grass root level

• The slew of initiatives introduced by the Modi Government could translate into

opportunities for business to grow and corresponding opportunity for our Profession as

well


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Current Scenario

Going forward

Are we seeing green shoots?

• Economist predict that the Indian economy would continue to grow at the rate of 6-7% in

the near future and by 2017, overtake China’s GDP growth

• Fair expectation that on the back of reforms introduced and a stable business and tax

regime, the foreign investment inflows into India would revive and fill up the much

needed gap

• With the Modi government perceived as a business-friendly reformist regime,

Leaderspeak suggest that the image of India in the international business community has

changed and there is a large optimism to invest in India


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Current Scenario

Initiatives by the Government

Business Reforms

• Make in India

• Digital India

• Smart Cities

• Ease of Doing Business in India

Tax and Regulatory Reforms

• Introduction of GST

• Legal and Banking Reforms

• Super Regulator for Broadcasting, IT, Telecom and Regulator for Real Estate

• Ordinance Route – Mining, Land Acquisition etc

• Pricing of Exit – Fair Value Buyout Norm


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Current Scenario

Profession across the globe

• In a survey, ‘The Future of Employment-How Susceptible are jobs to

Computerization?’ – September 2013, Tax Preparers, Audit and Accountant jobs are

considered to be susceptible between 94-97% (most vulnerable)

• The Economist survey on professional fees reveal that across the globe, year-on-year the

fee levels are dropping

• Globalization of services as in the case of manufacturing and IT could mean reduction of

cost over a period of time, the benefit of which would go to the big players; however, on

the other hand, India as a leader of services exporter could benefit significantly from

such development

• It is anticipated that the Big 4s will get bigger in the time to come; in the space outside

the Big 4, a trend of consolidation is being noticed across Networks

• Weaker Networks are finding it hard to survive and sustain in the light of market

dominance by the Big 4s followed by mid-market leaders such as BDO, Grant Thornton,

RSM


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Current Scenario

Profession in India

• The new government seems committed to ensure a stable tax regime in our country and

to this effect, is taking several measures to reduce tax litigation which is bugbear of

foreign investors

• The Audit rotation contemplated in the new Companies Act i.e. to set in from 2017 has

the potential to completely change the way audit is practiced in our country

• Introduction of GST would set course for a simplified business environment.

• The Ministry of Corporate Affairs has drawn up a roadmap for implementation of Ind AS

(convergence with IFRS) with effect from 1 April 2016

• Introduction of IT as a driver for compliance is likely to reduce compliance burden for

companies; new service opportunities to provide IT enabled services

• Use of technology by professional service firms has the potential to transform how

services are delivered to a client resulting into reduction of cost, improve efficiency

and substantially increase capability to deliver to the clients


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Challenges faced by our Profession

Macro…

Professional Curriculum

• The professional curriculum needs to be tuned to the to the fast-paced development in

business environment and prepare CAs to deliver to clients in such an environment

• If the profession is unable to deliver or handle the professional opportunities, the CA

fraternity would miss the bus and the opportunity which it otherwise should be capable

of harnessing

• Areas where the curriculum needs to be strengthened to deliver the results:

- How to develop and market professional opportunities; understanding tools that would

help you to get better

- Assignment approach to theory; competing with MBA curriculum

- In-depth IT knowledge, which would be the platform to deliver services in future

- Acquiring leadership and management skills


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… Macro

Services Bottlenecks

• It is debatable whether the bar on using global network brands is working for or against

the practicing Chartered Accountants

• Chartered Accountants, especially medium and small firms, are unable to brand

themselves better and also publicize quality of their Network association

Compliance oriented environment & Perception Management

• Excessively regulated environment with undue stress on compliance is taking a toll on

the profession; thwarting opportunities to provide value added services to clients

• The perception amongst the business fraternity for Chartered Accountants needs to be

change from an Auditor/Tax Consultant to a Business Advisor


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Micro…

• Fee levels – Indian Chartered Accountants are forced to deliver services at a sub-

standard level as compared to their international counterparts

• Hiring the best talent – Because of lower fees and profitability, Indian firms are unable

hire and retain the best talent

• Portfolio of services – Indian firms have been traditionally focusing on compliance and

litigation working

• Saturation in existing services – Audit and tax services have reached a saturation point;

the demand for such services is not growing commensurate with the capability of the

Profession to deliver

• Audit Rotation/ GST - Disadvantage to small firms as they may not get equivalent work

that they lose out; GST may simplify the laws and procedures thereby reducing the

involvement of Chartered Accountants

• Role of Advisory Services –Businesses do not find value proposition in advisory services

offered and hence the fees are not upto the levels they ought to be


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… Micro

• Investment – There is usually a limited capability to invest in facilities, infrastructure,

talent etc; at times the perspective and willingness to invest is not there

• Securing Governance, Leadership and Succession – There is a need to institutionalise

the practice, Accounting firms generally do not have leadership and succession planning

• Exit – The goodwill and brand developed by firms is not encashable; the value

proposition in profession is not being realized


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Comparison with other professions


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Profession Comparison

Legal Conventionally commands good fee levels; ability to

attract best talent

Consulting & advisory Value proposition assignments, better fee levels

IT Consulting Flow of substantial work with the focus on

technology; large opportunity encashed on time and

material basis

Medicine – Hospital

chains

Institutionalization happening in the space, focus on

franchise model

Investment banking Dominated by large banks and boutique firms, value

proposition assignments brings better fees on success

Recruitment firms Existence of global players; entering into several

value-added services besides recruitment


Comparison with other countries


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Countries Comparison

USA • Highly developed profession

• The last of the 100 firms has a revenue of US $

32.00 mn (Rs.200 crs approx.)

UK • Existence of several mid-sized firms and small firms

with healthy revenues

China • Significant Government support to non-Big 4s

• Many professional opportunities on account of

growing economy

• Most countries have a mandatory China desk

Developed

countries

• Most of the professional firms operate in a stagnant

economy, however, even then command large size

of revenue

Global Networks

Type of Networks

• An International Network is an association of independent accounting and consulting

firms from different parts of the world

• Through this association, the member firms share resources- from practice management

solutions to marketing initiatives, client referrals and staffing issues

• Currently, the landscape of Affiliations seem as under:


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Big 4s

Networks – 1 Firm Per Country

Network – Multiple Firms Per Country

… Global Networks

Global Ranking


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Network/ Association No of

Offices

Revenue

in US$ bn

No of Partners

• Deloitte 896 34.2 9,538

• PwC 758 34.0 10,002

• Ernst & Young 709 27.4 n/a

• KPMG 700+ 23.4 8000+

• BDO 1,328 7.02 4,111

• Grant Thornton 600+ 4.5 2,500

• RSM International 732 3.9 3,279

• Baker Tilly 738 3.4 2,576

• Mazars 400 1.3 2,998

As per the latest information available in public domain

… Global Networks

Structure of the Network/ Association

• The co-ordinating entity is usually organized as a LLP/corporate entity and overseas the

functioning of the network

• Association of independent accounting firms

• Association does not provide professional services in its own name

• Each firm is a separate legal entity organised under the laws of the country in which it

practices and is locally owned and managed

• Member firms are not members/ partners of any one entity, nor legal partners of each

other nor is any one firm responsible for the services rendered by another firm

• Cost of coordinating the network is usually funded by member firms

• The Network does not wish to make profit out of its member firms


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… Global Networks


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• Includes representatives elected by member firms

•Set policies and regulatory framework

Governing Council

•Global Chairman/ CEO of the Network

•Service Line Heads

•Coordinating day to day activities

Leadership Team

•Chairman/ CEO of the Region

•Facilitating business within the region

Regional Boards

Typical Management Structure of a Global Network

… Global Networks

Benefits of being part of a Global Network

• International Affiliation provides an opportunity to network with peers in other

countries

• Work involving cross border jurisdictions gives an exposure to a wide spectrum of clients

and overseas regulations

• Affiliation facilitates development and usage of Audit tools that are commonly used

across the world

• Member firms are able to share knowledge and other resources (marketing material,

software licenses, manuals etc)

• Access to global conferences & trainings

• Adoption of the Network’s proven system and best practices

• Employees are provided with an opportunity to work outside India on secondment

assignments


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… Global Networks

Challenges of being a part of the Global Network

• Member firms are mandated to refer assignments to member firms within the Network;

which may translate into an additional cost for the client

• Even though the Indian firms may not legally bound by the work carried out by the other

member firms, they may still be accountable for such services to the Indian clients

• Most networks may not turn out to be effective, including involving a long gestation

period

• The annual fees for being part of network are generally not very large. However, one

needs to ascertain the cost incurred to be a part of the network and the benefits that

one expects to derive being a part of the network


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What it takes to build a world class organization

Networking Opportunities in India


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• Accounting Firms in India

%s are approximate

The Big Picture…

• Assessing the size of investment and carrying out cost benefit analysis

Investment

• Brand building, event sponsoring, Thought leadershipProfiling your

presence

• Determining key cities where presence is required and establishing offices in such cities

Physical presence

• Understanding client’s business, providing advisory services, sector specialization, full service offerings, venture into new professional opportunities

Service offerings


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… The Big Picture

• Brining on board partners and teams having sector specialization, ability to work in teams, business development skills

Partners & Team

• Focus on providing services to Multinationals, Corporates and the Organized sector

Changing Client Profile

• Importance from a business development perspectiveNetworking

• Domain expertise, bring on board experience of working with competing businesses, understand business of client across services

Sector Specialization


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… The Big Picture

• Relevant for growth; acquiring new partners, new competencies, presence in geographies

Mergers

• Vital to grow; showcase move away from proprietary to institutional approach

Talent & Client Acquisition

• Importance of a planned approach; Annual and Medium Term Business Plan

Business Plan


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New Services

• With a large team sizes and access to the best technology, Professional services firm

have several options that hitherto are out of reach of domestic firms

- Consulting initiatives in the Enterprise Risk Management (ERM) framework

- Global effort to assist corporations with outsourcing

- Actuarial consultancy departments

- Information security and privacy, data quality and integrity, project risk, business

continuity management, internal auditing and IT control assurance.

- Technology integration, strategy and operations, human capital

- Dispute, personal and commercial bankruptcy, forensics, e-discovery, document

review, advisory, capital projects consulting and valuation services.

- Public Sector practice


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Support Services

Admin

Human Resource

IT

Business Development

Marketing & Comm

Finance & Accounts

Credit & Collections

ERP & MIS

Risk Management

Thought Leadership


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Chief Operating Officer

Role of Support Services

• It is important to conserve and expend your professional time in either developing your

practice and provide quality service to your clients

• The support functions can be best left to professional support teams that can free up

expensive partner time and on the other hand, enable the firm to benefit from

professional expertise in each of the functions

• In order that the firm remain competitive, the support teams should be able to provide

critical inputs that enable professional services firm to deliver exceptional client service

• Although it may seem to be expensive investment to start with, by the very fact that it

frees up expensive quality partner and senior professional time, the cost-benefit could

become obvious over a period of time


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Step-wise Growth Plan for Small & Medium sized

Firms

• Critical to growth of a professional service firm is the desire to change and also realize limitation and challenges that confront them

Desire to Change

• It will be beneficial to itemize this limitation and challenges and create a plan to overcome them

Road-map for Change

• Seek partnering approach. Complementary competencies enable access new markets and benefit most from existing relationships

Partnering Approach –Combine Competencies

• Most would seem reluctant to agree but having an upscale infrastructure makes a huge contribution in the growth of your practice

Change Profile – Office location


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…Step-wise Growth Plan for Small & Medium sized

Firms

• Vital to pick up new competencies and invest time to learn in order to benefit from sunrise opportunities

Learn new competencies

• You would be surprised at the amount of investment that is required to be made to build a robust services firm

Need to Invest

• Value-added services is way to go; think that your firm could provide every conceivable professional service that a client would seek

Focus on what the Clients want


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…Step-wise Growth Plan for Small & Medium sized

Firms

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Move away from

• Compliance driven practice that don’t seem to provide value to clients

• Low paying clients and clients that would not grow or be relevant tomorrow

• Hanging on to losing proposition

Finally, Believe in Yourself

Most of the successful firms started small and was led by

seemingly average professionals

Anyone can do it


global services transformation are indian ca firms insulated? … · 2017. 10. 17. · •kpmg 700+...

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