Could a chance meeting in the communal kitchen of a Bristol business centre hold a clue as to what works when a firm wants to export its accountancy services?
It is 1994 and Shan Nair, a former nuclear scientist turned accountant, has bought a small accountancy practice. One day he wanders into the kitchen to get himself a coffee and falls into conversation with the lone UK employee of a US software company, also working out of the business centre.
It turns out that the software guys are so focused on powering growth for their product in the UK, they are not on top of their transfer pricing, VAT, National Insurance and a whole bunch of other back-office paperwork.
Nair senses an opportunity as surely as a Geiger counter picks up radiation. Fast forward 20 years and his company has more than 1,000 clients in 50 countries and 450 employees. It has developed an offering that has proved a winner with overseas firms tackling unfamiliar international markets.
Nair’s pitch to high-growth companies is this: let us be your one point of contact for accountancy, law, payroll, tax and human resources services when you move into new markets. His formula proved a big enough success to attract private equity interest – HgCapital bought his firm in August 2013.
HgCapital partner Matthew Rourke believes Nair & Co has real growth potential. “Companies are increasingly looking to expand into international markets but do not have the expertise or market knowledge to do so quickly or efficiently,” he says.
So could other accountancy practices follow Nair’s exporting success? The UK government is certainly hoping so. It has set an ambitious target of lifting the Britain’s total exports to £1trn by 2020. The target implies annual export growth of 9% per year over the next seven years. Yet over the past decade, accountancy services exports have risen by an average of just 4% per year to £1.16bn in 2012, according to figures from the Office of National Statistics (ONS). And they have actually fallen from a pre-banking crisis peak of £1.39bn in 2008.
Accountancy exports lag behind management consultancy (£12.2bn), research and development (£5.6bn) and law (£3.0bn), among other professional and business services (PBS). If the government is to hit its £1trn target, all professional services, including accountancy, will have to raise their export game.
No wonder the business secretary, Vince Cable, was keen to talk up the sector’s potential when he launched the government’s new export strategy for PBS in July 2013. Cable promised a new network of “business envoys” to champion UK capabilities and said UK Trade and Investment, the government body that assists exporters, would arrange trade missions specifically for PBS suppliers.
James Faulconbridge, professor of transnational management at Lancaster University Management School, has been studying the export of professional services for nearly 10 years. He points out that, historically, professional service exports followed behind UK-based clients expanding into overseas markets. But that won’t be enough to win the big prizes in the future.
“Increasingly, exporting of services requires attention not only to serving British clients overseas, but also to becoming the provider of choice to clients from a range of jurisdictions,” he says. The key that unlocks this, says Faulconbridge, is meticulous attention to service standards right across a network of international offices.
In some ways, he argues, the shape of British accountancy practices – a national partnership structure that sits under a global umbrella partnership – has provided a model which has made it easier to export. “This has allowed accountancy firms to avoid some of the management complexities that have plagued other global UK professional services such as law,” he says.
And, in theory at least, UK accountancy ought to have some key advantages in exporting over practices from other countries. Professional bodies – notably ICAEW – have proved highly influential in the creation of the accountancy profession in emerging countries and in influencing international accountancy standards.
Since 2007, the World Bank has funded the ICAEW to carry out projects to build accounting capacity in more than 10 countries including Bangladesh, Botswana, Tanzania and Nigeria. “These projects build what I call soft power,” says Michael Izza, ICAEW’s chief executive.
It is difficult to promote professionalism if the dominant culture in an organisation promotes commercialism first and foremost
“By that I mean they create a connection between that country and although this doesn’t necessarily always get you the business, it can win you a positive conversation when they’re thinking about developing their next project.”
Izza is in no doubt about the potential to increase accountancy exports. “We are still regarded as being, if not the world leader, one of the world leaders in this particular area and our expertise is widely sought after,” he says.
But he worries that accountancy may have been tainted by association with the 2008 crisis in financial services. “No politicians want to talk about growing financial services as a centre of excellence and I’m afraid that professional accountancy services tend also to be mentioned sotto voce,” he says.
Unjust it may be, but the harsh fact remains that the banking crisis focused attention on the quality of audit and accountancy advice (or lack thereof) that some banks had received. That has cast a long shadow over the profession, which is only now just starting to lighten.
But a key issue remains: to what extent can accountancy firms develop a keen commercial edge that wins them business in export markets without sacrificing the professionalism that lies at the heart of what they have to offer? “It’s a massive debate,” acknowledges Faulconbridge. “The question comes down to the conundrum of how to balance professional responsibilities with commercial interests,” he argues.
A starting point in solving the puzzle is to “think about the identity and practice of the people you employ and to help them to understand their role”. The answer, he suggests, is to provide a framework of support and controls in which employees can exercise their judgement confidently. That framework includes training, management standards, as well as performance and appraisal mechanisms.
But he warns: “It is difficult to promote professionalism if the dominant culture in an organisation promotes commercialism first and foremost.”
In other words, in becoming too commercially aggressive to win new business, UK accountancy practices may actually be losing the very qualities that make them most attractive in world markets – their objectivity and integrity. “It is my belief that one of the major factors influencing the choice of a UK accountant or related professional by an overseas client is the integrity of the individual or firm,” says David Smith, an associate at Ashridge Strategic Management Centre, and a specialist on exports.
“Any attempt to circumvent professional standards could become counter-productive,” he warns.
But the drive to win new overseas business in a global world is bound to increase commercial pressures. “Corporations are looking for fewer service providers who can provide a wider range of services,” says Gerry Collins, a partner in Ecovis Wingrave Yeats, a seven-partner London practice which is part of Ecovis International, a global accountancy network.
“We are now seeing more pan-European proposal opportunities arising because multi-national businesses seek to achieve economies of scale in terms of cost and efficiencies through dealing with fewer suppliers,” he says. “They expect global breadth from their service providers.”
One way a small firm in a large network can tackle this is through making more use of technology, says Collins. He says his firm’s success in winning international business is partly attributable to its decision to make more use of cloud computing. “We are able to offer a more enhanced and interactive accounting and business advice service to our clients who are located worldwide, including the US, France and New Zealand,” he says. “Geography is no longer an issue.”
Joining a network or association is the obvious route for a small or medium-sized accountancy practice that wants to make it in exporting its services. “But joining a network is not enough,” warns William Arthur, chairman of the advisory board at KermaPartners, a consulting firm specialising in professional and financial services.
Equally important, according to Arthur, is understanding what kind of network it is, how it is positioned in each of its markets, and whether it is likely to produce genuine business opportunities. “I get a sense that a lot of firms are just sitting there waiting for stuff to drop into their laps,” he says. “You might eventually get lucky, but waiting to be lucky could be a long wait.”
A more productive approach, he argues, is to look proactively for work that fits with the practice’s profile and expertise. “First define your source of excellence and then go and look for markets that require those sources of excellence,” he says.
But when you’re fighting for export business, accountancy skills are not sufficient, says Arthur. A firm needs people who are capable of building client relationships. “In any professional firm, you have minders, finders and grinders,” he says. “Some people are temperamentally suited to and highly skilled at technical and professional work, but they haven’t got what it takes to develop a business relationship.
“It takes a certain character type to jump on a plane and spend time with people they’re not familiar with.”
In a climate of faster globalisation, it is hardly surprising that the networks, associations and alliances of accountancy practices are growing across the world. The top 35 companies are now apparently commanding around two-thirds of international accountancy business.
But do the professional accountancy bodies need to become more global themselves? Could the vote in November 2013 by the Institute of Chartered Accountants Australia and the New Zealand Institute of Chartered Accountants to merge be the harbinger of other comings-together? It is possible the logic of geography makes the Antipodean example a special case but Izza believes that some accountancy bodies in other countries don’t have “critical mass” and may want to work more closely together.
“It may not necessarily be a merger but perhaps an arrangement that involves working together on providing back-office support through a shared services model,” he says. “If that ends up providing savings for members as well as better services, it will be a winning formula.”
It may also be a formula which encourages even more accountants to look for business on the international stage. As far as home-grown accountants are concerned, that may often involve leveraging international business from areas where the UK has developed world-class domestic expertise such as M&As, IPOs, private equity and public private partnerships.
There is also a new generation of emerging markets, such as Myanmar in Asia and east Africa. “Developments in finance, such as increased trade in the renminbi, will provide opportunities that need to be leveraged to continue to maintain the centrality of UK accountancy and other professional services on the world stage,” says Faulconbridge.
There are plenty of opportunities, but competition will only get tougher. Not every accountancy practice wanting to boost its overseas fee income is going to be able to rely on a chance meeting in a kitchen.
Exporting: BDO’s view
Exporting accounting services needs to be focused on specialised areas where the UK has better developed set of skills than other countries, says Matthew White, international practice leader for professional services at BDO. He cites the example of forensic accounting and investigative assignments as well as tax advice.
“Overseas companies looking to expand will need advice on international tax matters and transfer pricing,” he says. “We’re seeing growth in these areas at the moment as the economy picks up.”
He believes the key to successful exporting is the ability to offer reliable and consistent delivery across the world. “Clients are more demanding and the ability to deliver a high-quality service on a global basis is essential,” he says. But that can present problems if a globally important client has little business in one country. The local partnership may not give its business the priority it deserves as a significant global client.
“The value of the client needs to be considered on a global basis although this can create issues if investment is needed in the client relationship at subsidiary country level but there is no profit or recovery sharing arrangements in place,” says White.
One solution may be to have a shared recovery model across the global account.
A potential constraint on developing global business is that international work fuels the fight for talent, White argues. It is a longer slog for mid-market firms to break into specialist areas. But success in doing so, says White, depends on “absolute belief from partners that you want to invest in a specific field”.
The upside is that a smaller firm may be able to adopt a more entrepreneurial approach when it is seeking to enter a new market than Big Four players.
At a glance
Accountancy exports lag behind those of other professional and business services, but now the government is keen to talk up the sector’s potential
The UK profession has some key, inbuilt advantages over practices from other countries, and is already making its mark on shaping a global approach
But to what extent can firms develop a winning commercial edge in the tough export market without sacrificing professionalism?
Traditional finance skills alone are not enough. Understanding how to operate in a networked world in which working relationships are less vertical is key.