by L. Gary Boomer

Outsourcing has enjoyed a four-fold growth this past tax season, while the quality has improved and turnaround times have dropped to approximately 24 hours.

The numbersOutsourcing company:
Returns prepared in 2004:
Projected capacity for 2005:

BlueNet Private Limited
2,500/
20,000

CCH
30,000
100,000

Datamatics
25,000
30,000

MphasiS
10,000
100,000

My Partner Online
N/A
5,000

OPI
10,000
20,000

SurePrep
25,000
75,000

Xpitax
10,000
25,000

Others — new entrants
N/A
25,000

Total
112,500
400,000

This is quite amazing given the nature of the industry and the fact that it is still classified as a “pilot project.” It is now at the point where the pioneer firms have a distinct competitive advantage due to the fact that they have changed their processes, developed new systems, are providing improved client service, and have developed relationships with Indian companies.This past season produced over 100,000 returns and has now expanded beyond individual returns to trusts, partnerships and corporations. Canadian as well as U.S. returns are included in these numbers. (See Box 1 and Box 2 on p. 28).

Both Datamatics and MphasiS have the distinct advantage of size, existing client base and bandwidth. The start-up companies are faced with the same challenge of work compression and how to keep their employees productive after tax season. The larger outsourcers can utilize existing bandwidth, employees, industry experience and facilities that they generally only utilize at night for call center work in the U.S. (daytime) market.

SurePrep has focused on marketing, and the volume of returns show a significant market share. Their challenge will be to build up the infrastructure in India and offer a broader range of services in order to retain their staff for the remaining months of the year. In terms of total revenue, though, they are much smaller than either Datamatics or MphasiS.

CCH is also considered a major player, as it is contracting with U.S. firms and then utilizing both Datamatics and MphasiS as outsourcing partners. Some firms view using an American tax software vendor such as CCH as less risky than dealing direct, while others prefer the direct contacts and feel that they are building relationships that can be expanded into service areas other than tax.

Systems, processes and training
The primary reason that the industry has been able to scale up as rapidly as it has over the past three years is due to the investment that these companies have made in systems, processes and training.

In the U.S., many firms simply focus on their systems and believe that systems refer to hardware and software. The outsourcers seem to me to be more process-driven and to subscribe to Six Sigma and process improvement practices. They are also more disciplined in following standards, policies and procedures.

There are two basic operating philosophies that we have witnessed with outsourcing companies in India. The first is “Build it and they will come,” while the second is, “Sell tickets and then produce the show.”

Quality
The two common challenges that outsourcers continually mention are communications, and sales and marketing.

In order to combat the communications issues (both written and verbal), the outsourcers are very selective in their recruiting process. There are approximately 70,000 accounting graduates annually in India. Traditionally, many of these graduates work for local firms at the equivalent salary of less than $100 per month while meeting their experience requirements to sit for the final Chartered Accountant exam.

The outsourcers have stringent requirements, and only hire approximately 4 percent of all applicants. In return, these employees receive significant training (four to eight weeks) prior to moving into production. Some of the outsourcers are standardizing “points,” so the preparers simply enter numbers into the comment. This standardization improves communication at both ends.

The sales and marketing challenge comes from the fact that it’s difficult for most firms to complete an accurate due diligence on their potential outsourcing partners. Every firm is concerned about security, competence and the quality of the business relationships.

While firms are welcome to visit the facilities in India, it’s a long trip and expensive to take the time and incur the travel expenses. Therefore, we have advised the outsourcers to develop Executive Briefing Centers at their U.S. locations, so partners of U.S. firms can visit and develop relationships. The larger outsourcers have video conferencing capabilities and adequate bandwidth to demonstrate their facilities, systems and people in India.

Having visited India twice in the last year, it is easy for me to feel comfortable with the majority of the sites, as I have experienced the facilities, systems, processes and training. And, most important, I’ve met the intelligent people who are both appreciative of the opportunity and eager to learn.

Strategic byproducts
At the current time, it is impossible to determine what all of the strategic byproducts might be. To date, however, the workflow systems and document management have been the primary strategic byproducts. Tax return preparation is probably the tip of the iceberg. Once firms develop relationships with the outsourcers and determine their capabilities, the sky may be the limit with regard to new systems and services.

The current playersOutsourcing company:
Office:
India Office:
Contact:

BlueNet Private Limited
New York
Chennai
S. Parameshwar (parmesh@bluenetit.net)

CCH
Torrance, Calif.
Mumbai/Pune
Mike Gamble (mike_gamble@cch.com)

Datamatics
Boston
Mumbai
Sachin Raje (sachin_raje@datamatics.com)

MphasiS
Dallas
Pune
K.N. Vaidyanathan (kn.vaidy@mphasis.com)

My Partner Online
Spokane, Wash.
Bangalore
Charles F. Benton (cfb@mypartneronline.com)

OPI
New York
Bangalore
Kishore Mirchandani (kmirchandani@opiglobal.com)

SurePrep
Irvine, Calif.
Mumbai
Dave Wyle (dwyle@sureprep.com)

Xpitax
Boston
Chennai
Mark Albrecht (malbrecht@kafgroup.com)

One of the distinct advantages of working with these larger companies is their vast experience in industries other than accounting. They have resources in training, systems, security and infrastructure that the average U.S. accounting firm does not have. This is somewhat difficult to explain and understand until you experience the advantage.Some of the more talked about strategic byproducts are:


  • Accounts receivable/payable;
  • Training -— content;
  • Engagement fx and CaseWare conversions;
  • Bookkeeping and write-up;
  • Pension and profit-sharing accounting;
  • Franchise accounting;
  • Document management;
  • Knowledge management; and,
  • Web development;
  • Marketing/customer relationship management.

Vision for the future
The combination of quality people, systems, processes and training will only lead to improved and new services in the accounting profession. Accountants are the most trusted business advisors. If they have these types of resources, they simply need to determine their clients’ dangers and then provide the related solutions.The accounting profession is currently in transformation. Those who get caught in the past and resist change will be forced deeper into commoditization. Those who can create value through leadership, relationships and creativity will transform the industry, as well as strengthen relationships with their existing clients.

While this sounds rather simple, it is difficult for those who are analytical and risk averse. They often prefer to stay with the known, even when they realize that there are significant problems or issues.

There are great opportunities in the accounting profession today; however, those who listen to their clients and utilize their available resources to solve clients’ dangers and problems will be very successful and enjoy a rewarding career. Having access to a quality workforce, quality systems, defined processes and efficient training will be the differentiating factors.

Self-motivation, self-learning, self-management and self-promotion are all necessary ingredients in a team-based environment. Those who are willing to select their teams globally will have a distinct advantage.

Resources are important in shaping a career. Outsourcing is just one of the many resources that are available.


L. Gary Boomer, CPA, is the president of Boomer Consulting, in Manhattan, Kan.

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