discuss outsourcing and offshoring in the context of accounting and global business activities.

Offshore drivers

Definitions

Outsourcing

is allocating part or whole of an operation to a third party. Outsourcing can either be in the same country or a different country.

Offshoring

business process outsourcing’ (BPO)

benefits

costs

The benefit of this is reduced transaction costs and greater opportunities to capture profits

, the side effect is a bigger, more complex organisation that has many more issues to manage. As such, businesses have been encouraged to outsource non-critical areas in order to focus on core competences

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describes the management and optimisation of business functions that have a predefined set of performance metrics. A specific example or type of outsourcing may involve moving functions to another country. This is referred to as ‘business process offshoring’. Thus when the term ‘BPO’ is used, it is prudent to clarify the form of outsourcing in question (local/offshore).

insourcing’, ‘re-insourcing’ or ‘back-sourcing’

used to describe the reversal of outsourcing, when firms take processes back into businesses. The phenomenon of jobs being transferred back to home-country locations has been termed ‘boomerang jobs’.

Outsource offshoring

Types of offshoring

Captive (in-house) offshoring

benefit:


issues

First, there may be an increase in fixed costs due to the cost of non-core resources and the investment in overcapacity. Also, the firm is entirely dependent on in-house talent and must seek to retain and develop individuals while still trying to stay on top of global best practices.

Outsource offshoring

The primary benefits of this model include: NBC


• enhanced visibility of costs (that were otherwise hidden in a captive set-up);


• the ability to use global best practices from vendors; and


• the ability to add new service lines and address new markets without making substantial up front investments.

The challenges of this model include:SCRS

• the risk of sharing confidential information, intellectual property and key knowledge;


• the possibility of resistance from staff who will be affected by the integration and management of activities;
• the social and cultural differences between the client and the offshore service provider; and


• getting the level of service required from the offshore firm (Tarrant 2012).
• the risk of sharing confidential information, intellectual property and key knowledge;


• the possibility of resistance from staff who will be affected by the integration and management of activities;
• the social and cultural differences between the client and the offshore service provider; and


• getting the level of service required from the offshore firm (Tarrant 2012).

DACCR


  1. automation;

  2. disaggregation;

  3. consolidation;

  4. commercialisation; and

  5. relocation 

  1. Automation

  1. Disaggregation

  1. Consolidation

  1. Commercialisation

  1. Relocation

• Automation: to replace human processes with automation

: offshore low-level, routine work – take this away from roles of domestic employees

Consolidation or centralisation is where similar activities across business units are combined so that they are conducted in one place, rather than each operating unit performing the same task themselves. This provides greater economies of scale, efficiency and more systematic processing without as many variations. In the case of offshoring, activities would often first be consolidated in one location onshore then moved offshore

Shared activities can be commercialised ‘either by making them into a profit centre within the firm, or by spinning them off through an outsourcing arrangement’

Shared activities can be relocated to a ‘carefully-chosen place, typically selected on the basis of cost or availability of employees, but sometimes for particular skills (e.g. language, data entry, analysis)

The key benefit of captive offshoring is total control over the cost and quality of services and all other elements of the process. Furthermore, the information is handled in-house, thus retaining talent and process knowledge

BOOT

For global companies: ‘BOOT’ model – Build, Own, Operate, Transfer

Re-onshoring

is conducted in a different country and may or may not be allocated to a third party. For example, offshoring could be just moving operations to another country (within the same company).

Outsourcing to an offshore service provider

bringing back offshore operations to the ‘home country’

Nearshoring

offshoring to a country that is geographically close

Selecting company head quarters

Considerations for selecting a company headquarters should include the need to find a suitable work force, access better facilities (including lower-cost facilities) and the ability to utilise tax concessions (Henricks 2015).



According to Jimenez (2012), companies should take various additional factors into account when selecting (or moving to) a base, including transitional costs, change in workforce, impact on business operations, operating costs and change in workplace culture.

Implementing a successful offshore outsourcing program and business partnering

11 steps: GCATRBMRCVC

  1. Gain support of leadership and management throughout the organisation.

  2. Appoint a committed offshoring champion to drive the initiatives.

  3. Seek alignment between business objectives and outsourcing objectives.

  4. Understand technology and stakeholder requirements.

  5. Craft a careful risk mitigation strategy.

  6. Identify baseline processes and clearly defined interfaces before offshoring.

  7. Establish measures of business impact of offshoring.

  8. Commit adequate and competent resources to support outsourcing.

  9. Establish a change management, communication and implementation plan.

  10. Develop a sound offshore vendor selection process.

  11. Develop a complete contract to include pricing (fixed price plus any fluctuations), performance and quality, full scope of costs, staff issues (employment, tax, pension, data protection laws) and security environment (Terjesen 2010a).

offshoring threats

Disgruntled employees were once seen as the greatest opponents to a corporate offshoring plan (Conference Board 2005), but public pressure is now emerging as an increasingly important factor for organisations to consider when moving work offshore.


The Economist recently reported that ‘high levels of unemployment in Western countries after the 2007–2008 financial crisis have made the public in many countries so hostile towards off-shoring that many companies are now reluctant to engage in it’ (Booth 2013). Public concern is particularly important in cases where activities that traditionally occurred in a corporate head office environment have been shifted offshore to a different region.

There is a flip side to this


in that negative perceptions may be held of Australia as a recipient of offshore outsourcing plans. As also noted in the study guide, a number of Australian industry bodies, including Invest Australia and the Australia Financial Centre Forum, have promoted Australia as a location for the offshoring of analytics capabilities. Axiss Australia’s (2006) report Australia as a Hub for Analytics Offshoring laid out the case for making Australia an analytics hub for activities such as equity research, corporate finance, mergers and acquisitions, corporate credit, structured finance, project finance, retail banking, strategic functions and actuarial services.

reasons for employee resistance

There are many reasons why an employee might have a negative perception about a corporate offshore outsourcing plan. As mentioned in the study guide, CPA Australia members who judged their offshoring to be successful noted that the support from internal employees in the finance and accounting areas is deemed critical. This means addressing issues such as individuals being anxious about a change in their or their fellow employees’ responsibilities as well as the security of their jobs.


For reasons of security, patriotism or other, an employee may feel uncomfortable taking an activity that was traditionally performed at ‘home’ and sending it overseas. An employee may also have negative feelings about offshore outsourcing based on something they read in the media or heard from someone in another organisation. For example, the most recent statistics, from the National Secretary of the Finance Union in Australia, suggest that 6000 finance sector jobs have been lost in Australia (Carter 2012).

Another important concern is evaluating the potential benefits and costs of offshore outsourcing. Many firms fail to discover that the benefits also come with costs, some of which may outweigh the benefits and make offshore outsourcing an unfeasible model

generic benefits image!!!!

Key considerations when evaluating potential outsourcing firms include:RQSCFT

• range of services offered;


• service quality (check references and do a ‘test run’ before a contract is agreed);


• cost savings and benefits;


• communication;


• fit of business objectives; and


• technology.

Using a consultant to establish the outsourcing contract can have significant benefits, including better knowledge of regulations, lower negotiated prices, improved service level agreements and ensuring partners have shared values and aligned objectives.

A further consideration is the geographic location of offshore outsourcing, which can determine access to communication (across time zones), basic costs (and benefits such as the potential for reduced costs and the ability to focus on core activities) and general range of service offerings.

Offshoring accounting and finance activities

The first accounting and finance activities to be outsourced are generally transactional activities (that are simple and easy to automate) such as payroll, followed by increasingly value-added capabilities

evolution picture!!!

The impact of offshoring accounting and finance activities on the profession

mixed

The impacts thus vary from possible job loss and the disappearance of graduate positions, to providing ‘employees with more time to do other work. For example, the offshoring of routine tasks frees employees to do more complex strategic work, adding greater value to their employer’ (CPA Australia 2010).

In the longer term, all indications are that foreign affiliates of Australian companies will continue to play a critical role in providing income and employment benefits for Australia (Cornell 2015). Asia is demanding high-quality services and it is expected that by 2030 Australia’s annual services exports to Asia would be worth AUD 163 billion, supporting one million jobs— compared in 661 000 jobs in 2014 (PWC, ANZ & Asialink Business 2015).