India: Chamber for Foreign Trade

India: Chamber for Foreign Trade

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  • Hemant Batra
    Hemant Batra    Group moderator
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    The Changing Facets Of Professional Services - By Hemant Batra
    Backdrop

    India, since 1991, is undergoing revolutionary fiscal and economic reforms and is undoubtedly moving away from the doctrine of State control, towards a free market economy. Permits, sanctions and controls are giving way to de-regulation, de- centralization, de-nationalization and dis-investment. The notorious restrictions of the past are being cleaned up by a popular will driven with logical and legal mechanism. The reform packages having been introduced in the past and as being introduced now appear to be moving away from restrictions on the movement of foreign exchange in and out of the country. The changing investment climate in the region has swept aside the centrally planned and regulated economies. The agenda of privatization in India or for that matter in almost all the South Asian countries now covers a wide spectrum like industries, banks, development financial institutions, telecommunications, airlines, shipping and road construction and power generation. And, in each of these sectors, law is playing an important role, because it is entering to the privatization of each of these units.

    The existence of an independent judiciary, strong legal and accounting system, a free and vibrant press, reservoir of highly skilled manpower, and the use of English as the principal language of business and administration are some of the attractive features of the Indian business environment.

    Transformation of Services

    Professional services like legal, medical, accounting, architecture and even journalism are undergoing massive changes in terms of approach and execution. These are all being branded as outsourceable. But in this paper, I am primarily/specifically focusing on accounting and generally on legal services as this composition has been specially written for Accountants’ Conference.

    Way back in 1996, Richard Susskind in his book `The Future of Law’ noted that changes in technology will fundamentally, irreversibly and comprehensively change legal practice, the administration of justice, and the way in which non-lawyers handle their legal and quasi-legal affairs. The same principle applies to accounting professionals as well.

    Accounting and law practice are squarely in the midst of this change, as technology and numerous other factors are challenging the initiative and creativity of lawyers and accountants. The good news is that both the legal and accounting professions are adapting quickly and innovatively, creating new patterns of practice, developing detours around regulatory rules that might stifle growth and competition, finding resourceful methods of handling the increasing costs of practice and overheads, and adopting new tools of management as competition from professional service firms increases.

    The legal and accounting industry is undergoing rapid change. Increasingly, law and accounting firms are merging into large global enterprises that often also provide ancillary services such as investment advice, consulting services, and venture capital. Simultaneously, accounting firms, law firms, investment banks and consulting firms--have begun to offer services that overlap with those offered by one another.

    These and other similar developments blur the boundaries that previously separated professions while at the same time posing new challenges for the professionals who must now manage these diverse global enterprises.

    Outsourcing

    What is a KPO – Knowledge Process Outsourcing?
    KPO, simply put, is BPO but at a higher level in the intellectual value chain. The crux of KPO is to provide value to the client primarily in their business by providing assistance in various critical and strategic decision making processes.
    While KPO is driven by the depth of knowledge, experience and judgment; BPOs in contrast are more about size, volume and efficiency.

    What is a KPO – Knowledge Process Outsourcing in context of fiscal or accounting or legal assignments?

    We can split/divide the KPO work (legal context) into two categories –

    1. Documentation.
    2. Litigation Support Services.

    Documentation would include commercial agreements, transactional documents, trans-national agreements, regulatory documents, business advisory services, charters etc.

    Litigation Support Services would include Case law research.


    For instance, a US based tobacco company fighting a legal battle in Australia wants British judgments in support of their contention before an Australian Court. KPO in India having a UK case laws database in its possession does research and furnishes 5 important judgments to the said client. 5 judgments are taken out after a research spread over 2 hours @ cost of US$ 75 per hour as against cost of US$ 175 per hour (if the research was to be done in US or UK or Australia).


    We can split/divide the KPO work (financial context known as FPO) into two categories –

    1. Accounting Support Service (ASS).
    2. Financial Advisory Services (FAS).

    Under 1st head i.e. Accounting Support Services, one could offer and execute the following:

    Accounts Management Services
    General Ledger Maintenance, Purchase Order and Expense Entering
    Sales Order Entering, Customer Invoice Preparation, Updating Chart of Accounts,
    Generating Trial Balance and Closing Accounts, Inventory Maintenance and Reconciliation, Account Reconciliation, Credit Card & Bank Reconciliation etc.

    Taxation Services
    State Tax, Federal Tax, VAT, Capital gains Tax, Income Tax, Payroll Tax
    Goods and service tax, Sales Tax, etc.

    Payroll Services
    Managing Time and Attendance of employees, Generating Weekly/Biweekly/Monthly Payroll reports for review, Calculation of Net Pay, Entering Payroll Transactions from Payroll Journals, Reconciling Payroll Calculation and amounts in Payroll Journal

    Financial Analysis Services
    Cash Flow Management, Budgeting, Financial Analysis / Ratio Analysis, Preparation of Financial Statements- Income Statement & Balance Sheet, Preparation of Cash Flow Statement, Preparing Monthly, Quarterly and Annual Management Reports, Other customized reports as per client requirements

    Under the 2nd head which according to me is more creative and potential i.e. financial advisory services, one could offer the following services:

    Credit Analysis, Company Valuation, Financial Due Diligence, Mergers & Acquisition, Private Wealth Management, Financial Research, Tracking Stock Prices, Portfolio Analysis, Strategic Fiscal Advice etc.

    For instance, an FPO firm ties up with small and medium sized CPA firms in America. The Accountant based out of America scans the last year’s tax returns plus concerned years financial details, bonuses and stock statements into a computer server, which is physically located in Chicago or Detroit. Even the surname and social security number is masked so that the Accountant in India who is doing the accounts/returns doesn’t know the individual’s personal details for sake of secrecy and privacy. The Accountant in India enters the server with the help of a password and completes the income tax return on the server screen/monitor. He can neither download nor print the information. The room of execution is completely paperless; even one cannot take pen or pencil inside. Data protection and privacy are of utmost importance.

    Trigger Factors

    A number of factors are driving corporate bosses' interest in the fiscal or financial process outsourcing (FPO). First, CFOs and finance managers are under colossal stress to reduce costs, increase efficiency, improve internal controls and ensure compliance with external regulations like Sarbanes-Oxley. As they fully utilize conventional cost control and incremental process developments, they are turning towards FPO to achieve their objectives and make their businesses more competitive
    In-house Finance and IT managers are both attracted to FPO as a way to avoid the high costs associated with technology solutions, including expensive upgrades and ongoing support.
    Unquestionably, FPO is gaining support as a tool to improve customer service and responsiveness.
    None of this would matter were it not for the advances in Internet and telephone communications that now enable outsource service providers to deliver paperless solutions from almost anywhere in the world without loss of control for the outsourcing company. This value proposition is gripping enough to convince companies of all shapes and sizes to adjust their processes, something they have resisted doing in the past.
    Future of KPO business in India

    Although a lot of high end financial work has begun to be outsourced to India, some entities are still skeptical about provisions regarding data privacy, confidentiality of the clients’ information as well as the quality of service provided by non-resident accountants.

    Data privacy and confidentiality are areas of paramount concern and importance to the legal and financial outsourcing industry. Presently, India does not have codified data protection laws, but various commercial forums and associations, such as NASSCOM, are working in close association with the government to enact data protection laws that are on par with international legislation. It is certain that Indian companies have realized that they need to scale up their security mechanics in order to cater to and allay these concerns.

    Like in the BPO space, India is positioned at the fore front of the KPO revolution too. As it is, thanks to the time zone difference, India can easily help enable 24x7 capabilities for organizations across the globe. India, today, has an additional edge in ‘knowledge’ based services basically because of its large, cost efficient talent pool. India churns out around 75,000 MBA graduates and more than 2,50,000 graduates annually with excellent proficiency in English speaking and writing skills.

    The additional ‘secret recipe’ that India seems to possess is made up of rigorous processes, high productivity, confidentiality, sound HR policies and good risk management skills — all in the right quantities. Processes like high level customer interactions, integrated with customer relationship management (CRM) skills, on-time delivery processes, quality checks while ensuring compliance and yet confidentiality to the clients are now very much an ingrained part of our corporate culture.

    In the present era, globalization has become the norm and while geographical boundaries are shrinking day by day, the exponential development of the Internet ensures that businesses either evolve to the next level or perish. The direction, supervision, and control of the overseas legal support system has become critical to legal outsourcing. In the contemporary context, the outsourcing of legal work to economically viable destinations has become a practical necessity.

    Copyright: Hemant Batra, Lead Partner (Kaden Boriss Partners)
    • 22 Nov 2008, 06:45 am