The Downsides of Offshoring for Public Accounting Firms
Over recent decades, the practice of offshoring has become more common among public accounting firms. Like many business practices, the decision to source offshore talent to support the business can be made through a simple cost-benefit analysis. In the context of offshoring, benefits of cheaper labor and access to a large workforce in another time zone are weighed against the costs of a nontraditional workforce, namely the quality of their work product. Depending on who you talk to, you might hear stories about the great successes and efficiencies or the terrible work and hassle that comes along with offshoring. Today, we are going to discuss the common downsides of offshoring for public accounting firms.
What is offshoring?
Offshoring refers to the practice of relocating some of a company's business functions to a foreign country. The practice has been increasingly adopted by public accounting firms over the past few decades, with the aim of reducing costs and increasing efficiency. While some firms are able to achieve those goals of saving money and getting work done faster, it is often done at the cost of quality. Depending on the firm, the cost of quality could either be a minor inconvenience for associates that need to rework some workpapers or a major long-term threat to the firm’s work product and talent.
Let’s examine some of the specific reasons why offshore operations can negatively affect the quality of the work product and work environment:
Language and Cultural Barriers - Whether the offshore workers are working with the firm’s internal staff or directly with clients, there are bound to be some misunderstandings due to language and cultural barriers. If an offshore worker is not fluent in the English language or does not understand the nuances of American culture, they may misinterpret instructions or fail to grasp the full context of the work they are performing.
Technical Expertise - It is often the case that offshore workers do not have the same level of experience or expertise as in-house employees. From fundamental excel skills to the nuances of GAAP, I’ve heard plenty of stories where offshore workers are lacking in technical expertise. This lack of technical expertise very often leads to subpar work product that needs to be reworked by the onshore team, causing stress for everyone involved.
Long-term Growth Commitment - Whether it's a commitment to the growth of the firm, a client relationship, or the employee’s own career, offshore employees tend to lack the elements of long-term growth commitment that support quality work product. This lack of commitment can lead to higher turnover in the offshore department, which in turn creates a greater loss of institutional knowledge for the firms that hired them because the onshore employees would be burdened with a revolving door of offshore support.
Are these factors always present when offshoring? Certainly not. Many firms have been able to augment their current staffing through the use of offshore departments and consultants to great success. However, that doesn’t mean that every offshore arrangement is going to be worth it, no matter how cheap the labor may be relative to onshore talent. If your firm is using offshore talent, be sure to take some extra time to reflect on these potential downsides and put the right systems in place to mitigate them.