Should UK Accountants Outsource to Pakistan – What do the numbers say?

The business world has evolved tremendously during the past few decades, with rapid innovations in technology disrupting and restructuring the way businesses operates. Ensuring minimum expenditures coupled with maximum productivity and efficiency has become a standard that almost all businesses seek to attain, using several strategies. One of such methods that have become increasingly popular in recent years is outsourcing.

Outsourcing implies transferring the duty of performing business functions to outside entities. The primary reason why businesses adopt outsourcing is that, when used effectively, it can save a sizeable sum of costs for the company. It is gradually being well-received across developed and developing nations alike.

In the UK in particular, its popularity is escalating every year. Businesses that outsource multiple functions find that they are able to enhance their flexibility and competitiveness and reduce their costs significantly. Furthermore, more often than not, the outsourcing companies tend to perform the non-core tasks much better than the business itself might be able to. This is largely due to economies of scale and specialization.

Recently, businesses in numerous developed countries have begun to use an advanced form of outsourcing, known as off-shoring. Off-shoring refers to the contracting out of business processes to third parties in a different country. The main reason for doing so is that skilled labour in some nations is available at a much more affordable rate than in others. For instance, UK businesses may find it more cost-effective to outsource their activities to South Asian countries rather than hire domestic specialists.

Outsourcing or off-shoring provides a number of perks to organizations. It can allow a business to engage its skilled staff in more productive and core functions, which will put their existing abilities to best use and even develop them further. Therefore, the common misconception that outsourcing will necessarily cause employees in the company to lose their jobs, can be refuted. In fact, it will be an excellent opportunity for them to enrich their capabilities.

Some companies may fear that outsourcing major functions of the business such as Finance or HR to third parties will put the management at risk of losing firm control over the organization. However, this risk can be eliminated if businesses and outsourcing service providers work along as a strategic partner by maintaining communication and setting clear expectations.

When selecting an outsourcing service provider, ensuring that the outsourcing company offers complete information security is crucial for businesses. All transfer of information must be through electronic means with a secure server. Outsourcing companies that associate high importance with cybersecurity are effectively alleviated businesses’ reservations about contracting out vital functions such as accounting and finance.

Why Outsource to Pakistan?

Over the previous decade, Pakistan has seen an expansion in the accounting & finance profession with an increasing number of students opting for a professional chartered or management accounting qualification. This has also led to the entry of foreign Commonwealth RSQBs offering their exams to students in Pakistan (ICAEW, ACCA, CIMA etc) alongside the local SQB ICAP & others like ICMAP & PIPFA.

This means Pakistan has a large pool of qualified members & part qualified students of these bodies well versed not only in the local GAAP but also IFRS, ISA & UK/EU standards. ACCA alone has about 100,000 students currently & over the last 5 years has exported close to 14,500 qualified members & partly qualified students to the Middle Eastern, Far Eastern & European job markets. Over the years these & other Pakistani professionals have created a good repute for the Pakistani finance profession in terms of their understanding & knowledge of IFRS, ISAs, accounting & finance, corporate governance compliance requirements & other areas.

Pakistani accountants can thus provide services such as:

Bookkeeping and preparation of financial statements under IFRS & UK, EU GAAP

Payroll, back-office services, tax computation & advisory especially with regards to UK & EU taxation regimes

VAT processing, Personal and Corporation Tax Filling

Compliance Review & Reporting for corporate governance as entailed by the requirements in structures such as Sarbanes-Oxley, Greenbury Report, Cadbury Report, OECD Report etc.

One of the main rather the main criteria for companies who look to outsource is cost savings. Pakistani accountants compare very favourably with foreign & regional competitors.

The numbers

73% of UK companies outsource at least one part of their business.

52% agreed that outsourcing led their business processes to become more streamlined and running more smoothly.

40-50% of costs saved by outsourcing Accounting and Bookkeeping.

40% Costs Saved by outsourcing payroll

The average hourly charge-out rate for a Chartered Accountant in the UK & equivalent in the EU is £15 – £30+ per hour even for the smallest of practices. The hourly charges out rates in Pakistan vary from £5 – £15+ per hour in midsized accountancy practices. This translates to a mean saving of up to 50% of the cost for a client when compared with the local accountants.

Similarly, from available industry data Pakistani accountants enjoy a cost advantage of as much as 35% when compared with firms providing similar services from India & Bangladesh. Apart from cost reduction, one thing that the Pakistani accountant is ahead in by leaps and bounds is his technical ability. May it be the local bodies or the International Accountancy bodies operating in Pakistan. All are focused on providing up to date technical and professional education focused particularly towards IFRS, ISA, UK & US GAAP, corporate governance along ethical training that is included in the professional bodies’ s syllabus. Hence the Pakistani financial professional is not restricted to just data entry compared to the regional peers but can contribute and add value to the client by identifying technical issues which may lead to further cost savings. This fact has been even appreciated by the previous president of the International Federation of Accountants (IFAC). When one outsources, value addition is again an added advantage that can be achieved.

The above were existing advantages that the Pakistani profession enjoys over its regional peers.

The government has already set up technology parks in major cities, these should have excellent communication & broadband internet facilities & adequate backup power generation. In these parks alongside the existing IT & education providing entities, accounting professionals have started practices geared towards providing financial outsourcing services taking advantage of the above & many are planning to do the same.

Outside of these tech parks Pakistan already has good IT & communications infrastructure in its urban areas with a reliable broadband landline, 4G & soon 5G services which are in the testing phase already… These are available to professional practices at very favourable rates for high speeds & bulk data. This gives us another cost advantage over our peers in the region.

The major chartered accountancy bodies operating in Pakistan i.e. ICAP, ICAEW & ACCA have very comprehensive CPD requirements & programs for their members which now also incorporate training sessions on outsourcing & the associated enabling technologies such as remote services & cloud computing. Gradually training in these areas is also being imparted to trainee & part qualified students by these bodies in Pakistan. This is further enriching the available HR pool in Pakistan for these services & will stand the profession in good stead in the future.