Public accounting is the next wave of outsourcing to hit India shores, say analysts on both sides of the globe. Following the boom in high-tech engineering and legal outsourcing, “it is now the turn of taxmen to seek Indian firms’ help in preparing returns,” wrote Plaban Gupta of The India Express.
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Indian companies earned tens of millions of dollars preparing U.S. tax returns in 2006 for U.S. accounting firms, and experts project tax returns to bring $650 million in revenue to the country in 2011, India Express reported.
Indian analysts see this outsourcing trend as simple supply-and-demand economics, with the U.S. labor market for accountants out of balance.
“The demand for returns offshoring stems from lack of accountants and excessive workload during the tax season. The number of CPAs and other qualified accountants in the U.S. are just not enough to meet the demands from increasing tax compliance, especially Sarbanes-Oxley related work,” Pune-based research firm ValueNotes’ chief executive officer Arun Jethmalani told India Express.
Jethmalani said offshoring tax preparation gives U.S. CPA firms the dual advantages of faster processing and 40-60 percent savings in fees.
Encouraged by success with tax prep, some U.S. firms are slowly sending over work such as bookkeeping and financial statement analysis. “The whole outsourcing business requires a quiet shift in thinking of the CPA firms, and so comfort factor has to be really high in order to do that,” said Glen Keenan, president of Xpitax, which is one of several “facilitating units” that helps U.S. CPA firms work in India.
“While facilitating units like Xpitax and SurePrep are servicing the CPA firms, Indian BPOs (business process outsourcing firms) have positioned themselves well to operate as complete back offices for the accounting firms,” ValueNotes analyst Pratibha K was quoted by India Express.
Offshoring has clearly paid off for the banking industry, which is now sending more than bank office work to India. A study Deloitte Touche Tohmatsu shows they have everything to gain by continuing the trend.
Nearly half of total U.S. bank offshoring operations generate savings of about 40 percent, according to DTT, which says that firms could triple that figure if institutions streamlined operations.
In tax prep, business is getting so good in India that analysts there question whether demand will drive accounting wages higher. “Have American-style salaries reached India?” asks Rediff.com, a news service covering India. “Yes and no.”
The publication says that the heated job market in Indian if forcing employers to pay professional salaries comparable to “those in wealthy countries.”
A major accounting firm in India reported that an employee doing audit and tax practice with 10 years' experience would earn anything up the equivalent of $80,000.
“Check the websites and you find an ad for a chief financial officer in Orlando, Florida, with the pay offered being $75,000 to $90,000,” the rediff.com article reports. “There is no shortage of CFO's in India who earn the same salary.”
Wage inflation and talent shortage in India is likely to change the offshoring market dynamics and bring in new players, India Express writes. The Philippines and Sri Lanka both these countries have strong accounting services sectors which could be applied to into tax services as well.
One of the frustrations that U.S. companies continue to battle in India is the comparably poor infrastructure. But the incentives to do business in India are strong enough for industry to take measures into their own hands. Trade groups have pushed through programs for tax incentives to build private industrial parks, special economic zones and installation of basic utilities in some areas.
In October, Mahindra World City opened the first special economic zone on 1,300 acres outside Chennai. Firms are offered five years occupancy tax free, plus five years limited taxation in exchange for installing infrastructure and hiring from the local population.
"Because the infrastructure is way behind, companies are creating these safety zones," Wyss. C. Steven Crosby, senior managing director of PricewaterhouseCoopers, told Bank Technology News.
The industrial park boasts wide roads, running water, sewers, a fiber-optic cable system, electricity and street lights. More than 200 national and international firms have already signed up to rent in the industrial park.