The Benefits and Challenges of Offshoring Accounting
There are a lot of benefits to offshoring accounting, but it doesn’t come without its challenges.
We have deep experience in setting up offshore accounting operations and want to share with you our insights on what you will face.
Here are the benefits of offshoring accounting:
1. Cost Savings
Cost savings is one of the most attractive reasons why companies consider offshoring. When you hire employees in low-cost countries, the salaries are typically much less than the equivalent of hiring locally. In addition, the greater economies of scale means you don’t need as many people to get the same work done. You can also spend less on hardware and software.
Global organizations typically operate in English, but not all countries have strong English capabilities such as Japan, Korea, Thailand, and Vietnam.
Communication is not just about language; it’s also about culture and mindset. For example, Japanese people use an indirect way of communicating, which means that words can be misinterpreted even if they are speaking in English.
When you offshore and centralize your accounting in a country with strong English capabilities and similar culture and mindset, such as Malaysia, India, or the Philippines, you can anticipate a high level of communication across all locations.
3. High Quality Talent
You’ll find talent in offshore locations who are highly educated and open to doing tasks such as data entry that your local employees would otherwise resist. It’s easier to get these tasks done when you have employees who are happy to execute them.
4. Operational Excellence
There are locations in the world with rich histories of operational excellence due to global multinational companies leveraging these locations as centralized offshore centers for decades. Places like Malaysia, India, China, and the Philippines are notable locations.
Most of these centers deal with the transactional processing while technical compliance support stays onshore. As a result, operational excellence and continuous improvement becomes a priority and culture for these locations.
When you have different teams around the world performing the same process, it creates inefficiency by having unnecessary handoffs. For example, would you rather have twenty different accounting teams performing the same process, or one? By centralizing a process within one team, you’ll eliminate unnecessary handoffs and maximize efficiency.
But here are the challenges you may run into and need to consider before taking the plunge
1. Building an offshore team is extremely challenging
It’s hard to build an offshore team remotely because building a proper team requires someone present on-site who understands the local culture and knows how to attract top talent. The first real challenge is to find a great resident leader or leadership team. Without this, your offshore initiatives will likely fail.
2. Initial Investment
Setting up an offshore team takes time and money. If you’ve been able to find the right offshore leadership, it still requires investment in infrastructure, time to ensure internal alignment on the goals, and at least a year if everything goes smoothly. Change management is also a big factor so the ultimate return on investment could take longer than you initially anticipate. Plus, there is the risk that your initial leadership could quit or wind up not being the right fit, and you’ll have to start from scratch again.
3. An onshore team is still required for some tasks
There will always be finance-related tasks that require technical competency that you can’t get offshore. That means that you won’t be able to offshore 100% of the finance department and you need to ensure the onshore and offshore teams can work well together.
4. Your existing onshore team might not want to work with offshore employees
For many companies, change management is hard. Even though you’ll think that offshoring is a great idea, your existing finance department might not warm up to the idea immediately. The existing team might feel like having an offshore team is a threat to their job security, or worry that mistakes will be made which will burden them with twice as much work to do.
5. Cultural differences can impact work quality
In most countries, there are specific expectations for how work should be executed and the quality of work that is required. You might find that your onshore team views the offshore team’s work as substandard, even if the quality is satisfactory on a global level. This can cause resistance from the onshore team who might feel that it’s easier to execute the tasks themselves.
Here’s how to overcome the challenges of offshoring accounting, using weConnect as an example
We’ve had success in developing offshore operations, so we’ll share with you some strategies we’ve used to make it happen.
1. We have a “clean-slate” hiring philosophy
At weConnect, we make sure that each person we hire for our onshore team is onboard and open to the idea of working with an offshore team. This has helped us avoid resistance from onshore staff who are instead extremely supportive of the offshore model. It is very difficult to shift a person who has been doing the work themselves for a long time into a support role, which is why our “clean-slate” philosophy has become our only philosophy with respect to offshoring.
2. We assign transactional tasks to our offshore employees
Any tasks that are transactional such as data entry or repetitive like payroll are dedicated to our offshore team. The onshore employees really benefit from having support on these tasks and it frees them up to focus on other local work in line with their competencies and desires.
Instead of having two teams simultaneously working on like-tasks, we have an onshore team and offshore team working on separate tasks that integrate like pieces of a puzzle.
3. We pay way above market for our offshore talent
We make it our mission to find the top talent, starting with the leadership, from our low-cost offshore jurisdiction and attract them to our company by offering salaries that are 25% above what they’d make in their already high-earning roles. By sourcing the top talent, it ensures that the quality of work produced offshore is in alignment with the high expectations of our onshore team and clients.
So here’s our advice laid out simply:
Find the best local talent, pay them great salaries, hire onshore teams that are bought into the concept (clean slate!) and allocate the tasks effectively.
If you think offshoring is for you, feel free to contact us here so we can share how you can make it a reality.