Foreign outsourcing: Why companies go “off shore,” and the sacrifices involved.

Someone asked me recently why Accountants do not outsource their bookkeeping to companies outside the USA.  As someone with an interest in the bookkeeping industry, (I help my wife run Duker Books, a bookkeeping company in Eagle Idaho) I have a few thoughts on the matter, but this topic is equally true of other industries, such as Information Technology.  I’ve worked both with and for companies that do a lot of outsourcing in different companies and so I have the following observations to add to the conversation from my perspective:

People from different countries outside the U.S. who attempt to enter the U.S. outsourced bookkeeping markets have only a partial understanding of the finer points involved so they will make mistakes that even the most inexperienced American bookkeepers will not make. Some of these mistakes may not even be related to bookkeeping, but rather consist of a failure in the basic understanding of fundamental concepts.  These mistakes often lead to others and compound themselves.

This is not to say that international outsourcers have no value, but it does mean that any work done outside the U.S. by people who do not natively speak English will need to be audited by someone local in the U.S. before it can be depended upon, and if a company has to audit it here anyway, we might as well get it done here where we do not have that problem.  Now this particular hurdle can be overcome given a long-term business relationship and a dedication to thorough communication, but it’s not an easy task, and the time and energy it takes to invest in such a relationship can outweigh the short term cost benefits anyway.  Of course if you don’t really give a rip about your customers, you won’t care much about any of this because outsourcing is so very much cheaper.

What are the reasons that make up the foundation of why foreign outsourced Bookkeeping services are avoided here in America?  In short there are three main reasons: Liability and lack of accountability, Communication, and public perception.

Liability / Lack of accountability:

Accountants in general (meaning American CPA’s in this case) are not comfortable putting their name, reputation and CPA licenses on the line for an agency that is completely out of reach and against whom they have no legal recourse if there is a dispute.  Many of the CPA’s we’ve encountered would not even consider using foreign outsources for this reason alone.

Having them out of reach both physically and legally means there is less control over the content & quality of their work.  Having a bookkeeper in the office with them means they have total control over all aspects of not only the work being done, but the person doing the work as well.  Immediate supervision means immediate accountability and that gives the CPA direct control of any liability dangers as well, since they are in control of everything being done in their office.

Now some of these issues can be overcome in today’s age of telepresence remote offices, but where the problem become more than most are willing to bear is in the lack of accountability:  Who do you hold accountable when your bookkeeper in Somalia decides to shove transactions in random places and cover them with Journal entries?  Who do you contact when your Indian bookkeeper contacts all of your clients directly and undercuts your rates by 75%?  Nobody.  You’re completely out of luck and at the mercy of your own negotiating skills to keep your clients from jumping ship once they realize you’ve been outsourcing and are contacted directly with the opportunity to pay less for the same work?

And when that happens, there is absolutely no recourse.  Nobody to turn to, no court to enforce a non-compete clause; nothing.

Communication:

Communication becomes an even bigger problem depending upon where you learned English, those who learned English through a program of instruction originating from Australia or England will continue to struggle with communication because our vernacular is completely different and the same words spoken in America can often have completely different meanings.  In the course of my day, I often deal with foreign outsourced talent be it support contractors, vendors or the like and I continue to struggle with having to explain myself 2 or 3 times before I feel that I am adequately understood.  Even then, I find that the understanding of my directions or questions will need to be refined and extrapolated before we reach a complete understanding on a given topic.

Part of the communication gap has a lot to do with culture as well; cultural taboos in one country won’t even register in another and in the very same way, other concepts don’t always translate well from one to another either.  You ask for something by one name and the person on the other end of that conversation may have learned a completely different way of describing it and the result ends up being completely different from what you requested and it won’t be due to a lack of skill or diligence, but rather a failure to understand a basic concept because that concept is approached from a completely different direction in their native country.  Inexperienced bookkeepers in America make a lot of mistakes, but they are different types of mistakes than are made by people who have not lived in America and those mistakes are more difficult to deal with because they often come in areas that to us, make no logical sense.  There are certain understandings that most people who grew up here know through constant exposure to this information throughout their lives. Those who did not grow up in America are often confused by them because they are contrary to their own experiences and culture.  I’m quite sure that the same would be true if I ever did work in India; I would be completely lost and would stumble through all kinds of obstacles to my understanding. The cultural differences create roadblocks to efficiency.  More importantly though, they make customers angry, causing them to go elsewhere.

Public perception:

Foreign outsourcing is also very unpopular in the USA right now because of the high unemployment here.  People don’t like the idea of doing business with companies that hire outside of the U.S. When so many people here need those same jobs.  Although outsourcing is consistently used by larger companies, smaller businesses pay a higher and more immediate price for using outsourced talent.  When a customer refuses to do business with a large corporation, there are always a thousand more to take their place, but when a customer of a small business goes elsewhere, that has a far greater impact since that customer represents a far larger percentage of their profit.  Some customers will actively avoid companies that are known to outsource beyond our borders, so for small businesses, the risk is often simply not worth it.

In Summary:

Companies that outsource outside of the USA do so for only one reason: Money.  The cost of using foreign outsourced talent is appreciably lower than the cost of local talent.  That is the only value in outsourced talent that there is.  A company that uses foreign services takes that risk in the hope that the lower cost outweighs the risks involved.  It’s a simple risk/profit computation for them.  They understand that they will receive a lower quality of services, but the cost is so much lower that it outweighs the negatives for them.  These are not companies that value their customers or take pride in their level of service; these are companies that value the bottom line above all other considerations.

Just my view from the Cheap seats…

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