This article was first published in the May 2012 Malaysia edition of Accounting and Business magazine
The train has left the station and picked up speed. It’s moving from a coal locomotive to a shinkansen (Japanese bullet train), Tan Eu Gin, Malaysia shared service controller with Intel told the ACCA Accountants for Business Forum on 22 March.
Also addressing the forum, themed Finance Transformation: Expert Insights on Shared Services and Outsourcing, Lim Guan Eng, chief minister of Penang, said it was estimated that the SSO market in Malaysia will be worth US$2bn with 300,000 high-value jobs this year. According to the AT Kearney Global Services Location Index 2011, Malaysia ranks third in terms of attractiveness as a destination for outsourcing activities, behind only India and China.
While prospects are bright, challenges remain. One is to move Malaysia up the SSO value chain, despite its relatively small talent pool. With its population of 28.3 million as of mid-2011, Malaysia cannot compete on the same platform as India and China.
Ng Wan Peng, chief operating officer of Multimedia Development Corporation (MDeC), estimated that Bangalore’s business process outsourcing (BPO) sector generates US$80bn in revenue, comprising 26% of India’s total exports. ‘We’re about 2.5% of India’s population. We cannot generate that kind of revenue,’ she said. ‘The SSO space is huge. Call centres are not the space we want to play in.’
‘The key point is with our talent, what are we going to focus on?’ asked Dr Ng Boon Beng FCCA, finance director of Oracle. ‘BPOs must become centres of excellence for companies where the knowledge concentrated must be increased.’
‘To become a premium service provider, our centres of excellence need to be in-depth centres rather than processing centres. If you have niched yourself, you have moved into a premium space,’ said Intel’s Tan.
Ooi Kok Seng, audit, HR and training partner at KPMG, said that investors are impressed with the lower cost structure in Penang. However, scarce talent means that it is necessary to ‘optimise the limited talent, perhaps in areas like management feedback and reporting. We can use more experienced people in Penang. We don’t have the volume but we have quality.’
‘We can try to optimise people and maximise economies of scale so costs drop,’ concurred Francis Wong, finance director of global accounting and financial services at AMD.
While companies may have focused on costs at the start of the SSO process, they will seek ways to add value in future. ‘Cost reduction is the main driver,’ said Ooi. ‘How do you balance cost arbitrage with [the higher cost of] retaining quality talent?’
Wong noted that shared services centres (SSCs) have to drive improvements continuously year after year to justify higher salaries and keep challenging talent. ‘Talent has already moved up the value chain and they are not going to do lower [paid] jobs.’
After cost drivers, companies migrate to efficiency. ‘If you drive standardisation, you drive efficiency. That is a new level of value-add. As you go further into processing, what is the depth of knowledge that you attain? You have to master your process – Six Sigma and Lean – to make the process sustainable,’ said Tan.
Malaysia could also value-add by mastering ‘the challenge of IFRS convergence’, added Tan, since different countries have varying levels of convergence.
Service levels also need to be enhanced significantly to optimise SSO. Dr Ng pointed out that each market serviced presents a different set of problems for SSCs. Differentiation and diversity in service is essential. ‘The problems in Malaysia are a different set from, say, Indonesia,’ remarked Oracle’s Dr Ng.
‘The SSC often ignores the local issues which are swept under the carpet. We assume the whole world works in a standard manner. We can’t impose a standard process on customers. We have to treat customers differently.’
Frustrations with the SSC can sometimes lead the local retained finance function to set up a structure similar to the SSC, or a shadow organisation. ‘There’s always this argument between the business partner and the SSC,’ agreed AMD’s Wong. ‘We need to be very clear about what sits within the retained function and within the SSC.’
He recommended that the retained finance function should handle local issues, since it possesses the expertise on statutory and regulatory matters unique to each jurisdiction. ‘While the local statutory sits with retained finance, we can handle US GAAP (generally accepted accounting principles). If there are issues with local government, local finance can go in,’ he suggested. He gave the example of a government audit in China that was handled by the local finance function with the support of SSC team members who were specially flown in. ‘Local knowledge of authorities, customs, regulations and customer insights can never be outsourced,’ agreed Dr Ng.
KPMG’s Ooi also stressed that SSCs must maintain a certain level of confidentiality to safeguard intellectual property rights and security. ‘We have to see whether the outsourcer has a good work culture and ethics to protect client confidentiality.’
Tan cautioned ‘the need to be sensitive to transition management… to earn the trust of somebody 10,000 miles away’. Technologies such as instant messaging and webcams are useful to obtain instant face time and speed up resolution.
Linked to this is case ownership. ‘We have to be careful in managing responsibility and ownership of a case. There must be resolution and accountability in seeing through a case to its conclusion. Don’t pass the buck around,’ said Wong.
Frequent and clear communication is also vital to mitigate frustrations, said the panellists. ‘A lot of discussion needs to happen,’ said Wong. ‘In service level agreements communication becomes very critical. The SSC also needs an escalation team because a lot of times issues are swept under the carpet. How fast can these go into escalation?’
MDeC’s Ng noted that companies must be very clear on what benefits they want to derive from a business decision to set up shared services. ‘You cannot have the same comfort level that you expect from a retained function, but you must have the faith and trust in the system that it can deliver the same or better services,’ she said.
Despite the challenges, SSO is growing from strength to strength. Jennifer Lopez, country head of ACCA Malaysia, said: ‘One view is that the SSO sector will be second only to the large accounting firms in volume and quality of career opportunities offered to accounting students and members.
‘Across the end-to-end finance model, we foresee new finance roles will evolve, new career paths will emerge and new skills and capabilities will be required. Hence, it is clear that there are great future career prospects for ACCA members and students within these environments.’
The current number of people employed in finance and accounting roles by BPO alone is estimated at 200,000 globally and growing at more than 10% annually, she added.
Candidates who wish to succeed in the SSO industry will need a good command of English, advised Oracle’s Dr Ng. Those in the industry should also possess a global perspective and be able to cut across all jurisdictions and markets if the SSCs they work for are to move up the value chain.
He also urged young accountants to acquire technological expertise in order to handle matters like higher-value data analytics and statutory submissions remotely.
Accountants also need to move out of their comfort zones, Wong advised. ‘Don’t only stick to your finance roles; explore other functions. When you come back, you’ll be able to talk logistics, operations and planning. Experience makes your life easier.’
Nazatul Izma Abdullah, journalist