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This article was first published in the November/December Singapore edition of Accounting and Business magazine.

While businesses in South-East Asia and China are likely to increase their use of professional services, the focus and spend will vary between regions, sectors and enterprises. This was the finding of a study by ACCA, supported by the Singapore Accountancy Commission.

Market demand for Professional Business and Advisory Services – Singapore, ASEAN region and China took its findings from a 2017 survey of 275 senior executives in ASEAN countries and China (including Hong Kong), coupled with a roundtable discussion of key decision-makers in professional services in Singapore. The research looked at businesses’ three-year planned expenditure on professional services.

While the study found some commonalities between what enterprises were looking for, it also uncovered differences based on regional location, company size and sector. Overall, there is growing demand for non-regulated professional services, in line with global trends. While regulated service lines are still required for compliance purposes, the demand for non-regulated service lines is higher by an average of 15.9%, with three of the top five services demanded being non-regulated.

‘Professional services serve as an external aid that can act as a powerful catalyst to develop and expand the digital economy; and is probably the "secret weapon" that many fast-growing businesses use to gain a competitive advantage,’ says Joseph Alfred, head of policy at ACCA Singapore.

The report notes that the findings ‘signal opportunities for professional services firms to further expand and enhance their service offerings in non-regulated professional services’.

Advisory services related to technology, risk management and international tax advisory are growing in demand. Across all the regions, the top non-regulated service line in demand is the IT solution business. In China, this is followed by risk advisory and process improvement while in ASEAN, international tax advisory and risk advisory take second and third place. In Singapore, there is a higher demand for accounting advisory, whereas in the rest of ASEAN risk advisory ranks more highly.

Strategic growth areas

While services such as audit and assurance, and tax advisory and compliance will always be needed, the demand for business advisory beyond compliance and regulatory requirements is significant and urgent, as corporations look for help with their strategic growth areas, the report notes. The main drivers of strategic growth include an increase in higher value-add work through automation; talent attraction, development and retention; and mergers and acquisitions (M&A).

However, there are regional differences. In Singapore and ASEAN, automation is the key driver in both regions. M&A, and then talent, come second and third in Singapore. In China, the most urgent need is for talent attraction, development and retention. Business model innovation is also more important in China than in ASEAN. Among larger enterprises, growth is expected to come from M&A while smaller companies are more concerned with business model innovation.

The top services categories budgeted for by enterprises are audit and assurance, tax advisory and compliance, and IT advisory services – a finding that is consistent across ASEAN and Singapore. In China, however, IT advisory was second and risk management and governance came in third, displacing tax advisory and compliance.

Delivery expectations

In addition to examining demand for services, the survey also looked at issues around service delivery. It found that quality and relevance of advice are seen as crucial to enterprises. Professional services firms should make an effort to understand a client’s specific needs, the report noted. Clients want deep industry knowledge and an understanding of their unique circumstances; they are not looking for generic, theoretical, off-the-shelf advice. In Singapore and China, enterprises value quality, relevance and timeliness of advice, while the cost of advice was not a significant consideration, unlike in ASEAN (excluding Singapore).

In terms of communication, when it comes to general information, enterprises in ASEAN and China prefer email, followed by face-to-face discussions. For customised information, face-to-face is the preferred choice. Chatbots are not at all popular. Finally, in terms of pricing, most enterprises in ASEAN and China prefer individually negotiated models accompanied by a cost-based fee per transaction.

Writing in the report’s introduction, Leo Lee, ACCA president, noted that the increasing demand for business advisory services provides an ‘optimistic scenario’ for small and medium-sized practices (SMPs). These firms will be able to ‘tap into this demand to experience real growth in the coming years,’ he wrote.

Why the demand?

According to the study, enterprise demand for professional services is driven by the accelerating pace of business and exacerbated by the advancement of digital disruptions and increasing global competition.

‘A key driver of regional growth will come from the rise of e-commerce and the digital economy,’ said the report. ‘Businesses that want to seize the opportunities can move faster and more securely by using not only internal know-how, but independent specialist business and advisory services from consultants and experts outside their organisations.

‘With the additional impact of technological disruptions, globalisation and an increasingly dynamic environment, the need to leverage on external advice is becoming more urgent and necessary than ever before.’

The report also noted the finding of previous studies: that enterprises are increasingly turning to professional services as a way to differentiate themselves from competition and to expand their businesses. Enterprises need to grow and manage business risks in uncertain economic environments, and professional services are seen as important in helping them achieve their business goals.

Expenditure by sector

The report examined the breakdown of anticipated expenditure by sector to identify industries most likely to spend on professional services. Within the production segment, it found that the industries with the largest expected professional services expenditure (SG$500,000 and above) are manufacturing and electronics; medical and healthcare equipment; oil and gas; properties; and construction. Within the service segment, the biggest spenders are in finance; retail and consumer goods; transport/storage; management; legal and consultancy services; technology; and communications.

Overall, respondents from the production segment are more likely to anticipate higher professional services spending compared with the service industry (SG$400,697.7 versus SG$320,740.1). On average, though, respondents in the production segment were bigger than those in services. The mean 2016 revenue for respondents from the production segment was SG$360m compared with SG$287.8m for those in the service segment.

Preference for providers

In the area of hiring preferences, the report found that the size of the professional services firm is less important than its deep, local knowledge. SMEs have a strong preference for using SMPs. In addition, SMEs that only engage small practices are more likely to use them for non-regulated professional services.

Almost all the respondents (94.9%) engaged external entities for professional services, with most preferring accountancy firms (91.3%) to non-accountancy firms (72.4%). Among SMEs, 71.1% preferred using SMPs, while 57.9% of non-SMEs use these smaller firms. By contrast, 88.1% of non-SMEs are expected to engage Big Four firms, compared with 69.1% of SMEs. This is likely to be because larger enterprises require endorsement from reputable names and have the ability to pay for it, the report says.

Are you ready?

During the Singapore roundtable discussion, one representative of a leading professional services firm said: ‘Our largest practice is actually consulting… if we focus on audit, we will never grow.’

Smaller practices are also changing, albeit at a slower rate, noted the report. The roundtable discussion found that SMEs were willing to engage professional services firms – particularly those in the IT advisory services – to improve internal processes and incorporate IT solutions into their business. This bodes well for smaller practices because SMEs prefer to use them, the report noted.

M&A was also in demand – not only from enterprises but among professional firms as well. During the roundtable discussion, one participant said: ‘It’s very hard for us to attract talents… in terms of growing organically, so the only way for us is to acquire talents.’

However, it was noted that there was a perception that professional accountants were limited in their ability to provide advisory services. This perception gap could make it difficult for accountancy firms to position themselves as consultants. There is, participants concluded, a need for professional accountants to change this perception.

Jimmy Yap, journalist