Like a host of other companies, itAccounts is hoping to turn the delivery of remote services from India into a real, competitive advantage. But this is the first time that this kind of solution is being applied to the accounting business. The company has already recruited 20 accounting professionals in India. By the end of the first quarter of 2002, it will employ another 80 in its new 125-seat facility, all servicing clients in the United States.
A venture-funded outgrowth of traditional accounting firm MLZ Partners, itAccounts has developed software tools that enable the outsourcing of back-office accounting functions for medium sized enterprises. The idea is to Web-enable accounting, so clients can obtain real-time information about their finances.
Why is the firm headed to India? According to COO James Liggett, because of the scant availability of accounting professionals in the United States. He maintains that in the United States the number of college graduates choosing an accounting career is dropping dramatically.
“There was less availability of talent. We have looked around the globe and realized that in India there is a large pool of available talent,” Ligget explains. “In the United States, major accounting firms, even the big five, are struggling to retain below-manager-level staff.”
Of course, there is a cost advantage in hiring Indian accounting professionals. According to Liggett, an Indian accountant gets one-fifth the salary of his or her U.S. counterpart.
“It is not primarily for cost advantage that we are in India,” he says, “The primary reason is the skill sets that an accounts professional possesses in India. At our Manhattan office we have Indian professionals on H1 visas working for us. We found that they have higher skills than a certified accountant in the United States. Beyond the barrier of quality, we look at the cost saving. The differentiating factor is that Indian professionals obtain a lot more hands-on experience before they go on to become a CPA. They understand the basics of handling transaction-oriented retail business very well. In the United States the training is not so rigorous.”
Liggett sees setting up the Bangalore center as an investment for the long haul. “Investing in infrastructure here in India was not an issue for us. In India there is an ability to scale.” With the opening of the India office, 80 percent of the company’s core business is now handled by professionals in India. Liggett says, “We have tested the market. Out of our 170 clients, 70 to 80 companies are likely to opt for our back-office service by the end of this year.”
Why, one wonders, are there are no Fortune 500 companies in Liggett’s clientele? “We cannot provide the same kind of service levels to Fortune 500 companies as we provide to middle market companies. The market dynamics are different. So in developing the business model we had to make a strategic decision. We stuck to a focus on middle market companies.”
Liggett sees competition from Silicon Valley-based Virtual Growth and Legend. However, he says, they are not industry focused and also do not have the India advantage. Will other accounting firms in the United States replicate the model?
Accounting is a big boy’s game. itAccounts CEO Kishore Mirchandani, sees little threat to his business from big hitter firms like Deloitte, KPMG or Arthur Andersen, given their focus on a Fortune 500 client base, and itAccounts’ emphasis on the middle market. “We’ve done some competitive analysis and we’ve found that they are not in our space at all, and it doesn’t look like they’re on the horizon of doing it,” says Mirchandani.
The Indian outsourcing model could catch on. Mirchandani does suggest that outsourcing to India, “will become the way that accounting is done.” He also cautions that it is a tough market to enter, and that Indian companies trying to copy his model will have a hard time understanding the way business works in the United States. itAccounts will have to pick its battles with significant competitors and find its market.
