Challenges and Solutions of Offshoring and Outsourcing for Accounting firms

From an accounting perspective, offshore accounting services present several challenges that must be addressed to ensure smooth operations and effective financial management. One of the primary challenges is navigating the complexities of international taxation and compliance. Each country has its own tax laws and regulations, and understanding and adhering to these requirements while outsourcing can be quite daunting. 

Accounting outsourcing services often involve setting up subsidiary companies or establishing partnerships with offshore entities, which adds another layer of complexity to the accounting process. Accounting teams must familiarize themselves with the tax laws of both the home country and the outsourced accounting services jurisdiction to accurately report financial transactions and ensure compliance with all relevant tax obligations.

Another significant challenge in accounting outsourcing services is managing the exchange rate risk and handling multiple currencies. offshore accounting services often involve transactions in different currencies, which can lead to volatility in financial statements due to fluctuations in exchange rates. Accounting teams need to have a solid understanding of currency risk management techniques to mitigate the impact of exchange rate fluctuations on financial reporting. This may involve using hedging instruments or implementing effective currency risk management strategies to minimize the potential negative effects on the company’s financial performance.

To give accounting firm owners a clear idea of what to know when starting their offshoring journey, we’ve compiled the Top 25 accounting offshoring challenges and their solutions: 

1. Language and cultural barriers:

Culture plays a huge role in determining the success or failure of accounting offshoring. It is important to acknowledge that there may be differences in language and cultural background between offshore accountants, which could hinder effective communication and collaboration. 50% of outsourced accounting services endeavors have failed due to insufficient integration between teams. 

Solutions:

• Make time to connect with team members individually, even for only 5 minutes weekly. This will give both of you familiarity with communicating and thought processes.
• English capability should match the role. An average English speaker will suffice if it’s a non-client-facing role. For client-facing roles, you should hire an above-average speaker with a neutral accent.
• Evaluate communication skills, and integrate offshore and onshore teams through onboarding, cross-training, and shared objectives.

2. Time zone differences:

While the offshore accounting partners allow some flexibility in work schedules to minimize overlap between teams, they still encounter challenges regarding time zone differences. This is particularly true when it comes to accommodating the personal priorities of their staff, such as spending time with family after work. As some team members may prefer to leave work early, offshore accountants may need help ensuring that adequate coverage is provided during later hours.

Solutions:

• Choose an outsourced accounting partner that has implemented a more flexible approach to their work arrangements, considering their team members’ changing needs and priorities.
• Overlap hours should be based on necessity, i.e., for client-facing roles, staff need to work US timings.
• But for non-client facing, if 2 to 3 hours of overlap works, then you should allow staff to leave early. (Big 4 and large firms have given 10 AM to 6 PM. No overlap is required; you can take calls from home if required)
• Introduce a range of work options, such as; WFH, flexible schedules, and hybrid working arrangements, subject to client approval. 
• However, stay committed to ensuring at least 2 to 3 hours of overlap with the clients to maintain effective communication and collaboration.

3. Data security:

Accounting firms are entrusted with sensitive client information and business data, making them vulnerable targets for security breaches. Therefore, they must prioritize data security measures to safeguard against potential threats.

Solutions:

• Many outsourcing accounting partners like Entigrity hold themselves to the highest data security and compliance standards
• Their commitment to protecting clients’ sensitive information is evidenced by AICPA SOC 2 Type II, GDPR compliance, and ISO certifications 
• Entigrity is also now e-Securify certified, demonstrating our dedication to cybersecurity best practices
• Their expert team diligently monitors the network round the clock to identify and prevent any potential cyber threats proactively

4. Work quality:

Offshoring/Outsourcing faces challenges in work quality due to the potential cultural and language barriers between the client and the offshore team, leading to miscommunication and misunderstandings. Additionally, differences in work processes and standards may result in a misalignment of expectations, impacting the overall quality of the outsourced work. Furthermore, the geographical distance and time zone differences can hinder real-time collaboration and feedback, making it challenging to address issues promptly and ensure consistent quality.

Solutions:

• Establish clear communication channels and protocols to bridge cultural and language gaps.
• Provide comprehensive training and guidelines to align work processes and quality standards.
• Implement regular performance evaluations and feedback loops to address issues promptly.
• Consider nearshoring options to minimize time zone differences and facilitate real-time collaboration.
• Foster a strong partnership with the offshore team to promote a shared sense of responsibility for work quality.

5. Experienced hiring:

Recruiting and retaining experienced professionals for crucial positions can be an uphill battle, particularly for outsourced accounting services, where demand has surged following the pandemic.

Solutions:

• Offer competitive compensation packages with attractive salaries and benefits
• Implement a comprehensive employee retention strategy that includes regular performance evaluations, recognition programs, and opportunities for advancement
• Foster a positive and inclusive work culture to enhance employee satisfaction and engagement

6. Too much chat/Skype:

When a client demands that their offshore team work for 20 hours per week, but they also spend 45 minutes to an hour daily in meetings or via Skype chat, it can be an unreasonable demand because it effectively reduces the team’s available work hours.

Solutions:

• Occasionally, it is okay 
• The client should refrain from micro-managing their staff members; they must set a specific time for a chat and virtual meeting
• That does not mean the client cannot reach staff in real-time 

7. Multiple staff reporting:

Offshoring/Outsourcing faces challenges in multiple staff reporting from above because the lack of a clear hierarchy and reporting structure leads to confusion and ambiguity for offshore staff. Without a designated authority figure, they may receive conflicting instructions and struggle to prioritize tasks effectively. This can result in a lack of accountability as offshore staff might feel uncertain about whom to report to, leading to delays, inefficiencies, and potential task failures.

Solutions:

• We suggest a buddy system, where the offshore accountant works with one or two onshore staff members, which ensures task clarity leading to increased efficiency

8. No review/support:

This situation arises when there is a prolonged period of time during which the client does not provide any feedback, share any input, or conduct any review meetings. However, suddenly, the client gives feedback that the work does not meet their expectations.

Solution:

• Regular review meetings and feedback are crucial to improving offshore accountants’ performance progressively
• Feedback and review meetings should initially have more frequency, but after 8 to 10 weeks of the onboarding, a minimum of one review meeting in a week or fortnight should be sufficient

9. No training or hand-holding:

Offshoring/Outsourcing faces challenges without training or hand-holding because it can lead to a lack of understanding of the client’s specific requirements and expectations. Without proper training, offshore teams may struggle to align their work with the client’s business goals, resulting in inefficiencies and subpar deliverables. The absence of hand-holding can hinder effective communication and collaboration, leading to misunderstandings, delays, and potential project failures.

Solutions:

• Implement a robust and structured training program to familiarize the offshore team with the client’s business, processes, and requirements.
• Establish frequent communication channels, such as video conferences, email updates, and instant messaging, to maintain a constant flow of information between the onshore and offshore teams.
• Appoint dedicated project managers on both sides to act as points of contact and facilitate smooth coordination.
• Encourage the documentation of processes, best practices, and project guidelines.

10. High expectations:

Offshoring or outsourcing faces challenges in high expectations from above because clients often expect Level 1 staff members to handle Level 4 or Level 5 work, which requires higher expertise and experience. This creates a significant skill gap and can lead to inefficiencies and errors in project execution. Additionally, offshore teams may not have direct access to the same resources and training opportunities as in-house teams, further exacerbating the disparity in skill levels and hindering their ability to meet unrealistic expectations.

Solutions:

• Clearly communicate the skill levels and capabilities of offshore staff to clients during the onboarding process.
• Implement a structured training and upskilling program for offshore teams to bridge the skill gap and enable them to handle higher-level tasks.
• Set realistic project expectations and scope with clients, ensuring they understand the limitations of Level 1 staff and the potential need for additional support or expertise.
• Foster open communication channels between offshore and onshore teams to address concerns and seek guidance when needed.
• Evaluate and adjust the offshoring strategy periodically to ensure it aligns with the evolving needs and expectations of the clients.
• Consider forming blended teams with a mix of onshore and offshore staff to provide better support for complex projects.
• Encourage clients to invest in long-term partnerships, allowing offshore teams to grow and acquire the skills necessary to handle more challenging tasks over time.
• Leverage technology and automation tools to streamline processes and increase the efficiency of Level 1 staff.
• Continuously monitor and assess performance to identify areas of improvement and implement necessary changes.
• Foster a positive and collaborative work culture within the offshore team to boost morale and productivity, ultimately leading to better outcomes for clients.

11. Graveyard shifting (Matching the US hours):

As an unmarried employee, working extended hours may not necessarily present a significant hurdle, particularly if familial obligations are not a factor or if loved ones understand and support one’s work schedule. However, for unmarried women, additional societal and cultural factors may inhibit their ability to work late hours. 

Once an individual begins a family, working late shifts or overnight may present further challenges. It is crucial, therefore, to foster a workplace culture that encourages a 3-4 hour overlap for work schedules and grants flexibility to employees who have served with the company for at least a year. Such an approach can significantly promote a healthy work-life balance for employees juggling work and family responsibilities.

Solutions:

• Allow flexibility
• Allow hybrid work format for end client-facing roles 
• Overlap of 3-4 hours for non-end client-facing roles  

12. Onshore team can be biased:

Offshoring/outsourcing can face challenges in onshore teams due to various reasons. Job insecurity among onshore team members may arise when they perceive that their roles might be replaced or diminished by offshore accountants, leading to a fear of losing their positions. If leaders within the firm have not actively encouraged and fostered relationships between onshore and offshore teams, it can create a lack of understanding and trust between the two groups. A lack of communication and education about the purpose and benefits of offshore accountants can lead to misconceptions and biases regarding their roles and contributions to the firm.

Solutions:

• To effectively manage an offshore team, it’s crucial for clients to understand that they can’t always rely on their onshore staff to provide accurate feedback on the team’s performance. 
• While onshore staff can offer valuable insights, they may have a different level of understanding of the offshore team’s day-to-day operations. 
• That’s why it’s important for clients to occasionally get on the ground and personally review the offshore team’s performance.

13. No workflow and tracking:

A lack of workflow and tracking creates a lot of blind spots. Workflow and tracking do not mean that you have to have an application to track. In fact, a simple spreadsheet can effectively track the number of tasks, their status, assignees, deadlines, and workflow.

Solutions:

• Documentation that clarifies which task is assigned to the offshore staff and tracks status/progression is good enough

14. No fee revision in 4 years:

Some of our clients do not revise their fees every few years. If the firm does not revise its fees, it will be impossible for us to revise our staff salaries which will lead to offshore accountant attrition.

Solutions:

• India is a country where inflation has been more than 8% for two decades, which means for any basic to a good performer, the average revision is more than 15% to 50%, depending upon the market and competency
• Fee revision is necessary to provide our staff with a sustainable and competitive salary

15. Work fatigue:

There are many instances where an accounting firm will only give repetitive and monotonous work to the offshore team. The offshore staff member aspires to learn and grow, which they don’t get an opportunity to do because they’re limited to completing the same task daily. In fact, one of the primary reasons for attrition is work fatigue due to repetitive work.

Solutions:

• Provide offshore staff with opportunities for skill development and learning new tasks.
• Rotate responsibilities to avoid constant repetition of tasks and prevent work fatigue.
• Implement a mentorship program to support offshore staff’s growth and career advancement.
• Encourage open communication to understand their aspirations and address concerns effectively.
• Introduce challenging projects that allow offshore staff to showcase their abilities and expertise.
• Offer incentives or rewards for outstanding performance and encourage motivation.
• Foster a positive work culture that values employee development and well-being.
• Use automation and technology to streamline repetitive tasks, freeing up time for more meaningful work.
• Conduct regular feedback sessions to identify areas of improvement and address any issues proactively.
• Invest in training and upskilling programs to enhance offshore staff’s skills and knowledge.

16. Hired part-time and expecting full-time:

Offshoring or outsourcing faces challenges when hiring part-time employees but expecting full-time commitment due to several reasons. Part-time workers might have other commitments or responsibilities that limit their availability for full-time engagement. They may not receive the same level of benefits and job security as full-time employees, leading to reduced motivation and loyalty. Communication and coordination across different time zones can become problematic, hindering seamless collaboration between the offshored team and the main organization.

Solutions:

• Clearly define expectations and commitments upfront to ensure alignment between part-time roles and full-time expectations.
• Offer attractive incentives and benefits to part-time employees to foster loyalty and motivation.
• Implement efficient communication tools and strategies to bridge the gap between offshored teams and the main organization.
• Consider flexible working arrangements that accommodate part-time employees’ schedules and time zones.
• Invest in training and development programs to upskill part-time workers and enhance their contributions.

17. No PTO (Paid time off) provided:

Today, Big 4 and large firms provide four and five weeks of paid vacations and allow work from home. If we do not provide paid time leave, we lose staff members sooner or later.

Solutions:

• An accounting offshoring expert like Entigrity has increased paid time off and paid vacation by 18 days a year plus 10 public holidays.
• This will motivate staff to perform better and reduce attrition.

18. No connection:

Offshoring and outsourcing face significant challenges in a “No connection” scenario due to the reliance on seamless communication and data exchange between the parent company and the offshore service provider. Without a stable connection, real-time collaboration becomes impossible, leading to delays in project execution and decision-making. Additionally, data security and privacy concerns may arise, as transmitting sensitive information across disconnected channels could be vulnerable to unauthorized access or loss.

Solutions:

• This may work for some however, to gain the maximum value of your offshoring relationship, it’s imperative to go beyond just email and basic communication. Meaningful collaboration is essential
• Clients should consider their offshore accountants the same as their onshore and provide similar support and feedback
• Setting weekly/monthly review meetings can help bridge any gap that may be occurring.

19. Looking for the perfect staff:

Looking for the perfect staff can be challenging due to cultural and language barriers, which can hinder effective communication and collaboration. Additionally, differences in time zones may lead to delays in response times and coordination. Moreover, finding individuals with the right skill set, experience, and work ethic in a foreign market can be difficult, as the local talent pool may not always align perfectly with the specific needs of the company.

Solutions:

• Implement cultural and language training programs to bridge communication gaps.
• Utilize technology and flexible work hours to accommodate time zone differences. 
• To be honest the perfect employee does not exist however, you should provide training and guidance to establish your company culture and task efficiency.

20. Communication:

Since English is a second language in India, it is common for individuals to speak with an accent. If there is difficulty understanding a particular aspect of communication, it is entirely acceptable to request clarification from the speaker.

Solutions:

• A strong in-house communication training program for staff at all levels.
• When it comes to non-client-facing roles, an average level of English proficiency may suffice.
• However, it is recommended hiring individuals with above-average English-speaking skills with a neutral accent for frequent client interaction positions.
• This approach ensures that client-facing team members can communicate effectively with clients and provide them with the highest level of service.

21. Rising salary cost:

Offshoring and outsourcing face challenges in rising salary costs due to several factors. As the economy of the offshoring destination improves, the demand for skilled labor increases, driving up wages. Fluctuations in currency exchange rates can impact the cost-effectiveness of offshoring, making it more expensive for companies in certain regions. Political and social factors may lead to changes in labor laws, workers’ rights, and minimum wage requirements, further contributing to rising salary costs in offshoring destinations.

Solutions:

• Diversify the offshoring locations to access regions with lower labor costs and stable economic conditions.
• Invest in automation and technology to reduce reliance on labor and enhance productivity.
• Negotiate long-term contracts with offshore partners to lock in favorable rates.
• Implement performance-based incentives to encourage efficiency and cost-effectiveness.
• Focus on upskilling and training local employees in the offshoring destination to optimize labor costs.

22. Offer Shopping:

As offshore employees have more options, they may accept multiple offers simultaneously and then choose the most favorable one, leading to a higher likelihood of not showing up for certain positions. Moreover, the lack of face-to-face interactions and the geographical distance involved in offshoring may contribute to a lower sense of commitment among some candidates, leading them to leave abruptly after joining.

Solutions:

• Strengthen the hiring process by conducting thorough interviews and background checks to identify candidates with genuine interest and commitment.
• Offer competitive compensation packages and attractive benefits to make your job offers stand out in the competitive job market.
• Build strong employer branding and positive company culture to increase employee loyalty and reduce the likelihood of offer shopping.
• Implement onboarding programs that foster a sense of belonging and integration within the organization from day one.
• Provide clear expectations and career growth opportunities to showcase long-term prospects with the company.
• Utilize technology and automation to streamline the hiring process and identify potential red flags early on.
• Maintain open communication with candidates throughout the hiring process to keep them engaged and informed.
• Consider offering relocation assistance or remote work options for offshoring positions to reduce barriers to commitment.

23. False reporting and misconduct:

Accounting firms may face instances of false reporting and misconduct. Communication gaps and differences in work ethics can lead to misunderstandings and misinterpretations. Additionally, the lack of direct supervision and accountability may provide some team members with opportunities to engage in dishonest practices or provide inaccurate information to clients, undermining the overall quality and trust in the services provided.

Solutions:

• Implement strict quality control measures and regular audits to monitor the accuracy of information provided to clients.
• Foster a culture of transparency and ethical behavior through training and workshops for all team members.
• Encourage open and effective communication channels between the onshore and offshore teams to minimize misunderstandings.
• Establish clear reporting mechanisms for any suspected misconduct and enforce appropriate consequences for such actions.
• Invest in team-building activities to bridge the cultural gap and strengthen collaboration and trust among all staff members.
• Utilize advanced technology and tools to track and monitor work progress, ensuring greater visibility and accountability.
• Conduct regular performance evaluations and feedback sessions to address issues promptly and reward exemplary behavior.
• Assign onshore managers or supervisors to work closely with the offshore team to provide guidance and oversight.

24. Offshore team internal conflict:

Another challenge that accounting firms face is offshore team internal conflict due to several reasons. The physical distance and communication barriers between onshore and offshore team members can lead to misunderstandings, misinterpretations, and a lack of trust, resulting in internal competition rather than collaboration. Differences in cultural norms, work practices, and time zones can further exacerbate conflicts and hinder effective teamwork. The absence of face-to-face interactions and a shared workspace can make it difficult to build strong interpersonal relationships, leading to a fragmented team dynamic and reduced cohesion.

Solutions:

• Foster a culture of collaboration and teamwork through regular team-building activities and virtual meetings.
• Encourage open and transparent communication channels to address conflicts and concerns promptly.
• Establish clear roles and responsibilities for each team member to minimize overlapping tasks and competition.
• Implement a performance evaluation system that emphasizes both individual contributions and collaborative achievements.
• Provide training on cross-cultural communication and sensitivity to bridge the gap between onshore and offshore team members.
• Utilize collaborative tools and software to facilitate seamless information sharing and project management.
• Rotate team members across projects to promote cross-functional collaboration and knowledge sharing.
• Develop a shared vision and common goals that align with the organization’s overall objectives.

25. Background noise:

The lack of direct control over the office environment and noise levels in the offshored location can make it challenging to implement effective noise reduction measures, impacting the overall work environment and client interactions. 

Solutions:

• Implement remote work options to reduce physical proximity and background noise interference.
• Invest in noise-cancellation technologies and equip offshored offices with soundproofing materials.
• Conduct regular communication and accent training sessions to bridge language barriers.
• Foster a culture of clear communication and active listening to minimize misunderstandings.
• Utilize collaboration tools and video conferencing platforms to enhance remote interactions.
• Establish designated quiet zones in the office to mitigate distractions.
• Encourage flexible work hours to allow employees to work during quieter periods.
• Offer noise-canceling headphones to staff members to enhance focus and concentration.
• Regularly assess and address office layout and design to optimize noise control.
• Prioritize client communication and set clear expectations to mitigate the impact of background noise on interactions.

Navigating the Offshoring and Outsourcing Terrain: Conquering Challenges and Crafting Resilient Solutions for Accounting Firms

Embarking on an offshoring journey for accounting services presents numerous challenges, including navigating international taxation, managing exchange rate risk, and handling multiple currencies. Language and cultural barriers, time zone differences, and data security concerns must be addressed to ensure effective communication and safeguard sensitive client information. Recruiting and retaining experienced professionals, managing workload expectations, and providing regular feedback is crucial for maintaining a productive offshore team. 

Creating a supportive work environment, offering competitive compensation packages, and promoting work-life balance is essential for retaining talented offshore staff. Embracing flexibility, fostering collaboration between onshore and offshore teams, and implementing effective communication strategies are key to maximizing the potential of offshoring partnerships. Regular review meetings, feedback, and workflow tracking are essential for enhancing productivity and accountability. By addressing these challenges and implementing appropriate solutions, accounting firm owners can ensure a smooth and fruitful offshoring journey, ultimately leading to improved efficiency, enhanced client service, and long-term success.