As countries in Asia, South America and Eastern Europe emerge as significant economic forces, the demand for professional services ranging from accounting and auditing through to corporate governance is increasing dramatically, experts in those regions say.
Photo: Colin Gray
“China is definitely experiencing a surge of demand for professional services,” says Jason Inch, author of China’s Economic Supertrends, who has lived in China since 2004. “The overall reason is China’s continued strong growth post-financial crisis — it is the world’s fastest-growing large economy.”
Inch says multinationals expanded into China given the potential growth in the market. Now there is a new wave of Chinese companies expanding internationally and using North American accounting standards, listing on U.S. and European exchanges and acquiring foreign assets. All of this has driven the need for professional expertise – like corporate governance and legal consultants – that these companies don’t have internally.
But it isn’t just China that faces a shortfall that is being filled with North American professionals. The issue is occurring in emerging economies all over the world, says Jaime Valenzuela, a partner at Deloitte. He manages human capital from Chile.
“There’s a huge need for professional services given how fast some economies — and some companies — are growing,” he explains. “The knowledge [these companies] need is already in North America – in places like Canada and the U.S. It isn’t new knowledge that needs to be developed. It is existing skills. And they are willing to pay the going rate to get it.”
Valenzuela’s experience mirrors that of Bryan Henderson with PricewaterhouseCoopers. He first went to China in 1996 as North American companies made their first inroads in the country. At the time there were 100 people in the PwC office, he says. Now, after a merger, the explosion of the Chinese economy and the demand for services relating to Chinese publicly-traded businesses, PwC has around 13,000 employees in the country.
“The landscape of state-owned enterprises changed to publicly-traded [companies] listed in Hong Kong and New York and the two Chinese exchanges,” Henderson explains. “So now our clients are those Chinese state-owned enterprises going public.”
While domestic accounting and audit firms exist in China, many investors were unsure of the quality of their work. As Chinese companies went public, having a North American accounting and audit presence became a significant factor.
“In years prior [to the country’s economic expansion,] accounting firms in China was regulatory, was compliance with regulations and the tax code,” he says. “But when [Chinese companies] sought capital offshore, investors said they didn’t understand the quality of these Chinese firms. So that drove the Chinese [state-owned enterprises] to seek international accounting firms and law firms.”
Henderson says there are key areas where North American and European expertise is needed, often around companies on public markets, something relatively new to China. He said disclosure, auditing and governance expertise is lacking, causing concerns in the market place. And as state-owned enterprises took to the public markets, investors increasingly demanded higher standards.
“As these companies listed offshore they became accountable to foreign regulators,” Henderson explains. “And those regulators demand a lot more – more transparency, greater governance, more controls, more disclosure. They want to see independent directors and audit committees. They want to see internal controls.”
While corporate governance has been a key area of focus in China, the demand in South America comes from what Valenzuela calls “the multi-Latinas” — companies that have expanded outside their domestic footprint to other South American nations. These companies are often in financial services, public infrastructure or retail, and as they expand their need for experts who have dealt with larger companies becomes more acute.
“They operate within the region with their headquarters in the area and they are becoming multinational companies,” he says. “And they are asking for services that help them grow into a real multinational in terms of governance and how to manage expectations. They realize they are big and realize they need good governance, executive guidance, controls and all the things that are in the dimension of managing their finances.”
Valenzuela says one factor that professional services providers face in dealing with South American economies is the language barrier. While Spanish is prevalent in the U.S., fewer speak Portuguese, the dominant language in Brazil, where the Olympics and World Cup are driving demand for professionals. However, he says English is still prevalent.
“If you speak Spanish there are better opportunities,” he says. “But it depends on the service and who you are working with. The executive level there is a reasonable level of English. When you go down the organization from there, Spanish becomes more important.”
Will these emerging economies be able to internally fill the demand for professional services in the years ahead? Valenzuela says that’s unlikely in South America, where the scale of many industry sectors limits specialization. For example, if you’re a retail expert in Chile, there are limited opportunities in comparison with larger European and U.S. economies.
“You don’t have scale in the industries down here,” he says. “There will often be two or three companies in your area. In the U.S. you might be an expert working with 20 companies in a sector. And if you want to be specialized, you’ll likely have to travel elsewhere. Bigger markets have specialists who have spent their whole career developing their skills.”
Inch says China’s problem is different. Scale clearly isn’t the issue, but keeping up with demand is a problem in an economy forecast to expand by 8% in 2013. While Chinese patent lawyers, for example, seem to be ever-present, the reality is they can’t keep up with the flood of demand for their services. This won’t change, he says, until the Chinese began to gain the experience necessary to launch their own professional services firms.
“In the highly status-conscious society of China there is more prestige in working for a state-owned enterprise, an established firm or a government department than in being a boutique consultant or independent lawyer,” he says.
Henderson concurs. When he first came to China, professional services were not an area of interest to the domestic market and therefore few trained to enter the space. Even today, with numerous Chinese companies entering the public market, he’s convinced China’s demand for professional services will continue for years, if not decades.
“They are making strides toward it and are trying,” he says. “Hopefully they’ll make some inroads, but they have a long way to go.”