Tony Schiffmann is Managing Partner of BDO in Brisbane and outgoing National Chairman of BDO in Australia. As part of our series of guest blogs on CEO Insights, Tony shares his view on what networks outside of the big four have to do to remain relevant in the changing professional services market.

Rationalisation outside the big four, by Tony Schiffmann

The professional services market has undergone more change in the past couple of years than in the previous two decades. That is hardly a revelation to us in the profession, but it does beg the question: who will be the winners and losers in the years to come?

A dominant factor is the trend towards cross-border business. This trend continues to gain momentum, accentuating the market opportunity that lies in front of us as a profession.

For years there have been predictions of rationalisation outside of the big four (PwC, Deloitte, Ernst & Young and KPMG) and one of the keenly observed issues is which of the so-called “second tier” networks in this space will remain relevant into the future.

I expect very few of them – two, maybe three – have what it takes to maintain relevance on a global scale.

Key factors for success

Following are my thoughts on what is needed to achieve success.

Firstly, there must be enough partners in leadership positions across the network who are passionate to effect change when it’s needed. In 2007, at a meeting in Travemünde, Germany, almost 500 BDO partners ‘signed up’ for a bold vision to take the accounting network in a different direction, which included paying a little extra for a consistent service delivery process, and giving up some of their autonomy to pursue a global strategy to be ranked at least number five in every market.

Secondly, a network’s leadership must have the courage to execute against the agreed vision and strategy, even if it challenges the status quo. Too many international accounting networks let influential offices opt out of strategic objectives that don’t suit them, and too many network CEOs are closer to ambassadors than they are real change agents.

Communicating a change of strategy and getting commitment across a large number of individuals from different cultures is no mean feat. Network CEOs must have the courage to remove people that don’t fit the overall game plan.

Thirdly, having a credible global presence is essential. To be seen by the market as a genuine challenger, networks need a minimum level of capability across their member firms and an ability to deliver consistent levels of service in multiple locations.

Whether we like it or not, size and reach are seen as a proxy for quality. A credible size also means firms have the ability to invest in key areas of their business to meet the changing needs of their clients. To be successful, firms will have no choice but to make larger investments in the future. Those without the required scale will fail at this task.

Fourthly, networks must develop brand differentiation from both a client and employee perspective. If a network has no demonstrable point of difference, the chances are there is no compelling reason to use their services.

Regulators and clients are telling us, loud and clear, they want greater choice. Having only the big four isn’t enough.

With this in mind, the leaders of networks outside the big four need to ask their members: “Do they just want to be a referrals-based network or one with a common vision and shared business interests”?
This post first appeared in The Australian Financial Review.

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Over the past few weeks, the top echelons of the Chinese political system have undergone change, with Li Keqiang ascending to Premier and Xi Jinping to the role of President. The appointments signal the changing of the guard from one generation of leaders to another and many people across the world will be watching with interest to see how the new leadership makes its mark. During my recent visit to China, after the meeting of our Asia Pacific Board, I too was interested to see how the change at the top might influence the business world – and, indeed, our profession.

One of the key points for me - and probably for other business leaders globally - is whether the new appointments will make doing business in China easier. While it is too early to make predictions, I believe that few big changes will take place imminently: it is more likely that the ease of doing business in China will continue to improve gradually, as has been the case for the last five years.

Meanwhile, I believe there remains real opportunity in China for BDO. BDO Lixin now employs 6,500 people and has a 10% market share. With a view to managing and continuing this growth, I was pleased to create a new role, that of CEO Asia Pacific, to lead our network in the region and to appoint Stephen Darley to it in February this year.  It is reasonable to expect our firm’s continued growth – both due to increasing investment in China, as well as the international expansion of Chinese companies. BDO remains committed to supporting our Chinese firm, as well as the wider progression of the Chinese accounting profession.

And I have no doubt that China will continue to be an investment destination of choice for other international businesses too.  Last year the country topped our Global Opportunity Index of most attractive investment destinations, having done so for three consecutive years. Our survey of more than 1000 globally-aspiring CFOs from mid-sized companies found that in 2012, CFOs were continuing to cite China’s market size, higher growth rates, access to new customers and cheaper labour rates as the driving force in their decision to invest. Factors that are unlikely to change.

Despite the attraction, it’s important to remember many challenges still remain. Last year the World Bank’s Ease of Doing Business ranking saw China ranked 91st – lagging behind the likes of Rwanda and Kazakhstan. The views of many of the CFOs we spoke to also agreed with this hypothesis, with cultural and language barriers and ethics identified as the key risks when expanding into China. When you consider that China is made up of 23 provinces and 56 ethnic populations, all of which have very different sets of beliefs and values, this is perhaps not surprising. Equally, Chinese regulation is uniquely complicated and is often dictated at provincial or municipal level.

Encouragingly, from my conversations with the Ministry of Finance and the Shanghai Finance Bureau during my visit, it is apparent that measures are being taken to address some of these challenges and to better facilitate doing business in China. For accounting in particular, there is a clear focus on delivering better quality audits both through ensuring more transparent financial reporting, and making sure auditors are capable to deliver these. There is also a real interest in improving the Chinese accounting industry by learning more from international practices and networks.  I am proud that BDO is contributing towards this drive by sharing our knowledge and expertise at a local and international level.

This striving for improved quality means that we will be able to contribute as a profession to the overall financial stability of the country, for example through solid financial statements. However, it’s clear more needs to be done and I therefore wouldn’t be surprised if Xi Jinping accelerates these sorts of measures in a bid to boost business confidence.

While it may be too early to assess fully the implications of the political changes in China, either on our profession or the wider business world, one thing remains constant: when looking to seize the opportunities China offers, nothing can replace reliable on-the-ground knowledge. Companies need a local, not a country strategy, and a good understanding of culture, business etiquette and customer behaviour is essential.