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Opportunities & Challenges for SMPs Session 1
The IFAC Global SMP Survey 2015 provides insights into the challenges and opportunities faced by small and medium practices (SMPs) in Asia, highlighting issues such as client acquisition and competition. Revenue trends indicate that while many SMPs expect growth, challenges like rising costs and economic uncertainty persist for their SME clients. The survey also reveals that only a minority of SMPs are members of networks or associations, with intentions to join being considered by a significant portion.
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Opportunities & Challenges for SMPs Session 1
- 1. Page 1 |Confidential and Proprietary Information EMPOWERING ASIA’S SMALL & MEDIUM BUSINESS HUB Opportunities & Challenges for SMPs Session 1 Paul Thompson, IFAC Director Global Accountancy Profession Support CA Sri Lanka-SAFA-IFAC SMP Regional Forum January 26, 2016
- 2. Page 2 |Confidential and Proprietary Information IFAC Global SMP Survey 2015 – About I • 6,725 respondents from 169 countries • Available in 22 languages • Report published Feb 2016 www.ifac.org/smp
- 3. Page 3 |Confidential and Proprietary Information IFAC Global SMP Survey 2015 – About II Objectives: 1) Annual global research about SMPs 2) Inform strategic objectives for IFAC & Member Organizations (country specific results available) 3) Raise visibility of SMPs and their SME clients
- 4. Page 4 |Confidential and Proprietary Information • Top 3 regions – Europe 41% – Asia 26% – Africa 15% • Majority of responses from – Sole practitioners (39%) – Practices with 2-5 staff (32%) IFAC Global SMP Survey 2015 – About III 41% 26% 15% 8% 5% 3% 2%
- 5. Page 5 |Confidential and Proprietary Information Top 3 challenges SMPs in Asia (high/very high): • Serving Clients Operating Internationally (52%) • Attracting New Clients (48%) • Differentiating from Competition (46%) Next 5 Years in Asia: • Competition (45%) • Regulatory Environment (44%) IFAC Global SMP Survey – Highlights I
- 6. Page 6 |Confidential and Proprietary Information Practice Fee Revenue Asia (2015 v. 2014): • Majority SMP revenues in 2015 increased moderately or stayed same – Larger the practice – more likely to report increase IFAC Global SMP Survey – Highlights II Service Increased Moderately Stayed the Same Accounting, Compilation and Other Non- assurance Related Services 23% 37% Tax 23% 32% Advisory and Consulting 27% 35% Audit and Assurance 29% 32%
- 7. Page 7 |Confidential and Proprietary Information Practice Fee Revenue Asia (2016 v. 2015): • Majority SMPs in Asia believe revenues in 2016 in all areas expected to increase, the most: – Advisory & Consulting (46%) – Audit & Assurance (42%) • Tax planning (51%), corporate advisory (48%), management accounting (37%) most common in 2015 IFAC Global SMP Survey – Highlights III
- 8. Page 8 |Confidential and Proprietary Information Membership in Network, Association, or Alliance Asia: • 29% of SMPs belong to a network, association, or alliance • 30% are considering joining one • 41% are not members • Larger SMP more likely IFAC Global SMP Survey – Highlights IV
- 9. Page 9 |Confidential and Proprietary Information Top SME Challenges Asia (high/very high): • Rising Costs (51%) • Economic Uncertainty (49%) • Competition (48%) IFAC Global SMP Survey – Highlights V
- 10. Page 10 |Confidential and Proprietary Information Change in SME Clients Revenue Asia (2015 v. 2014): • Decreased (46%) • Stayed the same (18%) • Increased (26%) IFAC Global SMP Survey – Highlights VI
- 11. Page 11 |Confidential and Proprietary Information • News, views, resources, thought leadership • www.ifac.org/Gateway • Ten topic areas incl. Practice Management • Contact: gateway@ifac.org Global Knowledge Gateway Resources
- 12. Page 12 |Confidential and Proprietary Information • IFAC SMP Committee: www.ifac.org/SMP • Follow us on Twitter: IFAC_SMP • IFAC Global SMP Survey www.ifac.org/smp • Join us on LinkedIn: IFAC SMP Community • Global Knowledge Gateway www.ifac.org/Gateway IFAC Resources
Editor's Notes
- #2 1
- #3 Let me start by saying a few words about the what, why, when and how of the survey. The survey is now into its fifth year. But it’s bigger and better than ever thanks to academics who help develop and wrote report and member organizations promoting, translating and otherwise helping. The IFAC Global SMP Survey 2015 was open in 22 languages from October 1 to November 30 29 2015 and received a record number of respondents – 6,725. We believe this makes it the world’s largest study ever - of SMPs and likely of accountants in general. Languages: English, Arabic, Chinese, Dutch, Finnish, French, German, Hebrew, Hungarian, Italian, Japanese, Korean, Latvian, Lithuanian, Polish, Portuguese, Romanian, Russian, Spanish, Swedish, Turkish, Thai. Full report plus highlights will be published in February. It will be disseminated via IFAC’s 170 plus member organizations, including all SAFA members, and be available on the IFAC website at www.ifac.org/smp.
- #4 Objectives: Annual global research about SMPs – barometer and trend analysis on opportunities and challenges Inform strategic priorities SMP / SME for IFAC and its member organizations (region and country specific results available) Raise visibility of SMPs and their SME clients. This year FEE, IFAC’s regional body for Europe, is issuing a Europe report. And last year a number of member bodies requested their country data and wrote articles and reports off the back of this.
- #5 As summarized in the graph the largest groups of respondents are from Europe (41%), but Asia was also well represented receiving 26% of the responses. We received significant numbers from China (692), India (435), Thailand (211), Japan (65), Pakistan (51). We received 37 responses from Sri Lanka. [Other percentages Central and South America and Caribbean 8%, Middle East 5%, North America 3% and Australasia and Oceania 2%.] Of the 169 countries represented, there were 29 countries with 50 or more responses. In contrast, the 2014 edition of the survey collected 5,083 responses with 27 countries contributing 50 or more responses. While Asian respondents were significantly higher than 2014 but one would expect them to exceed Europe. In 2015 China and Romania contributed the most responses (10%), followed by India (6%), Italy (6%) and Nigeria (5%). Caution should be exercised when evaluating the results from regions with lower participation. The majority of responses in 2015 were from sole practitioners (39%) and practitioners in practices with 2-5 professional staff (32%), thus the survey results are skewed toward the smallest SMPs. These practice sizes were also the two highest in previous surveys. The survey results are also skewed toward male respondents. Males account for 69% of all responses (2014: 73%).
- #6 SMP Challenges The 2015 edition of the survey queried participants on the extent to which their SMPs are facing 12 specific challenges. The percentages relate to respondents stating these are high and very high challenges. Top three challenges in Asia are Serving Clients Operating Internationally (52%) (a further question explored extent to which SME clients operate internationally and found increasingly they do), Attracting New Clients (48%) and Differentiating from Competition (46%). The latter two are the same as the global results, but Keeping up with New Regulations is in the top three globally. Compared to 2014 there has been a change in two of the top challenges for Asia. In 2014 the top challenges were rising costs (58%), pressure to lower fees (56%) and attracting new clients (55%). In 2015 rising costs were 39% and pressure to lower fees 42%. In 2014 serving clients operating internationally was 49% and differentiating from competition 44%. Next 5 Years Respondents were asked to rate the extent to which eight different factors will affect the respondent’s practice over the next 5 years. The regulatory environment (44%) and competition (45%), in particular, stand out as respondents in Asia rated that these factors will have either a high or very high impact over the next 5 years. This is the same as globally – regulatory environment (51%) and competition (46%). The next two highest rated factors in Asia were technology developments (40%) and the globalization (37%). Personally I was expecting technology to feature more prominently. Research by Daniel Susskind (UK), culminating in his book ‘The Future of the Professions’ and McKinsey suggests that much of the work of accountants is, if it hasn’t already, at risk of being automated.
- #7 Revenue In Asia the majority of SMP revenues increased moderately or stayed the same in 2015. When including substantial increase – proportion of SMPs reporting moderate or substantial increase Advisory and Consultancy Services increased the most (33%) with Audit & Assurance next (32%).
- #8 Revenue When asked to look ahead to 2016, respondents in Asia were optimistic that practice fee revenues in different service areas would increase over 2015. The most in advisory (46% increase moderate or substantial), Audit 42%, Accounting 37%, Tax 36%. Tax planning (51%), corporate advisory (48%) and management accounting (37%) most common advisory services in Asia – same pattern as global. In 2014 the top services in Asia were tax (71%), corporate advisory (58%) and business development (37%). NOTE: Management Accounting (including planning, performance and risk management) was not assessed in 2014. It’s worth noting that the AICPA reports that over the past 5 years advisory / consulting has grown 90% while other categories show single digit percentage growth. The AICPA anticipates this trend will continue. Perhaps the today of mature / developed markets like this offer a vision of your tomorrow. The implications are that SMPs, if they’ve not already, need to seriously consider targeting advisory and building the capability to offer this service.
- #9 Membership in Network, Association, or Alliance In Asia, 29% of respondents reported that their SMP belongs to network, association or alliance, 30% are considering joining one. Globally, only 28% of respondents reported that their SMP belongs to a network (11%), as association (10%), or an alliance (7%). 24% are considering joining one. More SMPs from North America (36%), the Middle East (34%) and Central and South America and the Caribbean (33%) belonged to a network, association or alliance. Asian SMPs are less likely. The results indicate that the larger the SMP, the more likely it was to belong to a network, association, or alliance. SMPs with 21 or more partners and staff were most likely to belong to a group (65%). In contrast, sole practitioners were the least likely to belong to a group (14%) and expressed little interest in joining one (22%). Membership can help SMPs address two significant challenges highlighted earlier – that of attracting new clients and serving SME clients that operate internationally. We plan on updating the PM Guide this year to help you make this decision.
- #10 Asian respondents serve over 200,000 SME clients. So what they tell us about SMEs across the region is compelling. SME Challenges This questions sought to understand the main challenges facing our clients. Six challenges presented – Attracting and retaining staff, Competition, Compliance with regulation, Difficulties accessing finance, Economic uncertainty, Rising costs. In Asia the top SME challenges were rising costs (51%), economic uncertainty (49%) and competition (48%). Same as 2014. This was the same pattern globally, but a different order for the top two – Economic Uncertainty (61%), Rising Costs (58%) and Competition (54%). Consistent to 2014, 75% or more of the respondents viewed the original six challenges, as well as the new item Keeping up with New Technology, as a moderate or greater challenge for their SME clients. Financial crime was considered by 44% of the respondents to be a moderate or greater challenge for their SME clients. These results are highly relevant to SMPs since they tell us what the challenges that our clients are facing and need help addressing. For example, SMPs are especially well equipped to advise on managing costs.
- #11 SME Revenue 2014 - 2015 This question aimed to assess changes in the profits of the participating SMPs’ SME clients between 2014 and 2015. In Asia 46% indicated that their clients profits decreased (33% moderately and 13% substantially), 18% stayed the same and 26% increased (25% moderately and 1% substantially) – the performance of SME clients of Asian respondents was worse than all other regions, on par with the Middle East. Globally, 41% of respondents indicated that, in general, the profits of the SME clients decreased (30% moderately and 11% substantially), 22% reported they stayed the same and 31% increased (29% moderately and 2% substantially). The Asia results seem to provide evidence of a real slowdown in economic activity in Asia. A further question explored the incidence of SME clients being engaged in various types of international activity. Import / export most common, ownership of foreign assets the least common. Note the earlier question that reported Asian SMPs saw the greatest challenge that of Serving Clients Operating Internationally.
- #12 In early 2014 IFAC launched the Global Knowledge Gateway (see postcard), a platform designed to bring together news, views, resources, and thought leadership for the worldwide accountancy profession. The Gateway is a global hub, bringing together content from IFAC, our member organizations, and other notable groups and individuals. It’s intended to better leverage IFAC’s position as the global accountancy organization and is designed to serve IFAC’s member organizations and the profession by sharing the valuable resources members produce with a broader, global audience of professional accountants Allows professionals to access resources from around the world learn about emerging areas of the profession stay connected to the most pressing accountancy issues and news of the day interact by exchanging views, making recommendations, and sharing information and resources. Ten topic areas including audit & assurance, business reporting, ethics and practice management. The latter is arguably most relevant to SMPs addressing challenges and opportunities. The Latest is a bi-weekly newsletter which summarizes the news, resources and discussions added every two weeks. You can tailor the e-mail to focus on some or all of the above areas. To register visit www.ifac.org. In 2015 we received over 200k visitors, many from South Asian countries which are fluent in the Gateway’s main language of English. For those here representing member bodies please note that the articles can be reproduced in hard copy or electronic media or translated. Simply email gateway@ifac.org.
- #13 IFAC offers a wide host of resources and information related to the latest news within the profession, particularly as it relates to the SMP environment. Links to these various mediums are provided here. In conclusion. We live in challenging times. But with the hellp of insights like this IFAC, SAFA and its member organizations are better able to help you address these and leverage the opportunities. The profession is in safe hands but we all need to pull together to succeed and prosper.