GLOBAL accounting firm Ernst & Young (EY) plans to invest US$1.5 billion in emerging markets (EM) over the next seven years to 2020, with the Asia-Pacific being among the top recipients of these investments.
“The Asia-Pacific is probably our biggest area of investment among all the EMs right now — that includes China, of course. The dollar amount is not specific but a good portion of that will be in Asean,” EY’s global chairman and CEO Mark Weinberger tells The Edge in an interview in Kuala Lumpur.
EY is predicting that by 2020, about 30% of its revenue would come from EMs compared with about 18% now. Under its ‘Vision 2020’ strategy that Weinberger put together when he took on the top job in July last year, EMs were identified as being the “growth leaders”.
“We are still growing faster in the EMs overall than in developed markets, but the gap has become narrower over the last year or so as the developed markets have really firmed up and the EMs have become more volatile. That being said, we have over US$1 billion over the next seven years through 2020 that we will be putting into EMs,” he says.
Following the interview, three weeks ago, EY announced that its global revenue from EM practices grew by 8.7% overall in the financial year ended June 20, 2014 (FY14) despite tough economic conditions and a slowdown in a number of those key markets. This represents a slowdown from the 12% growth last year. Asia-Pacific revenue posted growth above 5% in local currency.
Overall, EY’s combined global revenue grew 6.8% in local currency terms, to US$27.4 billion. Weinberger explains that the 10-nation Asean grouping, which includes Malaysia, presents strong growth opportunities for EY.
“For one, as Asean comes together as a community more, with things like the AEC (Asean Economic Community) 2015 plan, that will provide strength and opportunity in the region. Secondly, if we had the Trans Pacific Partnership trade agreement come together, that would be a tremendous boon for investment and business, both within Asean and into Asean from other countries. We’re optimistic on that, and are investing ahead of the curve there too,” he says.
The group has been actively hiring in the region. EY currently has about 14,000 employees in Asean and plans to hire another 10% on an annual basis. But staff turnover has been high at “about 20% or so”.
“We’re still going to grow, but the overall numbers won’t grow at 10%. If you look at all of Asia-Pacific, we have 32,000 people and we’re going to be hiring 15,000 more over this (financial) year,” he says.
In Malaysia, EY has some 2,800 employees and it plans to hire another 500 more over the current financial year.
“We’re number one or two in almost every market in Asean (in terms of having the most public-listed companies as clients). But what does that mean? The key for us is attracting the best talent. We have to get the greatest people through the door,” he says.
For the second year in a row, EY was voted the world’s most attractive professional services employer in the Universum World’s Most Attractive Employer poll of business students from top academic institutions in key markets globally. It was also voted the second most attractive employer of all businesses worldwide in the poll.
Smaller audit firms aren’t a major threat to its business in the region, he says. “They have a good market, but most of the larger (clients) need the full service capability and either regional or global presence, often the Big 4. We haven’t seen [the presence of smaller firms] as a limitation to our growth or service opportunity at all. Not an issue.”
There are several things that EY would like to see come to fruition as Asean works to come together as an economic community, in particular, the ability to move employees within the region more easily.
“What we’d like to see is greater mobility of people... allowing our people to serve our clients across the entire region, not just within a particular country. Besides that, having a one-stop shop [for] companies investing, and being able to get decisions made about how you would invest in that (region), would be terrific. Have one administrative place to go ahead and get the ability to open a business — not go to four or five different countries to have it done,” he suggests.
One of the new challenges firms like EY grapple with in the region is in dealing with countries that become more nationalistic. “When you have the constant geopolitical challenges of countries that, after election, go into different directions, or become nationalistic — it is always a problem. You have a business that operates across all of Asean but there’ll be a lot of different requirements in different countries and it becomes more difficult to do your audits and other things,” says Weinberger.
China’s slowdown is also a challenge. “It’s a challenge for many clients’ businesses [because] it affects their supply chains. Taiwan, Vietnam and other parts of Asean are getting some of that business, but the change in growth patterns clearly affects our client base because if you’re not able to move people cross-border easily, it’s harder to adjust to [business trends],” he adds.
In countries such as Malaysia, he says one of the challenges is in getting more qualified high-end auditors.
“One of the things we do is to train [auditors] in-house. We spend half a billion (US) dollars a year around the world developing and training our people once they are in EY. The world is more complex than it’s ever been, and since it’s so inter-connected, you have to know more about what’s going on.
“For instance, if you audit a Malaysian company that has operations in Asean or around the world, you’ve got to know what’s going on ‘over there’ so you can predict, when you’re looking at their books, what the next issue is going to be. As the world and businesses get more complex, our work gets more complex.”
In fact, he says, one of the interesting trends shaping the audit industry today is how to train and prepare future auditors. Auditors these days need to have wider skill sets than what they traditionally used to have.
“We audit Google, Facebook, Amazon, HP, all the big technology companies. If you want to be able to audit companies like that, you have to understand not just financial issues... you also need to understand technology, valuations, geopolitical issues and how these may affect the business. Increasingly, you need all this talent within the accounting firm.
“You can no longer say, ‘I’m going to go to school, become an auditor knowing how to do debits and credits,’ and then come and work on a big Malaysian company that operates in 20 countries — you’ve got to understand a lot more about what the world is doing and how business fits into it, until you’re more of a business advisor and not just truly an accountant.
“That is a change in skillset for people coming out of schools. Some of it can be learned in school but a lot is learned on the job, through experience and training. So, we’re seeing mobility — people moving around the world — becoming more and more important,” he observes.
This article first appeared in The Edge Malaysia Weekly, on October 13 - 19, 2014.