Local, Regional Firms Position Themselves For Growing International Opportunities

It's a clich? that is becoming increasingly true - The world is getting smaller, and it's happening fast. Toyota is scouting sites in Tennessee for what would be its eighth North American plant. Ford is planning a multibillion-dollar upgrade of its Mexican operations that could include a new assembly

Accounting firms are following their clients. They're doing more international work for U.S. companies that want to set up sales or manufacturing operations overseas, and for companies in Europe, the Far East and Latin America that are turning to the United States for future growth.

In public accounting, the surprising news is that small to mid-size firms outside of major metropolitan markets are gaining an increasing share of this growing international business. As national firms eliminate offices in secondary and tertiary markets and globalization booms forward, mid-size firms are positioning themselves to swoop in to fill the void.

"Internationalization has really taken off in the past five to 10 years. All of our meetings involve this," says Kevin Mead, president of IGAF Worldwide, based in Duluth, Ga. "Cross-border businesses are a key driver for an association like ours."

A prime example is IGAF Worldwide member McKonly & Asbury of Harrisburg, Pa. (seven partners, 80 total staff). The firm began to see accelerated growth in overseas business about three or four years ago, and although it accounts for less than 5% of the firm's current revenue, international business for the firm is growing at approximately 30% to 35% per year. Approximately 10% of its professional staff is bilingual and includes native speakers of Russian, Polish and Mandarin. The firm's U.S.-based international clients have revenue ranging from $100 million to $3 billion.

"There are a lot of opportunities for more growth," says MP Terry Harris. M&A may eventually establish an office overseas, but first the firm may expand into major metro areas such as New York, Philadelphia or Washington, fueled by its international business.

In central Pennsylvania, M&A faces lessened Big Four competition. In the past five years, KPMG took over Arthur Andersen's Harrisburg operations and significantly slashed the size of the combined offices, while E&Y closed its Harrisburg office.

Geography can also fuel the demand for a mid-size firm's international service offerings. California-based Hutchinson and Bloodgood benefits from its location. Its San Diego and El Centro offices are virtually adjacent to the Mexican border. Approximately 90% of the firm's international business involves Mexico, says Partner Sergio Santos. In El Centro, where he is based, 30% to 35% of the office's activities involve U.S. companies with Mexican operations or Mexican companies with business in the United States.

Firms from Ohio and Connecticut have contacted H&B for help on serving their clients with Mexican business needs. H&B helps them with information on incorporating in Mexico and Mexican taxation, as well as providing contacts in Mexico for these firms.

Another driver for international business at mid-size firms in secondary and tertiary markets is service area expertise. Greer & Walker of Charlotte, N.C. (eight partners, approximately 50 total staff), advises textile companies how to establish offshore manufacturing plants in Central America. In addition, G&W is working with a major NASCAR group about possible ventures in Europe.

G&W now has more than 50 overseas clients and has tripled its overseas business in the last 10 years, says Partner John Norman. Inbound work accounts for 85% of its international revenue. It has four staffers who speak fluent German and has helped privately held German clients establish a beachhead in the United States. G&W has advised several German high-tech companies on setting up a U.S. distribution office, possibly followed by a manufacturing plant as part of a full-blown American subsidiary. G&W also acts as an advisor to its European clients, explaining American holiday customs and employment practices.

Regional firms are virtually unanimous in their optimism about growth potential for their international service offerings. The only question is how fast and how great this growth will be.

Patrick Pruett, executive director of Enterprise Network Worldwide, based in Nashville, Term., says up to half its 110 members already are involved in some international work, "and those that aren't will be in five years."

Accounting firms divide their international business into outbound (helping their U.S. clients with overseas projects) and inbound (helping foreign companies start up or expand operations in the United States). Until now, outbound work prevailed for most local and regional firms, but many firms report that inbound business is gaining steam. Taxation and government regulation engagements account for most of the work initially and serve as a platform for more complex consulting jobs to spring from.

International associations take an active role in educating their members on international opportunities, and for firms with serious international growth plans, associations are an important source of worldwide business and tax information, as well as contacts. Accounting firm associations are on the forefront of international trends and issues, which puts them in prime position to spot opportunity for their members.

As SOX and other global forces continue to pressure the Big Four into tighter business models, look for international opportunities to continue to open for local and regional firms. As the Big Four whittle down the clients they're willing to serve and the places they're willing to serve them, small and mid-size firms can position themselves to move upmarket, says Rudolf Beilfuss, president of PKF North American Network. Local and regional firms can also be more nimble when it comes to meeting the demands of international clients, adds H&B's Santos: "The national firms are too compartmentalized, while we can do the whole job from start to finish in one place."