|ANITA DENNIS is a Journal contributing editor.|
W hat can a firm do in the face of increasing competition for traditional services clients? Sotomayor & Co., a 14-person firm in Southern California, transformed its practice to take advantage of the opportunities available to CPAs who understand the growing market for CPA services in Latin America. Economies in the region are flourishing, which means that businesses and CPA firms in Latin American countries are eager for help in bringing their accounting and management practices up to the highest international standards.
A Radical Departure
Ivan J. Sotomayor came to the United States from Ecuador when he was 16, receiving his formal education in this country. Despite Sotomayors heritage, his professional efforts were not always directed toward Latin America. Even four years ago, his firm performed mainly traditional services for local U.S. businesses. However, Sotomayor began to notice two troubling developments. First, he saw that companies outside the profession were beginning to compete for clients like his own, turning professional services into commodities. He also worried about the increasing competition among CPA firms.
There is a commercial street here called Ventura Boulevard that passes through about seven cities. On the length of that street, there must be 3,000 or 4,000 CPAs and the same number of attorneys. I decided I didnt want to be chasing the same business as every other CPA in the area, he says.
Problem: Increasing competition for traditional services clients from inside and outside the profession.
Solution: Repositioning the firm into a specialized boutique concentrating on Latin American business.
Sotomayor chose to make a drastic change in his firms business. Up until about three years ago, a large part of his practice was made up of trust tax work performed for banks, an outgrowth of his early experience managing a trust tax department for a large bank. Despite his extensive background and contacts in the field, he found the pressure to lower fees as competition intensified was an overwhelming reason to exit this niche.
To reposition his firm, Sotomayor resigned his unprofitable trust tax engagements. We lost a substantial amount of billings, but we believed it was necessary. He thought the business would be lost to the competition sooner or later and preferred to orchestrate his own transition rather than have it forced on him.
The firm reallocated resources and invested money and time in new areas. The change affected firm personnel as well. A partner in the trust area, as well as staff members, left to go to a large firm. They were replaced with people who had experience in either international business or in health care. Sotomayor had decided the firm would focus on the latter service both in the United States and in Latin America. His reasoning for choosing the two specialties was simple. In these areas, there was not that much competition and no reason for large companies outside the profession to try to compete.
For example, while a large financial services company might want to get involved in trust taxation work because of the related investment business opportunities, health care management is too complicated a discipline for a corporation not already specializing in that field. On the international side, Sotomayor believed a small firm would always be able to find a niche because personal relationships are so important in Latin American culture.
Firm ProfileName: Sotomayor & Co.
Year opened: 1992.
Location: Woodland Hills and West Covina, California.
Total personnel: Fourteen.
Number of partners: Three.
Number of CPAs: Five.
Areas of concentration: Health care; international business.
Percentage of fees in Accounting: 25%.
Consulting: 35%. Types of clients: Small to midsize manufacturers and service businesses.
Marketing programs: Memberships and participation in associations.
Best thing we did in the last five years: Refocused practice away from traditional services into boutique services.
Worst thing we did in the last five years: A merger that didnt work out.
How the practice will change in the near future: Continued focus on specialized areas.
To effect its transition, the firm hired a principal with 20 years experience in health care. Sotomayor also continued his membership in associations, such as the National CPA Healthcare Network, which offers seminars and conferences and the use of resources among the 34 U.S. member firms. We didnt have to reinvent the wheel, he notes. They provided us with all the information we needed about this field. Most of the firms U.S. engagements in that area involve helping doctors and hospitals with business management and adapting to new payment systems.
To broaden his international practice, he has made good use of joint ventures with other CPA firms or businesses. We are a small firm, so we dont have the staff to service every industry, he says. By sharing knowledge and experience with a local firm in the regionor with a U.S. business with specialized Latin American expertiseSotomayors firm has been able to lengthen its reach. For example, it has teamed with a firm that performs marketing research in Latin American countries to provide marketing consulting for clients.
Services to Two Cultures
These are the kinds of services that Sotomayors firm provides to Latin American clients:
- Serving as a U.S. accounting and consulting resource for companies with international ambitions. Major changes are taking place in the economies of Latin American countries, Sotomayor says. Companies there are trying to institute contemporary management techniques. At the same time, due to the business upturn, more clients want to have a presence in the United States, mainly because they eventually would like to get financing from the U.S. investment banking community and to be closer to the fast-growing Hispanic market in the United States. The firm assists those businesses with their U.S. activities. In many cases, this is done through a joint venture, as was the case when a large firm in the Dominican Republic asked Sotomayors firm to serve as the U.S. accountant for a client. The U.S. firm also gives and receives referrals through contacts in organizations such as the Inter-American Accounting Association (Sotomayor chairs the AICPA delegation to the IAA and is also a member of this organizations executive committee), which has members in 23 countries in the Americas.
- Working with newly privatized health care concerns. Sotomayors firm and one in Colombia are launching a cooperative health care consulting practice, a specialty Sotomayor also offers to U.S. clients. Latin American countries have gone through major changes in terms of moving away from government control of this area. They are privatizing everything. As a result, hospitals and other health care entities are anxiously seeking advice in accounting and auditing. In the joint venture, the firm will advise on hospital financial audits, which are now necessary because of a government effort to place effective controls on newly privatized entities, Sotomayor says. The local firm will supply knowledge of the home countrys accounting and auditing standards, while Sotomayors firm will offer experience in implementing good accounting practices and in working with private-sector health care entities, a new breed of business in Latin America. Although they have their own rules, they want to use the control methodologies used in the United States.
Another part of this niche will involve helping hospitals and clinics to implement internal control systems to provide more reliable and worthwhile financial systems. Sotomayor notes that because fraud and corruption have been problems in some sectors of Latin American economies, there is now a push to introduce controls to prevent them from reemerging.
- Helping businesses adopt international standards or convert their financial statements into U. S. GAAP. We see a growing demand for conversion to international standards, Sotomayor says. Some countries have adopted them as their own, so Latin American companies turn to U.S. firms for help in understanding methods and applications for these standards. Firms with a good handle on international standards and how they relate to U.S. standards will have a great market waiting for them, he predicts.
- Assisting businesses to achieve ISO 9000 certification. Many U.S. companies have this certification, an internationally recognized benchmark used to assess the viability of quality control systems. Because U.S. businesses often require that their trading partners be certified, Latin American companies are working to gain certification, especially since the economic upturn in that part of the world began three years ago.
For More Information
Here are some Web sites with information on Latin America
and Inter-American trade.
Although his firm doesnt offer this service, Sotomayor also notes that Latin American companies often seek systems consulting help from more experienced U.S. consultants because they are racing to bring their systems up to speed.
A Boutique With a Future
After four years as a boutique, the firm is now reaping the benefits of its transformation. How can other CPAs achieve similar success in the emerging economies of Latin America? My advice is to learn the language, Sotomayor says, but I dont just mean the words, especially since English is the business language used throughout the continent. I mean the culture. As an example, he cites the completely different work rhythms experienced in the United States and in Mexico. In Mexico, workers get into the office at around 9 or 9:30, work until 1, take a three- to four-hour lunch and then work until 10 or 11 at night. I adapt to their culture when Im there. I also tell my Mexican clients and friends about how different the U.S. work schedule is.
Noting the important differences in the economies, products and cultures among the 23 countries in the Americas, he says CPAs should make well-informed choices about the best practice development candidates. Once the field has been narrowed, the best route for practice development is to join a trade or professional organization that focuses on the chosen country or industry. Besides offering networking opportunities, Sotomayor says, associations are excellent vehicles for learning more about various cultures from natives or from Americans who have lived abroad. Organizations can give you an introduction to ways of doing business in different countries, their cultures and their sensitivities. Trade and professional organizations exist for all regions of the world, so this is good advice no matter what a firms international focus might be.
Sotomayor is involved in the IAA, the California Society of CPAs global opportunities committee and the Latin Business Association. Join an organization and make yourself visible, he advises. Especially in Latin America, you have to develop personal relationships. The people there find it very hard to do business only on the telephone, as opposed to how we work here. He estimates that he spends about 20% of his time traveling. He also keeps his visibility high by serving as a guest speaker on Latin American business for various associations that focus on Latin American business. Most people involved in these organizations are at the top of their profession in the various countries. Get to know them, get a feeling for how they do business. The members usually develop very close relationships, which Sotomayor attests is the first step into the flourishing Latin American business community.