Top 35 international networks, associations and alliances

IT HAS BEEN a year of mixed fortunes for the international accountancy groups. Whether they are organised as networks, associations or alliances, some have reported strong growth, others have gone south. This perhaps reflects the uneven global economic recovery – while some economies continue to struggle, others have barely noticed a slowdown, let alone a recession. Some of the groups are bullish about future prospects for growth, others remain concerned. And many complain that regulatory change can still pose a threat to accountancy’s world.

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The headline change is right at the top. Having been the largest international network since its inception back in 1998, PwC has been knocked off its perch by Deloitte, which has been snapping at its heels for sometime now.

But it is a very close run affair. Deloitte tops the league of international networks, recording $26,578m (£16,333m) in fees, up from last year’s £26.1bn. PwC reported fee income of $26,569m, a mere $9m behind the front-runners. It will be interesting to see what happens in the next round of reporting later this year – both networks reported similar growth rates (1.8% for Deloitte compared to PwC’s 1.5%).

Deloitte is looking to acquisitions and the east for growth. It says: “Deloitte is introducing new service offerings, making ongoing strategic acquisitions and other similar transactions, and continuing to invest in emerging markets, with India and China as high priorities.”

PwC can see growth coming from its business advisory services (remember, the network ditched its management consultancy services in the early 2000s, unlike Deloitte). It says: “Of all our lines of service, PwC’s advisory practice saw the strongest growth in 2010, accounting for $6.2bn of PwC’s aggregate revenue.
We expect its growth to continue in the years ahead, both organically and through strategic acquisitions in markets where we choose to compete.”

Like Deloitte, and indeed many of the other groups, PwC can see strong future growth opportunities in markets such as India, China and the Middle East, where it says it has been making significant investments in its people. “Our ambition is to grow revenues from emerging markets from 20% to nearly 40% over the next few years.”

Ernst & Young was the only Big Four network to see a fall in fees, albeit by less than 1%, and don’t forget exchange rates can play a part in reported income. As a result, KPMG, with reported income of $20,630m, has been able to narrow the gap between itself and the third-placed network.

Of the other networks, growth was either flat, up a few percentage points or down by a similar amount. The notable exception is PKF International, which posted a 29% increase as it saw income rise from $1,905m to $2,449m. This growth has come particularly in the North American, Asia Pacific and Latin American regions and was further bolstered by the recruitment in November 2010 of Daxin CPA, a Beijing-based Chinese firm that is ranked in the top six in the country.

Despite seeing a fall of 7.5% in income, UHY International has added a number of firms to its network: Belarus, Belgium, Canada, Chile, China, Dominican Republic, El Salvador, Finland, Germany, India, Peru and the Philippines. It also expects to expand into Azerbaijan, Bolivia, Paraguay, Serbia, Thailand and Tunisia in the near future.

Never one to miss an opportunity to knock the Big Four, BDO says that, as well as expecting to see growth in the emerging markets “there will also be opportunities in more mature markets arising from concerns about the undue concentration by four dominant firms in these markets”. The fifth largest network adds: “We face threats from the failure to address the undue concentration in the marketplace and the unfettered ability of the dominant firms to acquire firms from other networks.”

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Associations and Alliances

Regulatory and liability issues figure large among the concerns of the groups, and this has had a direct affect on how they organise themselves. This is why this year Accountancy Age has split its survey between ‘networks’ and ‘associations and alliances’.

Geneva Group International, an alliance, tops this second group, with a combined fee income of $4,215m. Michael Reiss von Fliskr, the group’s chief executive officer, says: “More than ever, uncertainty regarding the regulatory environment can represent potential threats for networks and alliances regarding liability issues.

Some alliances simply calling themselves ‘alliance’ but being de facto a network, according the 8th EU directive, will most probably face serious difficulties. Just a change of a word from ‘network’ to ‘alliance’ does not wipe off liability.”

He adds that several firms have left other networks and associations to join GGI, including Haines Watts in the UK. The group has also been pursuing a growth strategy in North America – in 2009 it only had three member firms in the US, now it has 18.

Praxity, the second largest of the alliances and associations with fee income of $3,298m to the year end 31 December 2010, up 3.5% on last year’s figures, sees there is an opportunity for growth as a result of regulators “concentrating on concentration of listed audit providers”. The alliance is continuing to grow, and reports that fee income now stands $3,384m (year ending 30 April 2011) – the alliance model is working for them, and it has been bolstered by the arrival of ShineWing, one of the largest independent accountancy firms in China.

Leading Edge Alliance, which, despite its name, calls itself an association, saw no growth, but remains the third largest non-network group with a fee income of $2,400m.

And next comes a new group, formed through the merger of three existing groups. IGAF Polaris came into existence in March by combining IGAF Worldwide, Polaris International and Fidunion International. Raymond Buehler, IGAF Polaris chairman, says: “We agreed from the beginning that relationships between firms must be forged stronger than ever, but without the strictures imposed by operating as a network.

The merger gives us this opportunity and so much more.” The association is now looking to grow in Asia and Latin America.

There have been some astonishing rates of growth reported this year. Alliott Group posted a 68% rise in income, reaching $440m. The group comments: “Due to the slowdown in the economies of a number of markets, more and more professional service firms are seeing the business sense of being members of groups like Alliott Group.”

It adds that businesses now recognise mid-tier firms that are members of a worldwide alliance have the same technical abilities as the big firms but can, due to their size, provide a much more tailored client-facing solution. “They also have the ability to provide better value for money,” he says.

However, the group argues the key limiting factor is the exposure any group has in terms of accessing potential new members. “There are a significant number of mid-tier professional service firms out there that have, for whatever reason, not yet seen the benefits of being a member of an association. The challenge, but also the key opportunity, is how to connect with these firms,” it says.

MSI Global Alliance saw its income grow by only 0.8% to $1,300m. But it is bullish about its future prospects, saying it expects to add two to three additional countries to its group by the end of 2011, and is looking at the Far East, Central and Eastern Europe and Latin America. “Regulatory changes have caused some realignment in the market, with some member firms moving up the ‘food chain’ to join one of the larger networks. However, membership changes have been very few and far between and, in reality, the opposite has been true with MSI benefiting from some ‘downward shift’ as a result of firms in certain countries deciding to leave networks to join our association,” it says.

This is an issue picked up by IAPA ($1,077m, up 13%), which says that, even though there is a possibility that increasing regulation could lead to restrictions on the operations of loose associations, there were still opportunities. “As some associations move towards ‘network’ status, some of their members wishing to remain with a looser association structure may seek allegiances elsewhere.”

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The future

Overall, when looking at the collective income of networks, alliances and associations, there has been a reasonable rate of growth in the face of the global economic slowdown. A number of the groups, however, pointed to the political instability in the Middle East and North Africa as a possible threat to future growth, as this would have a knock-on effect throughout the global economy.

For many of the groups, one of the keys to future success lies in the emerging economies, particularly those in the east, though one should not disregard Latin America. China in particular figures large in their future plans. A look at the geographical breakdown of the groups shows that they are underweight in these areas, with most of their business coming from Europe and America. Those that can crack these markets and bring on board the large domestic accountancy firms will be the ones best placed to seize new opportunities in the future.

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