KPMG backs resurgent SL

Wednesday, 27 November 2019 00:00 -     - {{hitsCtrl.values.hits}}

KPMG Middle East and South Asia (MESA) Chairman Reyaz Mihular KPMG International Chairman Bill Thomas

  • Holds major regional conference in SL, cementing narrative shift away from national security


By Madushka Balasuriya 

When KPMG, one of the world’s leading tax, audit and advisory firms, held its 18th Middle-Eastern and South Asian (MESA) Partners’ Conference in Colombo earlier this month (6-7 November), it was a show of trust. Trust in its convictions, and trust in Sri Lanka, as the move signified a decisive shift in the narrative on Sri Lanka and the country’s national security situation.

Not even seven months prior, the Easter Sunday bombings – which had seen over 250 people lose their lives and several hundreds more wounded – had resurfaced a decade’s worth of dormant terrorism-related fears. Unsurprisingly, much of the conversation following the events of 27/4/2019 had surrounded the magnitude of the setback this would be to a Sri Lankan economy that, even 10 years on from the end of a decades-long civil war, was only just finding its economic footing on both a regional and global stage.

The tragic events of Easter Sunday had put many companies and individuals invested in Sri Lanka, both monetarily and otherwise, at a critical juncture. But for KPMG International Chairman and CEO Bill Thomas, the decision, while difficult, was in the end a straightforward one.

“I knew that the easy answer for me would’ve been to host it somewhere else, and maybe the easiest answer for my family too, but the fact of the matter is in these leadership jobs, the focus should not be on making the easy answer, but on making the right answer,” explained Bill in an exclusive interview with Daily FT.

Sitting alongside Bill was KPMG Sri Lanka Managing Director Reyaz Mihular. Reyaz had gone to great lengths to secure Sri Lanka as the host nation for this prestigious regional partners’ conference. The event, while not open to media, is a significant event on the KPMG calendar, one that offers the firm the opportunity to touch base with its regional branches and global leadership, while at the same time aligning its collective strategy across the network.

Although initially the decision to host the conference in the island was taken prior to April 2019, the tragic events of that month meant there was a real possibility it would be shifted elsewhere in the region. But as Reyaz recounts, Bill’s leadership was at its most decisive at that point.

“This meeting may not have happened because there was a lot of uncertainty whether it should continue to be hosted in Sri Lanka after the unfortunate incident. And that’s where I would like to acknowledge Bill’s leadership,” recalled Reyaz. 

“Because Bill said, and I remember the words, he said: ‘We should not let terrorists decide what our agenda is, we should move forward.’ I think that statement by him saying that he’s attending the conference even if it’s hosted in Sri Lanka to put everybody on the right side, because if not the entire global team as well as regional firms were concerned about coming to Sri Lanka due to security conditions.”

For Bill, his decision making process was made all the more simple owing to the trust he places in the judgment of his colleagues in the Sri Lankan firm led by Reyaz. It also speaks volumes towards how highly regarded Sri Lanka is for KPMG, both as an investment destination and as a key cog in its internal growth mechanism.

“Our Chairman [for the MESA region, Reyaz Mihular] is from this country, I’m here together with 150 of our partners from around the region, and we’re doing that on purpose to send a very strong message, not only to the country, not only to the region, but around the globe, to say that this is by design. This is a great opportunity to profile a country and the opportunities in the country by having the session here.”

Indeed Sri Lanka’s history with KPMG spans over 120 years, making KPMG Sri Lanka the oldest KPMG firm in the MESA region. MESA itself is a sub-region within the KPMG network of member firms, with nearly 8,000 professionals and associates working across 33 office locations in 15 countries. This 18th KPMG MESA Partners’ conference, with its theme of ‘Re-inventing to meet clients’ agenda’ holds particular importance in Sri Lanka and region.

The centre of the global economy is shifting towards Asia, with powerhouse economies such as India and China continuously striving for larger shares of the proverbial pie. The West, and most pertinently the United States, are unsurprisingly acutely cognisant of this changing dynamic. 

This was evidenced most recently by the Indo-Pacific Business Forum organised earlier this month, which was in essence the US’s largest and most concerted push to date in terms of pairing US investors and companies with Asian economies. Moreover in late 2018, the United States Senate moved to more than double the US government’s scope for investment in overseas projects from $ 23 billion to $ 60 billion.

What this means for Sri Lanka can be encapsulated in one word: Choice. Previously, China had been the primary avenue by which the government had sought to secure investment for infrastructure projects in the country, but with US interest growing there are suddenly more options. However choice is a two-way street, and with US investment coming through the private sector – as opposed to the nature of China’s State-funded investment – this means that US investors will invariably be on the lookout for the best possible option in terms of investment opportunities.

“We at KPMG basically help our clients in a couple of ways. One is to say, what opportunities they see for themselves and understand how we can help them develop those opportunities,” says Bill, as he dives into an explanation of the role KPMG plays in the decision making process of potential private sector investors into the region. 

“If you think about Sri Lanka – and obviously Reyaz is much better at answering a specific Sri Lankan question – but in the short time that I’ve been here, if you think about investment into the region or investment into the country, it’s going to come down to our clients and our multinationals, it’s going to come down to the opportunity to invest in areas which make sense to them.

“Ease of doing business and stability are some such factors, and I think that’s an area where we at KPMG can help present and make a pitch for why this is an attractive opportunity.”

Growth with quality

By its own admission KPMG through this conference “is focusing on bringing innovation with its business expertise to help its large clientele across varied sectors and geographies to succeed in a period of immense disruption and change, and drive its own strategy of ‘Growth with Quality’”.

According to Bill, this conference for the most part will help partners gain clarity on KPMG’s overall strategy – staying true to its roots, founded on “trust and responsibility to the public interest”.

“One of the most important things that we as a global network recognise is that we are very privileged to have, in some countries, been around for 150 years. If you take the KPMG network around the world, we’re known for two things in the eyes of our clients, doesn’t matter if it’s audit, tax or advisory, we’re known for trust and quality, and growth comes as a result of focusing on these two factors. Because the more we’re trusted, the higher the quality of our services, the more opportunities we will have to grow. So we see Trust and Quality as the drivers, and growth is the by-product.”

A key aspect of KPMG’s push towards growth both for itself and its clientele are strategic alliances with companies that specialise in the technology sector. Over the years, KPMG has tied up with world-renowned companies such as Alibaba, Microsoft, Oracle and Amazon, to name but a few.

“If you think about bringing the highest quality solution to a client, in today’s age, whether that’s fundamental technology, whether that’s security around the technology solutions that we bring, we realise that the opportunity to partner or do something together with an alliance partner can be a better solution for our clients. 

“If we’re providing a technology solution to a client, if we partner with the likes of Alibaba, Microsoft or Oracle, they bring the security end and the technology end, we bring our knowledge of the client, our expertise in the industry, and the opportunity to architect the overall solution for a client’s needs. The combination of those two is a much better answer than either one of us trying to do the whole thing ourselves, which in today’s world I don’t think is the right answer.”

Opportunity for Sri Lanka

According to Reyaz, Sri Lanka has a unique opportunity to make up for the time that was lost during the 30-year civil war. With a literacy rate of 93% – the highest in South Asia – Sri Lanka’s population is extremely trainable and extremely literate. While the country’s focus, in terms of growth and attracting FDI, has more recently been in driving exports, for Mihular Sri Lanka’s future lies “in our ability to be a strong service supplier to the global supply chain”.

“We can’t have huge manufacturing facilities, we’re not geared for that, we don’t have the scale to do huge manufacturing plants or factories for that matter. What we can bring to the world is the quality of our services, and that is an area that there is a lot support from the government to make our country a knowledge base which can support the global supply chain. And a lot of our fiscal policies have been geared to support that,” stated Reyaz.

In short, there is an opportunity for Sri Lanka to position itself as a technology hub similar to Silicon Valley, driven by the solid technological know-how of the country’s workforce.

“Ever more increasingly I think, things like technology hubs are areas of unique interest for specific clients and/or countries that are projecting themselves with a ‘this is my niche’ profile, and I think that’s something you see around the world, especially in smaller countries that don’t have the ability to diversify the way in which big countries do,” added Bill.

“They are self-declared in saying ‘I’m going to be famous for X, Y or Z,’ and I think this strategy is really important in today’s world where it’s a lot easier for people to engage with each other, for businesses to engage with each other. So far less important today’s distance, far more important today’s specialty.”

Sri Lankan companies urged to leapfrog

If attracting foreign firms to Sri Lanka is its most pressing challenge, one where Sri Lanka has really been struggling with is in the ability of its homegrown companies to make an imprint on the regional and global stage. Companies such as Spa Ceylon and Dilmah standout, but for the most part, when compared to regional neighbours, these success stories can seem too few and far between.

However by utilising the expertise of firms like KPMG, Reyaz believes Sri Lankan companies can get a leg up on their regional counterparts.

“In this part of the world, beyond Sri Lanka and MESA, we are playing catch up,” he laments. “One of the things that they’re trying to do is use technology to leapfrog, and that’s where I believe firms like us come into the picture. Companies don’t want to go through the normal incremental approach, because if they do that they get left out – they want to leapfrog.

“They want to take the best of what is being practiced around the world, the best in class solutions to be made available to them. And that’s where I see the role of firms like KPMG. We are able to bring to our clients the best-in-class solutions that are applied in some of the most advanced economies in the world. Because we’re part of a global network.”

Further, KPMG also offers curated solutions to family-owned businesses. For countries like Sri Lanka, where close-knit communities and family run businesses are more frequent than ever, Reyaz feels KPMG has a big role to play.

“We have family businesses, that’s another area we want to take part in a big way in Sri Lanka. A lot of our companies, even listed companies, are primarily family-owned. We’ve got expertise from KPMG Germany and KPMG Australia, to train our teams on offering services to family businesses. Today we’re leading in providing real family business advisory services. Not just auditing family businesses but offering advisory services to family businesses like family business constitution, family business councils, succession planning, board room governance etc.

“But we could not have offered all of these specialised services alone. We were able to bring the relevant expertise to our clients from the relevant part of our global network. What our clients value in us is not just traditional audit/tax services, which any local firm also can provide. They want best-in-class solutions because they need to leapfrog.”

Bill however warns that for leapfrogging to truly work, it needs to be a countrywide initiative. This means both the public and private sectors coming together in acknowledgment of what exactly needs to happen, and the steps that need to be taken to make it happen.

“Leapfrogging is not going to happen if it’s just one or two entities trying to do that alone,” notes Bill. “When we see countries that have differentiated themselves, it has been a holistic concerted effort, whether that’s the corporate environment in terms of the full vertical stacks, or the actual differentiation plus the infrastructure that goes on, plus the government working together to say: ‘this is what we’re going to be famous for’. 

“That is a leapfrog-type opportunity, otherwise I think company by company, they would have to have a kind of one-off product or service that’s truly differentiated in order to really profit.”

 AI and automation 

 “World-changing technologies over human history all involve a common element: Control. Steam and light—and a long list of inventions and technologies—emerged because we are able to guide natural forces into transformative power. Aviation would not exist without the mastery we have attained over flights. Artificial Intelligence (AI) has the potential to be just as world-changing.” So states the start of comprehensive report available on the official KPMG website.

This shows you how seriously KPMG takes AI and automation as one of the biggest drivers of growth for companies and economies.

“Every conversation [with my clients] revolves around two things, everybody wants to know how technology affects them and they want to try and see how we can help them use technology to stay ahead of the race,” explains Reyaz.

“Because they know that if they take their eyes off the ball they can lose out completely. The second thing they keep talking about is people, the right people, not just literacy, who can help them take the company forward with technology. There is demand, there are a lot of CEOs who talk about AI and data analytics, they know they have a lot of information that they’re just sitting on, but they’re not doing very much about it. They keep asking about how to leverage it. 

“The need is there, the thirst is there, and I think it’s a matter of bringing together the solutions which can help them achieve their long term goals.” 

Bill agrees. For companies in Sri Lanka, or any country in the region for that matter, to be truly successful in leapfrogging their competition, he believes that it’s not simply about being different but also about sustaining that differentiation in new and exciting ways. A good idea can only get you so far after all.

“I truly think there’s an opportunity in almost every single industry to differentiate with automation. Can Sri Lanka be the one to differentiate? I would argue for sure. They have to have the right skills and the right people,” he says enthusiastically.

“But how do you make sure that’s where you focus, and how long can you stay differentiated? Because that’s the other side; the beauty of automation is that it allows you to be differentiated, but depending on the cost of that automation, it doesn’t allow you to be differentiated very long. So then you have to decide ‘how do we have sustainable differentiation?’ Which is more about picking what you want to be famous for, than it is to say do we have the right people to do this.”

For both Bill and Reyaz, securing this differentiation is where firms like KPMG really come into their own.

“I think where we are in this day and age, there’s incredible change in every business, but in our profession and our business there’s incredible change that comes from either expectations of the public or technology disruption, and that change I think is going to require us to ensure that we never lose sight of our roots,” concludes Bill.

Reyaz adds: “We have over the years won many accolades, but one thing we’re particular proud of was being recognised as the most respected firm in the financial services sector. To us, that was very, very important because it was a study carried out by an independent firm. While being one of the largest professional firms, this recognition as being the most respected firm means a lot to us, because this recognition is what will take us on to a sustainable business platform.”

Pix by Upul Abayasekara