Reshaping the professional services sector

Written by Nik Mohd Hasyudeen Yusoff

Monday, 22 June 2009 23:26

AS the services sector continues to grow and becomes more significant in our economic structure, the professional services sub-sector is expected to improve its performance, both domestically and globally.

While the contribution of the professional services sector to gross domestic product (GDP) is relatively small, the significance of this sector in nation building should not be underestimated.

The group of services which anchor this sector such as accountancy, legal, engineering and medical functions are similar to the intermediate products in the manufacturing sector. The quality of services provided by professionals in these disciplines forms critical components in ensuring the competitiveness of other industries and wellness of the nation as a whole.

For example, input from engineering and related services sectors is consumed across a large number of industries from construction, manufacturing, mining and even government services. The legal profession contributes towards the effectiveness of our justice system, which is evaluated when investors are considering their investment options. The integrity of our capital market depends on the quality of information that is disseminated to investors, where our accountants play a major role in the financial reporting supply chain.

As some of the professions in Malaysia were conceived a long time ago and even earlier than other industries such as information technology and education, one may wonder why the professional services sector has not moved further than where it is at present. After all, we are now in the knowledge economy and knowledge drives all these professional services.

All professionals were trained to develop knowledge, skills and values which are the pillars of each profession. This is why most professionals view themselves as “practising” their professional skills as opposed to running a professional business.

By adopting this view, professionals tend to be “in the business”, being busy with operational matters, rather than being “on the business” where the focus is on strategy, organisational development and ensuring their businesses remain competitive. Management skills, which are critical for running a sustainable business, may not be taught extensively during the training of professionals.

Most professions observe traditions that were passed from one generation to the next. This is reflected normally in their codes of ethics of the professions. Accountants and lawyers, for example, are only allowed to practise in partnerships whereas the construction-related professionals such as engineers and architects could set up limited companies. Advertising is generally restricted across the profession except for some professions like accountancy where advertising rules were liberalised in 2001. Equity is also limited to those from the profession although the equity requirements for the construction-related professionals are slightly liberal.

The position in the United Kingdom, Australia and the United States is different as market pressure could have forced the professions to revisit certain practices which may no longer be appropriate to the present business environment. Advertising and equity rules are more flexible resulting in more competition among the professional services providers.

The business models adopted by professional services firms could also be a factor in determining the quality of services offered and their level of competitiveness. As most professional firms are small, most of them have limitations in terms of brain power, intellectual assets and financial capabilities.

If we observe the larger firms in each profession, most would be affiliated to larger global networks. This allows the firms to have access to intellectual capital, expertise and offer their services in larger markets. Perhaps the smaller practices should start to consider this model and could consider collaborating among themselves domestically before joining global professional networks.

One caution with this approach is the risk factor which could increase due to the exposure of the network as a whole. Understanding risks and putting in place appropriate risk-management mechanism would allow firms to expand business while ensuring no surprises to their business.

One interesting feature about the Malaysian professional services providers is that they tend to rely on regulated fees. The construction-related professional fees are regulated by law whereas the legal profession imposes minimum fees on certain services. The accountancy profession has a “benchmark fee” which is not mandatory for audit services below a certain threshold.

The argument for the regulated fee is normally to ensure quality services to clients. Most professionals also apply the “time-cost” model where the fee is determined based on the cost of performing the services. While there may be merits to these practices, each client may have different ways of appreciating the value provided by the professionals. Perhaps it is time for professionals to re-evaluate their pricing models and adopt more competitive practices to ensure they could compete with others who are more innovative in services and pricing. Why not make pricing strategy a mandatory programme in professional training?

There are many other developments shaping professional services industries such as the growth of business process outsourcing centres globally that could absorb some work of the Malaysian professionals. The demand for a wider range of services would require professional firms to operate as multi-disciplinary practices, which are not allowable in some professions.

At the end of the day, regulation of professional services is about enabling the public more choices of quality services at competitive pricing. This should be the overriding consideration when professional bodies or the regulators of the professionals make their decisions.

A high quality and competitive Malaysian professional services would be one of the building blocks towards the creation of a high-income economy under the new economic model.

Nik Hasyudeen is the president of the Malaysian Institute of Accountants. He can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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Last Updated on Monday, 22 June 2009 23:27

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