One of the most significant challenges we face in Japan....

... is the overwhelming market share held by the Big 4 (actually most of it is held by three of them) which is far greater than in the USA, Europe or elsewhere.

The smallest of the Big 4 (PwC) is only about 25% of the size of the other three firms – and the next largest firm, which is a Japanese firm associated with PwC, is about 20% of the size of PwC – and thus only 5% of the size of the largest firm in Japan.  And the next several firms, including BDO, are even smaller.  Clearly we need to address this if we are to deliver on our brand promise to be the leading mid tier firm and a credible alternative to the Big 4 in every major economy.  At present we deliver an extremely high quality service but our lack of market share makes it difficult to overcome prejudices in favour of the Big 4 – and this is a challenge faced by all the firms aside the Big 4.

It was thus slightly ironic that on the plane home I read an article published earlier this month by the American Antitrust Institute (AAI) discussing their concern that the audit market is too highly concentrated in the Big 4 firms. http://www.antitrustinstitute.org/archives/files/AAI%20Working%20Paper%2010-01_010720101109.pdf

Their analysis of the situation and whether we now have accounting firms that are ‘too large to fail’ is interesting although not new other than they link it to current concerns about banks and other financial institutions being ‘too large to fail’.  Indeed, the AAI paper suggests that the US Congress should include the Big 4 in its review of the regulation of banks and other financial institutions.  The paper also suggests a somewhat more radical proposal – namely that the Big 4 each be required to divest “... no less than 20% of its domestic client revenue and the professionals who are needed to service the clients that are transferred out of the firm.”

Gosh – what do I say?  Now, I am well known for expressing concerns about the concentration in the audit market and the effect this has on competition and choice but even I would struggle to support such a proposal.  It seems to me to totally disregard the wishes, and the interests, of clients and of the people who work at the Big 4.  Clients and our people are not commodities to be ‘sold’  I am all in favour of appropriate action to correct what I regard as distortions in the marketplace, not least the banning of ‘Big 4 only’ clauses in banking and other agreements, but I think it is neither realistic nor desirable to force firms to ‘sell’ their clients and their people.

 Global Accounting  2 Comments January 25th, 2010