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April 30, 2008

Deloitte to continue focus on BRIC

As Deloitte continues to post remarkable growth, the network’s chief executive Jim Quigley is, understandably, in a buoyant mood. He speaks to Arvind Hickman about the credit crisis, the network’s strategy and another solid performance across core service lines.

Uncertainty about the health of the global economy has failed to dampen the performance of the world’s second largest accountancy network over the past year. Deloitte recently revealed the combined revenues of its 69 member firms in 142 countries will hover above the $27 billion mark in the 2008 financial year.

Global chief executive Jim Quigley, who celebrates a year in the top office this month, tells the International Accounting Bulletin Deloitte’s near 17 percent growth is the result of a strong advisory arm, stable core service lines and booming growth in the BRIC countries and other emerging markets.

“I believe the results validate our business model that we’ve got excellent diversification from a geographic point of view,” Quigley says.

“We are a strong presence in the emerging markets, where we have growth well in excess of those overall growth rates, and a good diversity of our business model with a very balanced view of the audit, tax and our consulting and advisory services. Each of those businesses are performing well but our advisory business is performing particularly well this past year.”

Quigley believes Deloitte’s advisory line has prospered by being able to offer what he describes as a “strong business case” for services such as financial advisory or assistance in setting up new business models. This is especially the case in times of financial turmoil where clients draw on the expertise of financial advisors to steer them through troubled waters.

“The credit crisis has caused a tempering of growth and has caused our clients in some cases to not have the liquidity that they want to be able to complete some of those transactions,” Quigley says.

“We are assisting our clients as they work forward with the challenges they face themselves and in some cases we would be redeploying some resources to service offerings that are experiencing stronger growth than others that are more directly impacted by those trends.

“The M&A would be a prominent example because some of the very large deals that have been a significant contributor to our growth aren’t being done with the same pace that they once were.”

One service line that hasn’t exceeded the firm’s expectations is audit, although it is just about on par with planned growth.

“It was very, very close to the plan that we laid but the other businesses have exceeded those plans and its just the impact of a little bit of a slowing in the economy and the way that it rippled through our businesses,” Quigley says.

“There have been some changes in the audit business in terms of new audit standards and the impact that has on the volume of work that we are required to do. Audit Standard 5 in the US, related to Sarbanes Oxley, has reduced the amount of work that we are required to perform in connection to those audits, that’s just one example.” Building BRIC Like most firms, Deloitte has prospered in the emerging markets and further investment in these areas remains a core strategic focus of the network. Quigley tells the International Accounting Bulletin that Deloitte firms in the BRIC countries of Brazil, Russia, India and China are being injected with resources to service the burgeoning demand.

“The levels in the BRIC countries for expansion is significantly higher [than developed markets]. We’re on our way towards 10,000 people in China. We will definitely cross that 10,000 person mark within the next three years. We may even get to that benchmark sooner. We are already there with respect to the number of professionals in India.

“In Russia, we’re at 3,500 and we’re heading towards 5,000 to 7,000 people in the next two years,” he says, noting that Deloitte’s network wide workforce grew from 150,000 to 165,000 employees in the past year.

“Those BRIC areas will continue to be a focus for us as we watch their contribution to projected GDP continue to expand. One of the data points that we’ve brought into our strategic planning activity to emphasise the point is if you look forward at projected GDP over the next five years, 40 percent of the projected growth is expected to come from the BRIC countries themselves. So with that comes the need for capital. Then services associated with the stewardship of capital and services related to the very efficient and effective deployment of capital.

“There’s an opportunity for professional services firm like ours that is driven by the growth and the expansion of capital markets. So those are very important markets to us and will continue to be.”

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