Offshore outsourcing set to boom
Fecha Viernes, julio 04 @ 10:14:00
Tema Inversores :: Investors & VCs
| Recent research of decision makers in the financial services marketplace undertaken by Deloitte Consulting and Datamonitor has revealed that offshore outsourcing, the relocation of business functions and processes to a lower-cost location on a long-term basis, will grow dramatically within the next four years.
An estimated $356 billion of cost for the global financial services industry will be relocated offshore within the next five years, translating into a bottom line annual cost saving of $138 billion for the world's top 100 financial services companies, claims a recent study of financial services chief executives undertaken by Deloitte Research.
The study, entitled The Cusp of a Revolution: How Offshoring will Transform the Financial Services Industry also indicates that global headcount migration promises to be significant, estimating that up to 2 million jobs could be moved offshore within the industry.
"The shifting of activities to lower-cost locations ignites the possibility of transforming the structure of the financial services industry," states the report. "It offers a once-in-a-generation opportunity to reduce significantly the operating costs of the majority of financial institutions."
A number of major financial institutions in the US and Europe, including GE Finance, Citibank, J P Morgan, HSBC and Lloyds TSB, have been building up offshore locations for a number of years, with India emerging as the top destination for back-office functions, software development and more recently call and contact centre outsourcing.
However, Chris Gentle, author of the report, says that the survey indicates that, "rather than a handful of firms outsourcing offshore, the trickle will soon be transformed into a flood. Two factors are driving the movement of functions offshore: the sheer pressure to reduce costs in the drive to remain competitive and business continuity issues following the September 11th attacks. The reality for many companies is that while they relocate offshore for cost, they stay for quality. Moving to a lower-cost location doesn't necessarily trigger a fall in the quality of the inputs or in customer service."
Deloitte's research also highlighted the fact that nearly half of the financial institutions surveyed are planning offshore moves within the next two years. "The offshore bonanza has huge potential with transformational consequences for the industry," states the report. "The financial services industry is on the cusp of a real revolution."
Another report from Datamonitor on the same subject, Benefiting from Offshore Outsourcing in Financial Services, which surveyed 150 interviews with European financial services institutions, reveals that UK providers are most receptive to offshore outsourcing overall, with 29 percent of respondents saying that they are actively considering it and a further 14 percent indicating that they are likely to use it in the future. Nordic institutions are also open to outsourcing, says the survey, with 25 percent of respondents actively considering it.
German institutions, however, are the most sceptical, with over 90 percent of respondents unlikely to consider an offshore outsourcing deal.
Datamonitor claim that companies in southern Europe also expressed reluctance, although it said this can be attributed to the fact that IT labour costs in these countries is relatively low, therefore negating the need for offshore outsourcing.
Nevertheless, despite scepticism, Datamonitor claims that financial institutions are increasingly considering their options, with the survey showing that despite a difference in take-up to date, retail banks and insurers are equally open to the potential of using offshore outsourcing, with 28 percent either actively considering using it now or in the future.
The move to offshore outsourcing by some companies in the UK and Europe has been seen as controversial. The announcements by Prudential and Aviva in the UK to outsource offshore were met with strong resistance from trade unions, who are still in discussions with the companies. However, industry commentators are unanimous in their views that cost savings that can be experienced with offshore outsourcing will ensure that many more companies jump on the bandwagon, "Cost is the primary reasons for financial services providers to consider offshore outsourcing and I believe we will see many more companies taking the decision to transfer services abroad," commented Peter Redshaw, principal analyst at Gartner Research Europe. "There's real potential for companies to outsource back-office processing, such as life and pensions administration and other such activities. At present, financial institutions are testing the water by outsourcing internal, non-core processes offshore, but I believe that we will continue to see a move to other, perhaps more customer-facing, processes, such as call and contact centre work." -- from Financial Services Distribution, June 2003
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