The Hindu : Global cos. plan $356 b business transfer

Online edition of India's National Newspaper
Saturday, Apr 19, 2003

Business

Business

Global cos. plan $356 b business transfer

WASHINGTON APRIL 18. India will gain substantially from the world's 100 largest financial services companies' plans to transfer about $356 billion worth of operations and two million jobs offshore over the next five years to reduce costs, says a survey.

The survey by New York-based Deloitte Research found that financial institutions expect to reduce costs by nearly $1.4 billion each by 2008 by sending work to low-cost centres such as India, from developed economies in North America, Europe and Asia.

The survey, in which 27 of the world's largest institutions participated, offers a snapshot of what financial-services concerns are planning in their efforts to transform their operations by reducing their cost base and making their organisations more international.

Thirty per cent of the respondents now have existing offshore operations and that percentage is expected to climb to 75 within two years, according to the survey. It suggests that the firms achieve 39 per cent cost savings by moving operations to low-cost centres.

Of financial-services firms transferring functions offshore, nearly half are targeting India, which has a huge market of IT professionals who earn much lower wages than elsewhere. Ireland and South Africa are also attractive offshore centres, with China, Malaysia and Australia growing in popularity, the study found. Deloitte Research estimates that more than a million jobs or about half of the estimated relocations will move to the Indian Ocean rim over the next five years.

"Offshoring is gaining momentum at a rapid pace," says Christopher Gentle, a director at Deloitte Research. "And getting offshoring experience as soon as possible translates into greater benefits, from higher cost reductions to more business processes being handled by the low-cost centres".

The survey shows that banks and insurance firms are transferring offshore functions such as application development, coding and programming, accounting and finance, operations, processing and administration, contact support and call-centre operations.

Since decisions to go offshore are significant ones, the chief executive officer, chief financial officer, chief information officer or chief operating officer makes 90 per cent of these. And as the size and complexity of the offshore moves increase, approval by the CEO is set to increase to 45 per cent from 20 per cent.

Among other conclusions drawn from the study are that the offshore trend is driving a radical shift in the structure of the global financial-services industry and this transformation is just beginning. Financial institutions that can utilise their existing offshore facilities expect significant future savings because they leverage offshore scale and scope and the challenge is achieving economies of scale. — UNI

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