In a comprehensive survey of their moves offshore, the world's 100 largest financial-services companies indicate they expect to transfer an estimated $356 billion of their operations and two million jobs offshore over the next five years in efforts to reduce their costs significantly.
The survey by Deloitte Research found that financial institutions expect to reduce costs by nearly $1.4 billion each by 2008 by sending work to low- cost centers like 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 organizations more international.
Thirty percent of the respondents currently have existing offshore operations and that percentage is expected to climb to 75 percent within two years, according to the survey. It suggests that the firms achieve 39 percent cost savings from moving operations to low-cost centers.
“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 centers.”
The study draws four principal conclusions:
One: the offshore trend is driving a radical shift in the structure of the global financial-services industry and this transformation is just beginning.
Two: financial institutions that can utilize their existing offshore facilities expect significant future savings because they leverage offshore scale and scope; the challenge is achieving economies of scale.
Three: firms aspiring to move offshore should move quickly to capture the benefits of doing so, but the challenge is building capabilities quickly and prudently.
Four: firms who don't move offshore risk being left behind because companies moving offshore estimate future cost savings at about 45 percent.
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 centers, with China, Malaysia and Australia growing in popularity.
Deloitte Research estimates that more than a million jobs — or about half of the estimated relocations — will move to Indian Ocean rim over the next five years.
The survey shows that banks and insurance firms are transferring offshore such functions as application development, coding and programming, accounting and finance, operations, processing and administration, contact support and call-center 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 percent of them. And as the size and complexity of the offshore moves increase, approval by the CEO is set to increase to 45 percent from 20 percent.