London, July 01, 2004
Deloitte
The number of global financial institutions that moved specific functions
offshore increased by 38 percent in the last year, according to the
second annual global financial services industry offshore survey conducted
by Deloitte.
Within six years, more than one-fifth of the financial services industry’s
global cost base will have shifted offshore, resulting in an average
savings of 37 percent per relocated process, according to the survey,
which further shows that both large and small institutions are using
offshoring as a competitive advantage to deliver higher quality service
and lower cost while improving core processes through global operating
capabilities.
Overall, the top 100 global financial services institutions –
those with market capitalisation exceeding $10 billion – will offshore
approximately $210 billion of their cost base, with an average cost
savings of more than $700 million by the end of 2005.
“Last year, we predicted that offshoring would completely transform
the global financial services marketplace over the next five years;
however, we didn’t anticipate how quickly this transformation would
occur,” said Chris Gentle, director at Deloitte. “In the last
year, we estimate the number of offshore jobs in financial services
has increased by a factor of five.”
Gentle added, “And now, for the first time, we’re seeing
economies of scale becoming a factor and having a direct impact on the
top and bottom line within the financial services industry. Clearly,
offshoring is unleashing a potent, new competitive dynamic.”
The new report, “The Titans Take Hold,” examines the latest
trends and developments in offshoring and provides insights to help
financial institutions understand the potential impact. The survey is
based on responses from 43 financial institutions based in seven countries
and included 13 of the top 25 companies in the world by market capitalisation.
The primary destination for financial services offshoring continues
to be India, which, according to the Deloitte report, receives approximately
80 percent of all financial services offshoring activity. Gentle credits
India’s scale, skills, culture and governance as the primary factors
for attracting financial services operations. The research notes the
Philippines and Malaysia are leading secondary destinations.
In spite of the projected cost savings, success via offshoring is anything
but guaranteed. “While the move offshore can certainly create new
long-term revenue opportunities for companies operating offshore, there
is a caveat—it brings no guarantee of success,” said Gentle.
“The key is to take a holistic view of the risks and benefits,
starting with an understanding of which processes can be relocated offshore.”
Initial offshoring activity requires approximately four to five months
of planning and three to six months to deploy; however, the return-on-investment
time frame is estimated to be one to two years (a figure that is expected
to diminish with offshore experience and capabilities).
Other results from the survey include:
While 90 percent of the companies surveyed have not brought operations
back onshore, more than 50 percent have contingency plans should they
face a serious problem.
More than half of the companies surveyed have already established full-service
capabilities that include information technology, operations and call
centres and customer support.
More than 60 percent of respondents said management of intellectual
property is important.
“Understanding cost, complexity, culture and compliance –
the “four Cs” – are vital to developing offshore operations,”
said Gentle. “Firms that choose to venture into this arena must
properly assess their potential success rate and execute their plan
with precision, both strategically and globally