Global Finance Firms Plan Huge Jobs Reshuffle

(SINGAPORE) The world's 100 largest financial services companies plan to move an estimated US$356 billion of their operations and two million jobs offshore over the next five years, according to a survey by Deloitte Research.

The survey, to be released today, found that the relocation of backroom activities and business processes will cut costs by almost US$1.4 billion per bank by 2008.

Almost half of the 27 largest financial institutions that took part in the survey intend to relocate to India, where cities like Chennai and Hyderabad, with their large pools of modestly-paid IT professionals, are already proving to be popular offshore hubs.

But Ireland and South Africa are also attractive, while China, Malaysia and Australia are growing in popularity.

Among the activities earmarked for relocation by banks and insurance firms are software application development, coding and programming, accounting and finance, processing and administration, contact support and call-centre operations.

Gerrit Q Anderson, practice leader for financial services industry at Deloitte Consulting in Singapore, described the planned relocation as a 'once-in-a-generational opportunity' for the institutions to slice a large chunk off their cost base. In an interview with BT, he said: 'It's very rarely in a business cycle or in a generation of 15 years do you get a chance to cut 15-30 per cent off your cost base . . . it's only recently that the telecommunications infrastructure has been such to allow true offshoring on a global basis.'

Major financial institutions that have already shifted processing activities offshore include GE Capital, Citigroup, HSBC and Standard Chartered. In Singapore, DBS Bank became the first local bank to outsource its IT operations when it cut a 10-year, $1.2 billion deal with IBM last year that aims to lower the cost of running its networks and data centres in Singapore, Hong Kong and Thailand.

Outsourcing to third parties is seen as a more logical move for medium-size institutions that don't have the scale of operations or management expertise to handle offshore processing by themselves.

Mr Anderson said IBM is building data centres to service DBS as well as other financial institutions. 'They end up with scale that DBS could never have by itself . . . the next logical step is for IBM to take some of the processes to a lower-cost country.'

He would not be surprised, he said, if United Overseas Bank and OCBC Bank follow in DBS' footsteps.

He added that smaller institutions will have no choice but to outsource as they will need to bring down their cost per unit to levels enjoyed by the bigger ones that go to low-cost offshore centres.

The survey - titled The Cusp of a Revolution - cites the example of Citigroup, which has been developing offshore processing hubs for many years as a core part of its 'scalable' business model.

It says the bank's finances demonstrates the power of such a model. Over the past five years, costs have grown by US$12 billion while revenue has risen almost US$35 billion, making the New York-based bank the world's most profitable company.

Mr Anderson, who worked previously for Citibank, said that in the early days, Citi's decision to set up software centres in India was prompted more by the question of what to do with the Indian rupee profits it could not repatriate than how to cut costs through going offshore. HSBC, a relative latecomer to the offshore game, has also built so-called 'global processing centres' quickly and efficiently, the survey found.

'Most banks will rush offshore in the next five years,' Mr Anderson predicted.

The shift overseas is already under way. Thirty per cent of the respondents now have offshore operations and this is expected to climb to 75 per cent within two years, the survey found. Firms achieved 39 per cent of cost savings from moving operations to low-cost centres, it says.

Mr Anderson said more expensive cities like Singapore, with its political stability and developed infrastructure, can still be viable as an offshore base for higher-end activities like backroom treasury operations and business continuity centres.

The move offshore, however, comes with a health warning. 'Get it right the first time,' the survey says. It adds: 'Our research shows that those financial institutions that moved offshore too quickly are operating on a sub-optimal basis. Indeed, the lower-than-expected results from a sub-optimal offshore investment can spark a backlash within the organisation about planning future moves.'