US investment bank Goldman Sachs plans to outsource more middle and front office functions to India as part of a $30m investment in building up its offshore services facilities.
David Simons, head of the Bangalore centre, told Reuters reporters that the bank plans to to increase the number of staff employed at the unit to 800 by the end of the year. He expects headcount at the unit to reach 1000 "very quickly", although future expansion would depend on business growth.
The Bangalore centre, which was established last year, is able to house up to 1500 staff. The bank says the centre is not a back office processing unit but is focused on the front and middle office and employs a wide range of workers including accountants, equity researchers, treasury staff and IT professionals.
Simons says the bank plans to increase the level of skilled workers employed in the centre.
Other banks including Bank of America and HSBC are also expanding their offshore operations in Asia. HSBC plans to almost double the number of staff employed at its offshore back office centres in Asia over the next three years and cut more jobs at its operations in Europe and the US, while Bank of America is setting up a second offshore unit in Mumbai which is expected to open in the summer.
But while many banks look to extend the amount of work carried out in offshore centres, the latest research from management consulting firm DiamondCluster suggests that the number of firms prematurely terminating contracts with offshore service providers has doubled to 51% while the number of buyers satisfied with their offshoring providers has fallen from 79% to 62%.
The research also found that five per cent of buyers are planning to reduce offshore outsourcing spending, while seven per cent will cut spending on on-shore outsourcing.
Tom Weakland, who leads the outsourcing advisory services practice at DiamondCluster, says: "Companies are learning that the tremendous cost-savings outsourcers have been promising are actually very difficult to achieve. And they are learning more about the cost of losing good people and the value of their institutional knowledge."
The study also shows that the majority of companies are still concerned about the public backlash over offshoring, with 88% of respondents concerned about employee reactions to outsourcing, 67% about employee severance costs, 66% about customer reaction and 65% about negative publicity.
The DiamondCluster research also found that 40% of buyers expect to outsource some IT functions to China over the next three to five years compared to just eight per cent last year.