Outsourcing has negative impact on bank share prices - LogicaCMG

Outsourcing has negative impact on bank share prices - LogicaCMG

New research conducted by the Centre for Economic and Business Research (CEBR) and sponsored by IT services firm LogicaCMG shows that outsourcing by UK banking and insurance firms could have a negative impact on company share prices.

The research compared historical stock market data of companies that had announced outsourcing contracts, with firms in the same industry which haven't disclosed outsourcing deals or have not outsourced at all.

Overall the study found that shares in companies that had outsourced some business functions on average performed 1.7% better than firms that kept everything in house in the month after the outsourcing deal was announced. LogicaCMG says the research shows that IT outsourcing could boost UK companies' share prices by £10bn and increase gross corporate profits by £4.2bn over the next five years.

But a correlation between increasing share prices and outsourcing announcements was not found in all of the industry sectors covered: Two out of the five sectors - banking and insurance and telecoms - showed negative performances.

Shares in banking and insurance firms fell almost one per cent after an outsourcing deal was announced, while shares in telecoms firms decreased almost two per cent. LogicaCMG says the negative impact on financial services firms could be due to fears over the potential reduction of customer service levels, for example with front office call centres being shifted offshore.

Guy Warren, chief executive, UK, LogicaCMG, maintains that overall, the research shows that successful companies do outsource and that more outsourcing would create greater corporate value across the UK economy.

But LogicaCMG adds that outsourcing can positively affect company valuations only if firms that choose to outsource communicate to investors what they plan to do with the cost-savings and the opportunities for re-investment that outsourcing creates.

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