Financial firms to ramp up offshoring
16 November 2005 | 6250 views | 0
Financial services firms are expected to shift as much as 20% of their total headcount to cheap labour locations in the next four years as they look to benefit from scale economies in offshoring, according to a study conducted by consultancy Deloitte.
The 62 global financial services institutions quizzed by Deloite estimate that 20% of their total cost base will be moved offshore by 2010, a rise from the 10% expected in 2006. Similar trends are expected in relation to headcount, with 10-20% of financial services employment expected to be offshore by 2010.
India remains the dominant location, with 100% of respondents having a presence there, but China, Canada, South Africa and Singapore are becoming increasingly popular.
The study found that companies are currently capturing less than one-third of the potential cost savings offered by offshoring operations. The research claims that annual cost savings could jump to $16bn from $5bn now if the average employee headcount working in offshoring centres rose from its current level of 3.5% to the 6.7% achieved by the best-performing financial companies.
UK financial services firms are achieving higher cost savings through offshoring than their global counterparts, believes Deloitte, with average cost savings of about 47%, about 10% higher than the global average.
Deloitte says cost savings rise significantly as firms expand the scope of their offshore operations to multiple function or 'full service'. Financial institutions that move a single function offshore typically report average cost savings of 20%, while companies that offshore multiple functions enjoy savings of 40-50%. But the report found that many companies encountered an "alarming" drop-off in cost savings and quality after the third year of offshoring.
Although firms have traditionally offshored call centre work to overseas locations, the Deloitte study shows that other areas of work are increasingly being moved, with 70% of institutions surveyed now performing software application development offshore and 10% performing payroll abroad.