Financial Firms More Bullish than Ever on Offshoring

The second annual global financial services industry offshore survey conducted by Deloitte Research, a part of Deloitte Services LP, found that the number of global financial institutions putting specific functions offshore increased by 38% from a year ago.

By the year 2010, more than one-fifth of the financial services industry’s global cost base will have shifted offshore, resulting in an average savings of 37% per relocated process, according to the survey. The study said the data showed that both large and small institutions are using offshoring as a competitive advantage to deliver quality service and lower cost while improving core processes through global operating capabilities.

Overall, the top 100 global financial services institutions – those with market capitalization of more than $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, Deloitte said.

The primary destination for financial services offshoring continues to be India, which, according to the Deloitte report, receives approximately 80% of all financial services offshoring activity. Peter Lowes, the U.S. leader of Deloitte Consulting LLP’s outsourcing advisory practice, credits India’s scale, skills, culture and governance as the primary factors for attracting financial services operations. Next in line as financial service offshoring ports of call are the Philippines and Malaysia.

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), Deloitte researchers said in the study.

Other results include:

• while 90% of the companies surveyed have not brought operations back onshore, more than 50% 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 centers and customer support
• more than 60% of respondents said management of intellectual property is important.

The survey is based on responses from 43 financial institutions based in seven countries and included 13 of the top 25 financial institutions in the world by market capitalization.