Offshoring in the financial services industry has happened much faster than anyone predicted with India accounting for four-fifths of the global market, a report has said.
Offshoring revolution in the financial services industry has happened much faster than anyone predicted and with far greater consequences with India currently accounting for around four-fifths of the global market, the report said.
India has been gaining market share from established centers, such as Ireland, Canada and China. The closest competitor for now appears to be the Philippines, it said.
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However, some concerns has been raised that India's success might complicate its future, as demand for skilled workers increases pressure on wages, a report prepared by well-known consulting firm Deloitte & Touche said.
The numbers involved in offshoring, said Deloitte, are staggering. 2003 saw a 46 per cent increase in the number of financial institutions with offshore operations, while the number of offshore jobs grew by 500 per cent.
The report predicted that by 2010 more than one-fifth of the overall industry cost base will have shifted offshore.
This implies cost savings of more than $150 billion, a massive boon for the biggest firms, whose economies of scale tend to make them the predominant practitioners of offshoring.
It is, of course, vital, said the report, that firms get offshoring right. Managers need to make the right offshoring decisions based on careful analysis of three main factors.
One is location, with India accounting for four-fifths of the global market for financial services, offshoring with the Philippines for now appearing to be the closest competitor.
The second is to buy or build. In the early days of offshoring, many firms outsourced offshore capabilities. In other words, they bought them, just as they would buy any off-the-shelf product or service. Increasingly, however, firms now seek to build capabilities themselves, retaining ownership and control of a captive arrangement via a wholly owned subsidiary, the report said.
Another model growing in popularity is build-operate-transfer, in which a hired vendor gets an offshore operation running smoothly before handing it over to the financial institution, it added.
The third factor is to decide to optimise now or later. Ambitious firms use the shift to offshoring as an opportunity to improve business practices and processes.
But this can be risky. Many firms prefer to move their processes as they currently stand (a practice known as shift and lift), putting off the effort to make improvements until the transfer operation has been successfully completed.
If they get these decisions right, said Deloitte, then firms should be well placed to harvest the fruits of offshoring.
Significant though these challenges are, however, said Deloitte, the potential gains make offshore one of the most compelling competitive forces in the history of the industry.
