The Hindu Business Line : Financial services offshoring moves up the value chain

FINANCIAL services offshoring to India is moving up the value chain, with global financial firms increasingly transferring specialised functions such as share transfer registry work, superannuation fund accounting and trust administration accounting to the country.

According to a study by consulting firm Deloitte, with the system improvements developed offshore increasingly being adopted at the company's headquarter, many firms now routinely ask their India managers for feedback on improving overall operations.

For instance, a major US Corporation, which was initially drawn to India because of cheap labour, has now hired 15,000 "highly skilled" individuals. It has also widened the range of offshore operations to include specialised activities such as high-end analytics and financial remodelling.

The survey has found that high performing financial institutions offshore 6.7 per cent of their global headcount, well ahead of the study average of 3.5 per cent, mostly to India.

The Deloitte report corroborates a recent survey report by global investment bank Morgan Stanley that found that Chief Information Officers are increasingly willingly to send more sophisticated, high-end work offshore.

Paying off: The advantages of offshoring by the financial services firms are clearly visible. The Deloitte study finds that UK financial services firms have reported higher cost savings through offshoring than their global counterparts, with average cost savings of about 47 per cent - about 10 per cent higher than the global average.

India remains the dominant offshore location of the UK respondents, with 100 per cent of respondents having a presence in the country, while about 40 per cent have a second centre in a location other than India, including China, Canada, South Africa and Singapore.

According to industry estimates, financial services firms in the US have saved an estimated $3.3 billion over the last four years by offshoring to India.

Scope for expansion: According to Deloitte estimates, there are "significant benefits" for financial institutions to expand the scope of offshore operations since institutions that only move a single function offshore typically report average cost savings of 20 per cent, against average savings of over 40 to 50 per cent reported by companies that offshore multiple functions.

Currently, UK organisations offshore an average of three functions and most of them are rapidly increasing their offshore headcount.

According to the survey, executives expect 20 per cent of the total cost base to be moved offshore by 2010 — a rise from 10 per cent in 2006. Similar trends are expected in relation to headcount with 10-20 per cent of financial services employment expected to be offshored by 2010. The study, however, points out that financial services companies are capturing less than one-third of the potential cost savings offered by offshoring operations.

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