UK: Offshoring among global financial services institutions increases by 38 per cent in one year
Last Updated: 5 July 2004

Global financial services institutions' offshoring practices transform business models and create competitive advantage

The number of global financial institutions that moved specific functions offshore increased by 38 percent in the last year, according to the second annual global financial services industry offshore survey conducted by Deloitte.

Within six years, more than one-fifth of the financial services industry's global cost base will have shifted offshore, resulting in an average savings of 37 percent per relocated process, according to the survey, which further shows that both large and small institutions are using offshoring as a competitive advantage to deliver higher quality service and lower cost while improving core processes through global operating capabilities.

Overall, the top 100 global financial services institutions ' those with market capitalisation exceeding $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.

"Last year, we predicted that offshoring would completely transform the global financial services marketplace over the next five years; however, we didn't anticipate how quickly this transformation would occur," said Chris Gentle, director at Deloitte. "In the last year, we estimate the number of offshore jobs in financial services has increased by a factor of five."

Gentle added, "And now, for the first time, we're seeing economies of scale becoming a factor and having a direct impact on the top and bottom line within the financial services industry. Clearly, offshoring is unleashing a potent, new competitive dynamic."

The new report, "The Titans Take Hold," examines the latest trends and developments in offshoring and provides insights to help financial institutions understand the potential impact. The survey is based on responses from 43 financial institutions based in seven countries and included 13 of the top 25 companies in the world by market capitalisation.

The primary destination for financial services offshoring continues to be India, which, according to the Deloitte report, receives approximately 80 percent of all financial services offshoring activity. Gentle credits India's scale, skills, culture and governance as the primary factors for attracting financial services operations. The research notes the Philippines and Malaysia are leading secondary destinations.

In spite of the projected cost savings, success via offshoring is anything but guaranteed. "While the move offshore can certainly create new long-term revenue opportunities for companies operating offshore, there is a caveat'it brings no guarantee of success," said Gentle. "The key is to take a holistic view of the risks and benefits, starting with an understanding of which processes can be relocated offshore."

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).

Other results from the survey include:

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

"Understanding cost, complexity, culture and compliance ' the "four Cs" ' are vital to developing offshore operations," said Gentle. "Firms that choose to venture into this arena must properly assess their potential success rate and execute their plan with precision, both strategically and globally."

Deloitte & Touche LLP is the UK's fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of '1,228 million in 2002/2003. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press. Published: 29/6/04

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