New Delhi, 15 September 2005 - The scale of offshoring in the financial services sector is set to virtually double by 2008, according to PwC latest survey entitled Offshoring in the Financial Services Industry: Risks and Rewards, launched today. A quarter of participants currently offshore between 10% and 20% of their headcount, however, in 3 years’ time, almost half the respondents expect this to be the case. Financial services firms which offshore jobs solely as a cost saving strategy, or do not approach projects with caution will fail to reap the full benefits such as greater operational efficiency and increased shareholder value.
Cost saving was the main reason for offshoring for 79% of the 156 executives surveyed. Indeed in the longer term 74% of financial services firms saved costs by offshoring activities. However the benefits were less immediate in the first year of the project; nearly a third of survey participants actually experienced no change in costs in the first year after offshoring functions and 15% of respondents reported no change in cost base even after five years of offshoring. Other benefits of offshoring identified by those surveyed were strategic flexibility and improved quality of service.
The survey found that nearly half of financial services firms currently offshore transaction-based IT activities and only 12% of companies surveyed do not offshore any activities at all. By 2008, however, a further third of respondents plan to offshore HR activities such as payroll and a further 25% expect to offshore customer contact activities such as scripted sales calls. It is not just transactional activities which will be sourced offshore in the future. Knowledge-based activities such as financial research and modelling will be offshored by 2008 predicts 22% of the organisations surveyed.
Jeremy Scott, Chairman of PricewaterhouseCoopers Global Financial Services Leadership Team, commented:
“Financial services executives who are looking to reap the most rewards need to view offshoring as a long-term process to improve performance in the organisation as opposed to a cost cutting mechanism. Some companies fall victim to initial over-enthusiasm but successful firms will be realistic when drawing up savings targets. They should plan ahead exhaustively when considering offshoring as there can be hidden risks for the unwary, not least to a company’s reputation if there are any offshore security breaches”.
The survey also showed that only half of the 156 executives surveyed were satisfied with the overall impact of offshoring activities. The top three risks highlighted were finding and attracting people of the right quality to work in offshore centres, deteriorating quality of service and cultural differences between home and host markets. Other concerns were rising wages caused by the demand for educated staff and rising turnover in the most popular offshore destinations. According to a recent report1 the turnover of staff in main centres in India can be between 40 and 60%. Training and career development opportunities were cited by four out of five of executives as the most effective way to retain offshore employees. These staffing pressures will only intensify as the trend to offshore gains ground.
According to the survey, India is currently the most popular offshoring destination on the basis of nine attributes such as macroeconomic stability, regulations, and labour costs and skills. Thanks to its combination of an educated, English-speaking population, low costs and highly-skilled workforce, India’s BPO market has grown at an annual rate of between 40% and 50% over the past few years. Joydeep Datta Gupta, leader outsourcing advisory with PricewaterhouseCoopers in India informs:
“So far offshoring has been centred round a few key cities in India such as Bangalore, Delhi-NCR, Chennai, Hyderabad and Mumbai. As costs in these places rise, others are likely to come into the frame, maintaining the country’s overall competitiveness”.
Notes to Editor:
- The Evolution of BPO in India, PricewaterhouseCoopers. To obtain a copy, please contact Nandini Chatterjee on 011 51250202 or nandini.chatterjee@in.pwc.com
- The financial services group of PricewaterhouseCoopers has developed a global programme of briefings to address key strategic issues facing the industry with the emphasis on drawing conclusions about best practice and future trends.
Other briefings in the series include:
- Growth
- Improving Performance
- Wealth management
- Economic capital
- Risk management
- Rebuilding public trust
- International Financial Reporting Standards
- Compliance
- Restructuring
- Governance
ENDS
