The world’s 100 largest financial-services companies say they expect to transfer about $356 billion of their operations and 2 million jobs offshore over the next five years in an attempt to reduce costs.
Moving jobs and business offshore is expected to save the companies approximately $1.4 billion each by 2008, according to a report from Deloitte Research, an arm of Deloitte Consulting, a global management consulting firm. Financial services companies from North America, Europe and Asia say they plan to send work to low-cost centers such as India.
”Offshoring is gaining momentum at a rapid pace,” says Christopher Gentle, a director at Deloitte Research. ”India stands to be the major offshore hub because of its combination of low-cost and high-tech expertise. But there’s no guaranteed bonanza for India unless it continues to deliver improved services at globally competitive wage rates. Competition from other countries around the India Ocean rim — from South Africa to Australia — will be fierce.”
Deloitte analysts predict that more than 1 million jobs — or about half of the estimated relocations — will move to the Indian Ocean rim over the next five years. Today, nearly half are targeting India, which has a huge market of IT professionals who earn much lower wages than in other countries. South Africa and Ireland are two other attractive offshore locations, with China, Malaysia and Australia growing in popularity.
The survey of 27 of the world’s largest financial institutions shows that the shift in operations already is well underway.
Thirty percent of the respondents say they currently have existing offshore operations. That percentage is expected to jump to 75 percent within two years, according to Deloitte analysts. The survey also notes that the companies can achieve a 39 percent cost savings by moving work to areas where salaries and other costs are much lower.
The survey also shows that banks and insurance companies are transferring offshore functions like application development, coding and programming, accounting and finance, contact support and call-center operations.
Deloitte reports that its analysts estimate that 2 million out of the 13 million people now employed in the financial services sector in North America, Europe and Asia will lose their jobs because of offshoring.