Sunday, May 25, 2003
Now, the UK's Telegraph worries about loss of local jobs
While the topic of the "backlash" is getting quite boring, what makes The Telegraph article reasonably interesting is that a) it is well written, and b) it throws some new numbers from a study of the efficiencies of financial services outsourcing conducted by accounting and consulting firm Deloitte & Touche. (*At last*, the media has found an alternative to the mysterious Forrester Research report--which supposedly says 3-m plus US jobs are set to go "poof" becuase of offshore outsourcing.)
(Some extracts by way of general background--ie, stuff that everyone--at least, in India--knows about:)
When the chairmen of the big UK banks and insurers get together, all they want to talk about is how fast they are relocating operations to India - and although they are all gung ho about it, they are slightly anxious about whether the Government will weigh in to slow the trend....
Centres in India handle the processing of student loans, queries about utility bills for Powergen and flight bookings for British Airways. A series of other British companies, including BT, HSBC, Prudential and Aviva, are shifting their call centres to the world's biggest democracy....
The big question is how America and Britain will cope as these forms of employment become extinct in their home economies. (Deloitte & Touche) estimates that 2m jobs in financial services alone are likely to move from developed economies to emerging nations in the next five years. Across all industries, the exodus of services jobs could be 4m....
(Here come the portions with the numbers:)
By 2008, financial services firms are expected to have transferred $356bn, or some 15 per cent of their total cost bases, to less developed countries, according to a recent study by Deloitte.
This would equate to annual bottom-line savings of $138bn, or an average of $1.4bn for each of the world's top 100 financial services companies. For leaders such as Citigroup and HSBC, there could be savings of two or three times that level.
By any measure the potential cost-savings are enticing. Processing costs, for instance, are estimated to account for about 20 per cent of a retail bank's total cost base.
A conservative saving of 20 per cent of that could lead to a 4 per cent improvement in the banks cost/income ratio - a key measure of efficiency - and a 2.5 per cent boost to its return on equity, according to Mercer Oliver Wyman, the consultant. In turn, these benefits could lead to an increase of 10 per cent to 12 per cent in the market value and share price of the average bank.
So banks such as Citigroup and HSBC are transferring even more jobs. Citigroup now employs 3,000 people in India in call centres and processing operations in Mumbai and Chennai. Analysts argue this has helped the group become the world's most profitable financial services firm: its revenues have grown by $35bn in the past five years, while costs have increased by just $12bn.
(The article's conclusion:)
But while the debate rages, it is clear that the economic forces at work are unstoppable. "We have to relocate these functions to India," says the chairman of a large British bank. "Not only are the running costs a fraction of what they would be here, but the quality of the workforce is significantly better. Taking advantage of that is a no-brainer."
(Extracts end)
Click Here to read the full The Telegraph article.
Why the critics of offshore outsourcing should relax: Conference Board
I *finally* came across an article that places the much bandied-about Forrester Research numbers (saying 3 million+ Americans will jobs due to offshore outsourcing) in proper perspective
Fortune writer David Kirkpatrick in his column titled "Net makes job exports easy", as expected, quotes the Forrester Research "estimates that 3.3 million US jobs will move offshore by 2015". But, thankfully, he also spoke to Ms.Gail Fosler, chief economist at research firm Conference Board, who says "the critics should relax". Fosler doesn't think that the trend will significantly hurt US employment. Fosler also points out that the US services sector loses about ten million jobs every year even as it creates another 12 million. "So a couple hundred thousand jobs a year going to India is a drop in the bucket," she says. In addition, this new means of holding down costs will combat inflation, benefiting consumers. And it will help US companies remain competitive in an increasingly brutal global marketplace.
(Wow!)
The Fortune column also gives a lot of prominence to the "Better quality of work" delivered by offshore workers.
(Extract:)
BPO doesn't just save money; it generally results in better work. It attracts the top people in the new countries, since the jobs tend to pay more than most local positions. Turnover is low, and people work hard to improve their skills.
"The shock has been that the quality of the work's better," says Dennis McGuire, CEO of TPI, an outsourcing consulting firm in Houston. "It reminds me of back when we assumed that if something was made in Japan, it was worse quality. We were wrong."
(Extract ends)
Click Here to read the full Fortune article.
