PricewaterhouseCoopers, survey, offshoring, financial services, trends

Offshoring set to double in the financial services sector by 2008

16 Sep 2005 | (Survey)

A quarter of the participants in PricewaterhouseCoopers' recent survey currently offshore between 10% and 20% of their headcount, however, in 3 years' time, almost half of 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 modeling will be offshored by 2008, predict 22% of the organizations 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 organization 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 centers, 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 report compiled by PricewaterhouseCoopers entitled "The Evolution of BPO in India", the turnover of staff in main centers 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.

Paul Horowitz, partner, PricewaterhouseCoopers concluded: "Regulators are watching to ensure that standards of compliance and governance are maintained, particularly as offshoring shifts into areas which are more critical to business continuity and where concerns over client confidentiality and data protection prevail. Institutions need to stay close to the regulators whilst developing transparent processes and visible risk management procedures."

While offshoring presents risks to banks, insurance companies and asset managers, by moving jobs abroad companies can reduce costs on a long term basis and become more profitable, efficient and focused. Ultimately shareholders may receive a better return on investment which enables growth for the organization as a whole."

To obtain a copy of the survey, visit the PWC site

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