Contact: Ali Agmen-Smith
Deloitte
Public Relations
+ 44 (0) 207 303 0514
Contact: Jamie Harley
Deloitte
Public Relations
+44 20 7303 5037
- One third of financial institutions now offshore processes to China;
- UK and US still lead the way, with mainland Europe following fast;
- Offshoring no longer dominated by call centres.
Offshoring is saving the financial services industry an estimated £4.5 billion a year, up from around £2.5 billion a year ago, propelled by an 1800% increase in headcount over the last four years, according to the latest Global Financial Services Offshoring Report by Deloitte. The UK financial services industry alone now saves up to £1.5 billion per year from offshoring.
The industry’s savings have risen exponentially from around £250 million globally in 2003 as the average number of staff employed offshore has increased from 150 to 2700 in just four years. Over the last year alone, this has led to the average proportion of group headcount in lower cost countries doubling from 3% to 6%.
Over 75% of major financial institutions now have operations offshore, compared to less than 10% in 2001. UK and US banking and capital market institutions are leading this shift, but mainland Europe is showing increasing interest.
Deloitte’s research finds that more than half of all financial institutions are now saving more than 40% against their onshore costs for every business process offshored. In 2004, the figure was just 32%. However, the range of savings is polarising, and is now between 20 and 70 per cent per business process.
Chris Gentle, associate partner, financial services, at Deloitte and author of the study, said: “Offshoring is maturing at a rapid pace but, in future, the best offshoring strategies will not, and cannot, be based on labour arbitrage alone. Financial institutions need to re-engineer business processes, or risk simply transferring offshore the legacy inefficiencies of older, onshore processes.”
Financial institutions offshoring one or two business processes are saving 20% less, on average, than companies with over five business processes offshore. In 2003, two-thirds of activity offshore was IT-related. By 2006, over 80% involved a full range of business processes.
Offshoring has spread across nearly all business functions, with significant growth around transaction processing, finance and HR. Knowledge-process offshoring, such as investment banking analytics and research has also grown. This reflects a transition from a relatively tactical, arbitrage-driven approach to a focus on improving quality and processes.
Chris Gentle added: “The industry’s star performers have successfully deployed aggressive offshoring strategies, transferring more than 5% of group headcount offshore and achieving bottom line savings of over 40%. In some cases, the savings are equivalent to 3% of the total cost base. However, at the other end of the spectrum, institutions that have failed to adopt best practices are experiencing a decline in operational performance.
“While most major financial institutions now have a sizeable offshore delivery function, the gap between the best and the worst is widening. We believe it is critical that a business builds a platform for success, based on relocating at least five per cent of the total group’s headcount offshore.
“The best performing institutions offshore around 12% of group headcount and, on average, save 55% on each business process. The companies whose offshoring programmes are suffering, offshore less than 5% of headcount and typically save 32% per process. The most efficient offshorers take just 15 months to migrate each process, compared to around 25 months for poorer performers.”
While India remains the prime location for offshoring, with around two-thirds of global offshored staff employed in the sub-continent, it is in danger of losing its crown to China.
China’s share of offshored labour is already rising. One third of financial institutions now have back-office (mainly IT) processes in China. Some 200 million Chinese people are currently learning English, providing a pool of skilled labour that may compete with India over next 10 years. China’s growing competitiveness may dampen salary inflation among Indian offshoring industry workers.
Notes to editors:
About the report:
This is the fourth Deloitte Global Financial Services Offshoring Report and is based on a survey of 36 financial institutions in eight countries, including six out of the top 10 banks in the world by market capitalisation.
About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP, which is among the country's leading professional services firms. Deloitte & Touche is the United Kingdom member firm of Deloitte Touche Tohmatsu ("DTT"), a Swiss Verein whose member firms are separate and independent legal entities. Neither DTT nor any of its member firms has any liability for each other's acts or omissions. Services are provided by member firms or their subsidiaries and not by DTT. 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.
