This new report by the consulting firm of Deloitte and Touche suggests that the trend towards financial services offshoring will hardly let up over the coming years. To the right is a chart depicting cost savings achieved by financial service firms that have taken advantage of offshoring. As you may have guessed, India leads the way as the destination country:Financial services continue to lead the way in offshoring. Many of the world’s major financial institutions are continuing to set the offshoring benchmark. As offshoring matures, the gap between the best and the rest widens. This report charts the widening gulf across the financial services industry. It outlines how a small number of financial firms are outperforming the rest of the industry. The move offshore has clearly changed the dynamics of the global financial services industry.
Offshoring has matured at a rapid pace. Less than 10 percent of major financial institutions had moved processes offshore in 2001, according to research by the DTT GFSI group. By 2006, over 75 percent of major financial institutions had operations offshore. US and UK banking and capital market institutions continue to lead this shift, but mainland Europe is showing increasing interest.
Offshore headcount has grown dramatically. The DTT GFSI group estimates there has been an 18-fold increase in the average number of staff each financial institution has employed offshore over the last four years, from 150 in 2003 to 2700 in 2006. Over the last year alone, this has led the proportion of group headcount in lower cost countries to double, from three to six percent by year end 2006.
India remains offshoring’s hub but is likely to lose share in the future. The DTT GFSI group estimates that about two-thirds of global offshored staff are employed in the sub-continent. China threatens to be India’s principal offshoring competitor. Some 200 million Chinese people are currently learning English, providing a growing pool of skilled labor that may compete with India over the next 10 years. China’s share of offshored labor is already rising, with a third of financial institutions now having back-office (mainly IT) processes based in China. China’s growing competitiveness may dampen salary inflation among Indian offshoring industry workers. Further, there are growing concerns over the supply of skilled workers in India. Only 10 to 15 percent of Indian college graduates are considered suitable for direct employment in the offshoring industry. This may result in a shortfall of up to half a million professionals by 2010.
