June 28, 2004 by Canadian Underwriter
A study of financial services offshoring practices finds India remains the top stop, with over 80% of offshoring moving there. The study by Deloitte Research finds the offshoring trend is on the rise, up 38% this year over last.
The top 100 financial services institutions are expected to offshore US$210 in terms of cost base by the end of 2005, with the potential to achieve US$700 million in savings. By 2010, more than one-fifth of the cost base of the global financial services industry could be offshored, for savings of 37%.
India stands out above other offshoring destinations due to its scale, skills, culture and governance. Other favored locations include the Phillipines and Malaysia.
But there are risks associated with offshoring, notably the four “Cs” cost, complexity, culture and compliance, notes Peter Lowes, leader of Deloitte Consulting’s outsourcing advisory practice. “While the move offshore can certainly create new long-term revenue opportunities for companies operating offshore, there is a caveat it brings no guarantee of success. The key is to take a holistic view of the risks and benefits, starting with an understanding of which processes can be relocated offshore.” An initial offshore move can take four to five months to plan and three to six months to deploy, with return on investment taking one to two years to materialize.
One of the issues noted by about 50% of companies is their contingency plan to bring operations back onshore should the need arise.