[Futurework] Branding

[Ed Weick]

As the following Deloitte press release suggests, the financial services sector is following trends already well established in industries such clothing, footware and high tech.  Moving financial services jobs to countries replete with cheap brain power would seem to make good business sense.  Rich world financial service companies will become "branders", as Naomi Klein would put it.  Their function will be to sell the product, and to make certain that it meets the standards that their brand names require.  Someone else, far away, will do the actual work.  Is there a problem with this?  Well, perhaps.  As more and more such jobs are moved to the poor world, fewer will be available in the rich world.  But one could argue that the savings in cost will be invested to create replacement jobs.   A greater problem may be the instability of the poor world.  Do rich world countries really want to tie themselves so fully to countries that could become hostile or that could spin out of control?  How high might the costs of keeping the poor world stable for rich world business be?  Rich world dependence on poor(er) world oil may be a case in point.  To keep the oil (or brain power) flowing, you may have to move in and sit on someone. Ed Weick     Press Release  Top 100 global financial-services firms seen transferring $356 billion of operations, 2 million jobs offshore over 5 years Deloitte Research study sees 39% savings from moves; India to benefit most New York (NY) - April 9, 2003 — In the most comprehensive survey of their moves offshore, the world's 100 largest financial-services companies indicate they expect to transfer an estimated $356 billion of their operations and two million jobs offshore over the next five years in efforts to reduce their costs significantly. The survey by Deloitte Research found that financial institutions expect to reduce costs by nearly $1.4 billion each by 2008 by sending work to low-cost centers like India from developed economies in North America, Europe and Asia. The survey, in which 27 of the world's largest institutions participated, offers a snapshot of what financial-services concerns are planning in their efforts to transform their operations by reducing their cost base and making their organizations more international. The shift of operations offshore already is now underway. Thirty percent of the respondents currently have existing offshore operations and that percentage is expected to climb to 75 percent within two years, according to the survey. It suggests that the firms achieve 39 percent cost savings from moving operations to low-cost centers where salaries and other costs are much lower. "Offshoring is gaining momentum at a rapid pace," says Christopher Gentle, a director at Deloitte Research. "And getting offshoring experience as soon as possible translates into greater benefits — from higher cost reductions to more business processes being handled by the low-cost centers." The study draws four principal conclusions: The offshore trend is driving a radical shift in the structure of the global financial-services industry and this transformation is just beginning. Financial institutions that can utilize their existing offshore facilities expect significant future savings because they leverage offshore scale and scope; the challenge is achieving economies of scale. Firms aspiring to move offshore should move quickly to capture the benefits of doing so, but the challenge is building capabilities quickly and prudently. Firms who don't move offshore risk being left behind because companies moving offshore estimate future cost savings at about 45 percent. Deloitte Research emphasizes that offshore steps must be planned and executed carefully to be successful. The survey finds that more than one-third of the historical moves offshore have been unsatisfactory with the institutions planning no further relocations. These unsuccessful moves have common characteristics, including cost reductions significantly below the average, a narrower scope with fewer functions moved offshore; a scale nearly one-fourth smaller than average, and a much shorter timeframe for planning and execution. Of financial-services firms transferring functions offshore, nearly half are targeting India, which has a huge market of IT professionals who earn much lower wages than elsewhere. Ireland and South Africa are also attractive offshore centers, with China, Malaysia and Australia growing in popularity. "India stands to be the major offshore hub because of its combination of low cost and high technology expertise," said Gentle. "But there's no guaranteed bonanza for India unless it continues to deliver improved services at globally competitive wage rates. Competition from other countries around the Indian Ocean rim from South Africa to Australia will be fierce." Deloitte Research estimates that more than a million jobs — or about half of the estimated relocations — will move to Indian Ocean rim over the next five years. The survey shows that banks and insurance firms are transferring offshore such functions as application development, coding and programming, accounting and finance, operations, processing and administration, contact support and call-center operations. Since decisions to go offshore are significant ones, the chief executive officer, chief financial officer, chief information officer or chief operating officer makes 90 percent of them. And as the size and complexity of the offshore moves increase, approval by the CEO is set to increase to 45 percent from 20 percent. Deloitte Research said its estimate that $356 billion in financial-services firms' cost base will shift offshore is based on a $2.34 trillion cost base for the top 100 institutions globally. The survey indicates that the financial-services firms plan to shift, on average, 15 percent of their global cost base offshore over the next five years. Using that same 15 percent assumption, Deloitte Research figures that two million positions of the 13 million people employed in the financial services sector of North American, the European Union and Switzerland, and the Asian developed economies of Hong Kong, Japan and Singapore will shift to low-cost offshore locations.