The race to offshore jobs continues apace. And those who think it is a big thing over nothing should beware. According to a report by consulting firm Deloitte, up to 20% of jobs in the financial services industry could move to lower cost locations by 2010.
Deloitte polled 62 global banks and insurers, and now predicts that up to 2 million financial services jobs will have been relocated offshore by the end of the decade. Around 70% of financial services firms have already moved some part of their operations to a lower cost location, which typically can result in a cost-saving of 20%. Firms which offshore multiple functions can achieve cost-savings of 40-50%, although many companies have confirmed that the savings appear to drop off alarmingly after year three.
The US and the UK are at the forefront of moving jobs to lower cost locations, but firms in Australia, Canada and France are now seriously considering initiatives. By the end of the decade, the report estimates that an additional 150,000 City jobs could move overseas. India looks set to remain the most popular destination, although staff shortages and increased labour costs will mean that more business is moved to China, Costa Rica and South Africa.
Cynics remain unconvinced that investment banks and fund managers will do much more than offshore processes and IT. They point to the fact that there are risk issues involved here, and say that some firms have already started to rein back in some operations from offshore, in order to regain better control. They also suggest that, given demographic trends, there will skills shortages in the 'developed' world in any case, and that those who work in lower cost locations are welcome to the more lower-paying menial jobs. But don't believe it. The jury is still out. Financial services firms, including wholesale institutions, will continue to explore cost-saving options. Enhanced technology can only result in better controls and risk management. Many firms are considering offshoring all sorts of activities, many of which we in the 'developed' world are still naive enough to think won't be going anywhere.