Saturday, August 11, 2007

Outsourcing becomes critical to competitive advantage


Nearly every international bank is doing some back office work in India these days. We find out why and ask the banks to quantify the benefits.

“Success begets success,” says Dominic Price, senior country officer, India and Sri Lanka for JPMorgan, explaining the philosophy behind his firm’s India outsourcing experiment. “Each group that took the initial bold steps was rewarded, which led to more complex functions being moved.” JPMorgan was probably one of the first to realise the potential in India and started sending work to the country in 2001.

“Our initial goal was 500 offshoring staff in India focused on simple tasks,” says Price. “We now have around 8,000 staff.” The US bank has functions like derivatives operations, security settlements, research and analysis and CFO support done in India.

“Within some industries the realisation is setting in that the opportunity is strategic,” says Noshir Kaka, global leader of the outsourcing practice for McKinsey in Mumbai. “For example in financial services, no mid- or large-sized bank can ignore the trend because the combination of technology and offshoring has become fundamental to competitive advantage.”
nvestment banks seem to be listening. Everyone FinanceAsia spoke to for a recent article on the topic had either set up an India base or is exploring how to do so. The models span the gamut from captive units to hybrid to third party. And banks are hiring or assigning their best and brightest to head this effort.

“The biggest change in the last six years is the legitimising of the industry,” says one supervisory-level IRO employee. “The roadblocks which were earlier put up – compliance issues which were cited and a general ‘cannot do’ attitude – have been removed and now investment banks who are not tapping into India feel left out.”

Citi has grown in three years from 75 people to currently 400 in Mumbai supporting its markets and banking businesses worldwide. The team, all Citi employees, is involved in research, analysis for investment banking, corporate banking, capital markets, credit risk and internal reporting and presentation support.

“Effectively offshoring involves both a great deal of judgement and also changing the existing model of how people function,” explains Credit Suisse’s Nagrani.