N° 2005-09 Juin 2005 Guillaume Daudin* Jean-Luc Gaffard ...

Offshore Outsourcing in the EU Financial Services IndustryChart 6. The global impact of offshoring over the next five yearsUS $ 2.34 trillion / Current financial service cost base in the 100 world-wide largest financial institutions(13 million people are employed)15%US $ 356 billion will be bottom line cost savings due to offshoring(or 2 million people)61% 39%US $ 218 billion will be spent offshoreUS $ 138 billion will shiftSource: Deloitte Research (2003).US banks, brokerage firms, insurance companies, mutual funds and other financialservices firms are planning to relocate more than 500.000 jobs offshore 12 – representing 8percent of their workforce – over the next five years, according to a study 13 conducted by theglobal management consulting firm AT Kearney (2003). The international relocations willinvolve a wider range of internal functions than have typically been slated for overseastransfers, including financial analysis, research, regulatory reporting, accounting and humanresources. “Any function that does not require face-to-face contact is now perceived as acandidate for offshore relocation”, said Andrea Bierce, the AT Kearney managing directorwho oversaw the study. The international relocations are expected to reduce annual operatingcosts by more than US $ 30 billion.Offshoring is changing the structure of the financial services industry, providing a trulyglobal operating model that is significantly more cost-efficient and launching a powerful newcompetitive dynamic that is forcing financial institutions to rethink the way they do business.Offshoring is also creating a global division of labour that demands new operating models,new business structures and new management skills. The manufacturing industry experienceda similar transformation. This trend has taken twenty to twenty-five years in manufacturing.Witness the case of Levi’s, which started relocating production activities in the late 1970s andclosed its final four factories in the US in 2003. We anticipate that financial servicesinstitutions are likely to see a similar transition, although, the industry is unlikely to fullyreplicate the trend in manufacturing due to the need to have greater customer contact.12 Celent Institute (2004) estimates that the US financial services industry will relocate potentially 2.3 millionjobs within the next six years.13 The study was conducted with approximately 100 financial services firms in the banking, brokerage andinsurance sectors, and reflects the opinions of the industry executives.38