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

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

ôWithin some industries the realisation is setting in that the opportunity is strategic,ö says Noshir Kaka, global leader of the outsourcing practice for McKinsey in Mumbai. ôFor 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.ö

Investment 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.

ôThe biggest change in the last six years is the legitimising of the industry,ö says one supervisory-level IRO employee. ôThe roadblocks which were earlier put up û compliance issues which were cited and a general æcannot doÆ attitude û have been removed and now investment banks who are not tapping into India feel left out.ö

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.

When asked how she manages the prevailing perception that offshoring creates job losses in western markets, Indira Samant, business manager of analytics and knowledge processing for Citi, explains: ôOur drivers are improving returns for our shareholders and improving the quality of our support to our clients.ö Citi has offshored knowledge activities in Latin America, Europe and the Philippines and Samant comments, ôwe set up units wherever the best talent is availableö.

Citi also has a 10,000 strong team in a separate company, Citi Global Services, which is the processing centre for Citi entities globally. It supports the bank on over 500 different processes in 45 countries.

Goldman Sachs started offshoring to India mid-2004 and currently has around 1,500 people. The team supports Goldman Sachs divisions globally providing services such as technology, accountancy, global investment research support and presentation support.

Deutsche Bank currently has 2,500 people in India across two locations in Bangalore and Mumbai under the umbrella DB Operations International. It is noteworthy that this does not include a call centre supporting the consumer bank. Most of the work done by Deutsche in India is æknowledge workÆ.

ôEven in basic services the criticality of functions performed out of India is very high,ö observes Arindam Banerrji, managing director of DeutscheÆs offshore unit.

Globally, Deutsche is one of the largest players in derivatives and Banerrji uses this as an example to reinforce his point. ôDerivatives operations is an essential business, reconciliation is time sensitive and even data sourcing has a criticality attached to it. More then 60% of our worldwide derivatives team works out of India.ö

Banerrji can envisage a time when even some derivatives structuring capabilities are housed in India. Deutsche has also realised that opportunities to offshore further can come both from new processes but also from taking on further elements of the same process. Banerrji is categorical: ôWe manage the perception that offshoring creates redundancy. What we have seen is it creates capacity, capability and quality for the firm as a whole.ö

UBS started outsourcing work to third-party information technology vendors in mid-2003 then started a broader group-wide initiative in early 2006. Today the initiative goes beyond IT and back-office to encompass securities, research and compliance. UBS has 950 employees at its captive centre located in Hyderabad in addition to 120 in its securities operation in Mumbai.

ôOur status has transformed from æsupportÆ to æownershipÆ evidenced by the initiation of independent coverage of new products/geographies,ö says a UBS spokesperson.

Credit Suisse announced in February that Vineet Nagrani would spearhead its own initiative in the investment banking area. Nagrani has two decades of experience across Morgan Stanley and Credit Suisse. ôMy role is to develop the investment bankÆs global knowledge process deployment strategy with a focus on India including but not limited to risk arbitrage, research analytics and corporate finance valuation work,ö says Credit SuisseÆs Nagrani.

Credit Suisse is currently using the hybrid model (see box: Know your jargon) in India and has partnered with Wipro. At its Pune facility Wipro will set up a captive-like operation for the Swiss bank. The Indian technology firm will help to hire, retain, provide IT infrastructure and help manage processes. Credit Suisse expects to have around 1,000 employees on the information technology side and about 200 on the knowledge analytics side by the end of 2007.

But challenges remain. For employees to feel like part of the larger organisation is an ongoing issue. Many of the banks we spoke to wanted to remain low-key about the offshoring initiative. Some even said ôwe do not allow people in our offshoring unit to be externally interviewedö.

ôI might send a presentation to our India offshoring unit to make it look pretty,ö said another banker. Perceptions that teams sitting in India are being used for cosmetic jobs undermine the morale of the employees. Only a few of the banks we interviewed had an understanding of the kind of work being done in their India offshore units.

ôI would never go back to one of the global investment banks,ö comments one outsourcing employee. ôWe are treated like the back office for the back office.ö

ôThe experience is a limited success because banks donÆt have a long-term orientation and expect ridiculous results like one-for-one job replacement,ö says a senior banker involved in his firmÆs offshoring experiment.

Banerrji at Deutsche does not disagree that such issues exist, but says: ôWhat DBOI is doing is part of a larger picture which has sponsorship at the senior-most levels. There is buy-in into the fact that India is delivering high value-add services and the people delivering these services are mission critical.ö

JPMorganÆs Price is categorical about the US bankÆs position: ôWe are very clear that we are an integrated part of JPMorgan Chase. We are not a BPO.ö

ôEffectively offshoring involves both a great deal of judgement and also changing the existing model of how people function,ö explains Credit SuisseÆs Nagrani.

Neither the judgement part nor the change part is ever easy û as the experience of the banks corroborates.

This story first appeared as part of a larger feature on India's outsourcing boom in FinanceAsiaÆs July issue.
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