August 12, 2008

Report: Offshoring not prime cause of bank job losses

Finance firms outsource much more than other sectors

By Leo King

---

The use of offshoring is not the main factor behind job cuts at banks, but IT and support staff are heavily affected by it, according to new research.

Restructuring is responsible for nearly three-quarters of bank redundancies, whereas offshoring is responsible for 10 percent of workers losing their posts, according to a Deutsche Bank report compiling data from a range of sources on European finance firms.

Thomas Meyer, author of the report, wrote: “Across Europe, there is no correlation between the share of banks that have offshored IT functions and the changes in bank employment between 2002 and 2006.” He said other factors, such as the reduction in bank branches in Germany and the “catching-up” in financial development in some eastern European countries, dominate the relation instead.

In the UK, while total bank employment had decreased by 10 percent in the four years to 2006, around 14 percent of banks were using offshoring.

Across European banks, a high 32 percent of IT workers and 38 percent of support staff work abroad. Financial services firms account for the lion’s share of offshore work in India, representing 41 percent of activity. This is followed by technology and communications firms which represent 19 percent, manufacturing firms at 15 percent, and retail firms at 8 percent.

Much of the offshore work in India is accounted for by software development, business process outsourcing, call centres and accounting.

Financial firms are also increasingly confident in their use of offshoring. Some 22 percent already offshore, but this remains well behind the 90 percent that outsource within their country.

But the report warned banks not to overestimate the immediate positive effects of offshoring. Writing that banks expect up to 20 percent cost savings, Meyer said these “only materialise over time”, with nearly a third of banks reporting a cost increase in the first year, taking several years to achieve savings.

Now read:

Intellect: Control data security in outsourcing or face legislation

Indian outsourcers gaining global share - Gartner

Economic downturn will increase offshoring: Gartner

Newsletters

Sign up to our Weekly Round-Up for the past week’s not-to-be-missed news analysis and insight delivered straight to your inbox.