Wall St jumps on the offshoring bandwagon

By Khozem Merchant and David Wighton
Date:  Dec 05, 2005

Two years ago, JPMorgan caused a stir on Wall Street by revealing plans to hire 40 junior analysts in India to support the work of highly paid staff in New York.

Critics of the "exporting" of jobs by US companies seized on the move as proof that even the most highly skilled white-collar posts were vulnerable to the wave of "offshoring".

Following last year's US presidential election campaign, during which it became a hot political issue, the controversy over off-shoring has rather died away. But the trend is very much alive.

By the end of 2007, JPMorgan plans to have 30 per cent of the operational jobs of its investment bank - 3,000 staff - in India.

While that is the most ambitious move by a Wall Street bank, rivals are also building operations in India, to take advantage of a highly educated but low-cost workforce in an attractive time zone.

Goldman Sachs has about 700 staff in India - out of a total workforce of 22,000 - with about 300 in operations, including clearing and settlement, and 30 in research.

Morgan Stanley also has a big presence in India but declines to give any figures.

Stefan Spohr, of consultants AT Kearney, estimates that international investment banks have about 6,000 staff in India involved in business processing outsourcing (BPO), excluding information technology.
This is relatively small compared with the numbers employed by some retail financial services groups such as HSBC, which has 10,000 people in five centres in India. It compares with an estimated total of BPO jobs in India of about 350,000.

JPMorgan initially focused on support staff but now has a wide range of processing, risk management, research and analysis being done in India. The group plans to have 9,000 employees there by the end of 2007. Somesenior executives at other investment banks privately express reservations about moving critical operations offshore.

But Veronique Weill, head of operations for JPMorgan's investment bank, insists such concerns are misplaced and that the quality of work done in India matches that in New York or London.
In addition to cost and quality benefits, the time- zone difference makes it possible to get work done during the day in India ready for the start of business in the US or Europe, improving the service to customers.

However, Ms Weill says JPMorgan will avoid being too concentrated in one country or even one city. This summer's floods in Mumbai were a reminder of the risks, even in politically stable countries.
Ms Weill is already looking at other potential offshoring locations mainly in eastern Europe, but also China and the Philippines.

According to Mr Spohr, one attraction of other locations is wage inflation in India. Although the pool of talent is huge, competition is starting to push up salaries.

However, other costs, such as telecommunications and infrastructure, are coming down and the rates charged by third-party providers of BPO are declining.

But Mr Spohr believes companies such as JPMorgan that continue to run their operations in-house will find it harder to keep the lid on costs.

Ms Weill believes JPMorgan will benefit not just by keeping its Indian operations in-house but also by ensuring they are firmly integrated with the rest of the group.

She says the company works hard to make its new recruits in India feel they will have a long-term career with the group, not an Indian offshoot.

"We are investing substantially in growing our core business in the region and in developing top talent. We are also rotating some of our best people from India into the global JPMorgan network."

While many US investment banks are stepping up direct recruitment in India, many became familiar with India's capabilities for higher-end research and complex financial support services by hiring third-party providers, such as Office Tiger, set up by two former Wall Street bankers, and E-valueserve, launched by consultants from McKinsey.

One reason that USinvestment banks' use of such "knowledge process outsourcing" companies is likely to increase, sayanalysts, is the scandalover conflicts of interest in equity research in the late 1990s