This article in NY Times talks about the financial outsourcing phenomenon that we have been frequently discussing in our CFA / FRM classes. As Prime Minister Manmohan Singh famously said,
"No power on earth can stop an idea whose time has come". You can find the complete article
hereSome ideas from the article:
"Wall Street’s losses are fast becoming India’s gain. After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong, either at their own offices or to third parties.
Bank executives call this shift “knowledge process outsourcing,” “off-shoring” or “high-value outsourcing.” It is affecting just about everyone, including Goldman Sachs, Morgan Stanley, JPMorgan, Credit Suisse and Citibank — to name a few.
The jobs most affected so far are those with grueling hours, traditionally done by fresh-faced business school graduates — research associates and junior bankers on deal-making teams — paid in the low to mid six figures.
Cost-cutting in New York and London has already been brutal thus far this year, and there is more to come in the next few months. New York City financial firms expect to hand out some $18 billion less in pay and benefits this year than 2007, the largest one-year drop ever. Over all, United States banks will cut 200,000 employees by 2009, the banking consultancy Celent said in April.
The work these bankers were doing is not necessarily going away, though. Instead, jobs are popping up in places like India and Eastern Europe, often where healthier local markets exist.
In addition to moving some lower-level banking and research positions to support bankers and analysts in New York and London, firms are shipping some of their top bankers from those cities to faster-growing developing markets to handle clients there.
Owing in part to credit weaknesses and billion-dollar charges from the subprime crisis, “people who were off-shoring high value jobs are increasing the intensity of that, and people who were not are now in the planning stage,” said Andrew Power, a financial services partner at Deloitte Consulting.
Wall Street banks started cautiously sending research jobs to India a few years ago, hiring employees by the handful and running pilot programs with firms like Copal, Office Tiger, Pipal Research and Tata Consultancy Services.
In 2003, JPMorgan and Morgan Stanley said they planned to move a few dozen research jobs to Mumbai, Lehman Brothers was working on a pilot program to create research presentations in India and both Merrill Lynch and Goldman Sachs said they had not moved any research to the country.
Five years later, the trickle is a flood. Third-party firms say they are seeing a 20 to 40 percent upswing in business this year alone.
Morgan Stanley has about 500 people employed in India doing research and statistical analysis. About 100 of Goldman Sachs’ 3,000 employees in Bangalore are working on investment research.
JPMorgan has 200 analysts in Mumbai working for its investment banking operations around the world, doing industry analysis, and compiling data and charts for marketing materials. It has an additional 125 analysts in Mumbai supporting the bank’s global research division.
Citigroup employs about 22,000 people in India, several hundred of whom work in investment research. Deutsche Bank has 6,000 employees in India, according to the bank’s Web site. Deutsche started a pilot program to outsource some research in 2003, and would not provide any update.
Theoretically, as much as 40 percent of the research-related jobs on Wall Street, tens of thousands of jobs, could be sent off-shore, said Deloitte’s Mr. Power, though the reality will be less than that.
The jobs off-shore are more likely to come from the investment bank and trading divisions of Wall Street firms, rather than the sales side, which produces analyst reports about companies and industries, said Andy Kessler, a former analyst who has written several books about Wall Street."
