Big Surge Expected In Offshore Outsourcing By Banks, Study Says
Offshore tech spending by banks will increase from the present 6% of
the banking industry's $44 billion total annual IT budget to 30% by
2010, according to Deloitte.
Banks in the United States and other countries will dramatically
increase the percentage of their IT budgets devoted to procuring
technology services from offshore providers operating from low-wage
countries such as India and China over the next three years, according
to a new study from consulting firm Deloitte.
Offshore tech spending by banks will increase from the present
6% of the banking industry's $44 billion total annual IT budget to 30%
by 2010, according to Deloitte.
"Among larger institutions in particular, offshoring is not one
available cost-cutting strategy, it's become a basic necessity," says
the study, which was released Wednesday. Banks are moving well beyond
outsourcing low-level application maintenance work and are increasingly
relying on offshore service providers for help with more sophisticated
technology projects, the study says.
Offshoring
tech work offers big savings as programmers in India, for example, are
paid anywhere from 40% to 80% less than their U.S. counterparts.
Deloitte says banks can save 40% on most IT projects by moving
them to an offshore service provider. The study also claims that media
reports of rampant wage inflation eating into the cost savings offered
by offshore outsourcing are overblown. Deloitte says 55% of the banking
IT executives it interviewed for the study expect their offshoring
costs to rise by less than 10% this year, while 36% expect the costs to
remain flat or decline.
Despite the advantages offered by outsourcing
to low-cost countries, most banks aren't getting full bang for their
offshore dollar, Deloitte says. They need to do a better job developing
the internal management skills and business processes needed to make
offshoring as cost efficient as possible. "If processes are not
streamlined, more substantial savings will be lost, and it will be
difficult to scale up offshore operations over the long term," says the
study.
The increasing tendency by U.S. banks to outsource tech work to
offshore service providers is helping to boost revenue at major
outsourcing vendors, particularly those based in India. In its most
recent financial year, Wipro reported that sales to the banking sector
accounted for 21% of its total revenue of $2.39 billion. Rival TCS said
sales to the financial services industry accounted for 38% of its $2.97
billion total revenue for 2006.
Howard A. Schmidt says IT security leaders
need to anticipate the hacker mindset, sell security as a core business
process instead of a "necessary evil," and understand
that security and privacy are not about risk avoidance but risk
reduction.
Many tech pros are demoralized, thanks to
knee-jerk offshore outsourcing and the post-bubble malaise. Employers
must move beyond the "you should be happy you have a
job" mentality.
