Seven Reasons Outsourced U.S. Bank IT Jobs Are Heading Back Onshore
August 10, 2012 Leave a comment
Some bank IT jobs that have been outsourced for the past 10 years or so are coming back stateside, at least according to one expert. “A number of banks have told me they’re pulling back work from offshore, particularly from India but not only India,” says Harley Lippman, founder and chief executive of Genesis10, an IT consulting and staffing firm based in New York. “India is still the epicenter of IT work for major banks, although some work has gone to China, Eastern Brazil and other locations.”
Lippman doesn’t have numbers to back this observation. “I’m gathering that as we speak,” he says. “A lot of people are interested in that.”
Lippman’s own company has benefited from this trend, although he declined to name any bank clients. His firm is hiring in Troy, Michigan; Atlanta (where it just opened a new facility); Grand Rapids, Mich.; and Kansas City, Mo. “That’s all driven by bank client demand,” Lippman says.
Some banks are bringing the work back in house, but the majority are finding an onshore outsourcing provider, Lippman says. “In all banks there’s head-count pressure; there continues to be cost pressure, there’s pressure on execution and delivery for all the major banks,” he says. Outsourcing offers variable costs and the flexibility to ramp up and down as the volume of work fluctuates.
Offshoring made sense 10 years ago, when a New York City programmer might have cost $100 an hour, versus $15 an hour for a worker with similar skills in India, Lippman says. “Today it’s very different, the world is more flat,” he says. “Jeffrey Immelt,” the General Electric chief executive, “said there’s no more cheap labor; I found that quite significant.” Inflation is over 20% in India.
Why are banks turning from offshoring to onshoring? Lippman offers several reasons:
1. Regulators. “Banks are increasingly concerned about protection of confidential information, particularly financial information offshore. It’s not as protected” in an outsourcing relationship “as it is onshore,” Lippman says.
2. Inflation. In India, wages increased 13% in the past year, Lippman says. China has also had double-digit inflation. “If that continues, over the next few years, the cost savings will evaporate.”
3. Management issues. “From a purely IT perspective, there’s the difficulty of managing work eight time zones away,” Lippman says.
4. Reputational risk. “What is the No. 1 issue today? Jobs,” Lippman asks. “If banks are firing employees to send jobs to cheap labor offshore, that could really hurt, not help, their relationship with the community and with lawmakers in Washington.”
5. Lower U.S. wages. In the states of Michigan, Kansas, Florida and Georgia particularly, wages have been depressed.
6. High cost of travel. Banks send teams over from the IT department regularly offshore to countries like China and India. Such trips cost $15,000 to $20,000 per person.
7. Turnover. “You have a much higher turnover rate offshore, as people will jump ship for very small amounts like $1 an hour,” Lippman says. “If somebody leaves, now you have a gap, say you have a project you have to get done. You now have to have a meeting to decide are you going to replace them, you then have to go through the process of interviewing.” Then there’s a learning curve that can last up to six months, he says.