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Offshoring of Bank IT Jobs Looks Likely to Rise in 2009

Amid the financial crisis, banks are likely to dial up their use of offshore outsourcing. But cost cutting isn't the only driver.

To simplify its offshore management, Union Bank, which previously worked with four suppliers, now relies on just one, iGate Corp., a Freemont, Calif.-based provider increasingly gaining traction in banking. Union Bank has fewer than 200 staff currently based in India, compared with 10,000 in the U.S., Hoffer notes.

"I don't know to what extent [offshoring ] will push up," Hoffer continues. Industrywide, "Offshoring generally has started flattening a little," he asserts. "People are now saying, 'Let's do this the right way.' My guess is that it will increase, but not near-term, since a lot of tech spending is now on hold." Indeed, iGate, now a 6,500-person-strong company, told the markets in mid-October that its fourth quarter growth is unlikely to match quarters past because of cutbacks seen in IT projects.

The Bottom Line on Offshoring

Despite the consensus that offshoring is likely to experience an uptick as banks look to cut costs amid the financial crisis, SIM's Luftman contends that cost is down the list of motivations to go offshore, according to survey respondents and his experience. "The salary itself might be less, but the overall effort is more expensive," he explains, maintaining that a major factor in offshoring decisions is an absence of U.S. workers skilled in both technology and business.

But that has not been the experience of Union Bank's Hoffer or of Lindsay Soergel, SVP for channel technologies and enterprise information systems at SunTrust Bank. "Offshoring allows you to do a lot with a little," she says. "Typically it would cost three times more to hire the same person here."

At SunTrust, Soergel says, "We've about 50 percent of our delivery staff offshore, and we may see a slight uptick." That's half of the roughly 1,000 people involved in SunTrust's overall application development.

Even more of Soergel's own staff -- 75 percent, or 50 to 60 people, she reports -- work offshore. All of those 500-plus offshore employees are located on the Infosys campus in Mysore, India. "All of our offshoring is between IBM and Infosys," Soergel says. "We design applications onshore and ship the development work offshore."

One J.P. Morgan Chase banker, who requested anonymity because he was not authorized to discuss the topic, tells BS&T that while the bank is expanding its India-based technology operations, in his experience U.S. workers have not been displaced as a result. "Workers here got more-interesting work, though on a macro level jobs probably are being lost," he says. He adds that Chase plans to expand within India from Bangalore to Hyderabad, and to the Philippines.

Tom Kelly, a J.P. Morgan Chase spokesman, declines to confirm the bank's offshore plans or to detail how many employees Chase has offshore versus in the U.S. "But we are expanding," he says.

Similarly, The Bank of New York Mellon likely will expand its offshoring. During an interview with BS&T in late summer, BS&T Elite 8 2008 honoree Ed Mulligan, EVP and president of The Bank of New York Mellon's global technology services group, anticipated that the bank would continue to grow its Indian technology subsidiary, Nautix, which it acquired with discount brokerage Pershing in 2003. A comment Mulligan made might give some U.S. technologists a chill: "In the U.S. people have to be willing to put more dedication into their careers and to be more flexible," he said, noting that some 1,900 positions have been relocated since year-end 2007 to the subsidiary in Chennai, India.

A bit of comfort -- at least on the job front -- might come from a Financial Times research unit, London-based Mergermarket, which saw an upside to the credit crisis for the U.S. Based on survey responses by U.K. firms, Mergermarket predicted that the U.S. might become a destination for offshoring, now that the dollar's cheap (as presumably are many now unemployed tech types). Then again, since Mergermarket's fall predictions, the dollar has strengthened and some of the U.K. company respondents weakened.

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