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Extracted from Malaysia's national newspaper The Star,
11 April 2003

MALAYSIA has been identified as a promising offshore location for financial services in the developed world, which is expected to transfer about two million jobs to low-cost bases abroad over the next five years.

The pull factors for Malaysia are its "promising new technology corridor, low-cost labour and real estate, potential scalability issues and fair levels of infrastructure relative to Asia," according to a survey by Deloitte Consulting. "In the future, we anticipate that offshore activity will be spread around the Indian Ocean Rim - from South Africa, through the Indian sub-continent, to China, Malaysia and down to Australia," it said.

This transfer, expected to be worth US$250bil, would save the world's top 100 financial institutions US$1.4bil each by 2008, said Deloitte Consulting. The report identified two factors contributing to this phenomenon: falling profitability brought about by depressed equity markets and slowing economic growth, and competition in the industry.

Deloitte Consulting said its research suggested that around one third of major finance companies had relocated functions abroad, and this figure was expected to rise to 75% within two years. And as relocating abroad gathers momentum, the job functions would expand to include all types of business processes, such as finance and accounting and administrative operations, with investment banks and insurers leading the way. "Many companies - both financial and non-financial - have discovered that not only is the cost reduced for many business processes, but the efficiency and effectiveness often improve significantly," the report said.

Some offshore pioneers have set the pace. Citigroup, for one, has been developing offshore processing hubs internationally for many years as core part of this "scalable" business model. According to Deloitte Consulting, although costs at Citigroup have grown by US$12bil over the last five years, revenue has risen nearly US$35bil, enabling the bank to become one of the world's most profitable companies.

HSBC, a relative newcomer to the offshoring game, also has built its "global processing centres" quickly and efficiently.

This strategy, Deloitte Consulting said, had drawn praise from Goldman Sachs, which said the bank "benefits from non-discounted cost benefits (IT hubs, global processing) for a multi-year a positive view on HSBC." In Malaysia, Standard Chartered Bank and HSBC have set up global processing hubs in Cyberjaya, while Citibank's regional trade processing centre in Penang is successfully conducting a high number of transactions.

Right now, India is seen as the hub market, with a large pool of professionals specializing in IT and software development areas. India, according to the report, is likely to attract nearly half the financial institutions planning offshore moves, creating one million new positions from the transfer of financial services. Hyderabad and Chennai were rated in a recent report to be above Bangalore as cities of choice for IT - enabled services, and although Mumbai has two financial markets, it suffers from high real estate costs, congestion and pollution.

China, with its large pool of labour, is seen as the next destination for IT offshore functions, but language barriers exist. Singapore, Hong Kong, Australia have strong points, but suffer from high costs.

The key factor, according to the report, is the ability to deliver improved services at globally competitive costs. "Only a minority of financial institutions yet have offshore operations," said Deloitte Consulting. "Momentum has built rapidly within the industry, however, and we estimate that nearly three of four major financial institutions will be offshore within two years."


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