The Malta Independent
9th July 2004
Research just published by Auditors Deloitte Touche Tohmatsu shows that the year 2003 registered 46% increase in the number of financial institutions that undertook offshoring operations.
Let`s get the definitions right. This modern offshoring has nothing to do with the conventional offshore concept of establishing offices or booking operations in tax haven centres to transfer profits permitting reduction of tax incidence on profits from international operations.
Modern offshoring is the process of moving some of the work to another country with cheaper operational costs to gain from the efficiency of international division of labour whilst keeping ownership control over the offshore subsidiary to protect quality and consistency.` This modern offshoring is the maturity of the process of outsourcing which generally started in the eighties inside the same country jurisdiction by contracting out some operations to specialised third parties.
According to Deloitte`s research, 80% of the world largest financial institutions, those with market capitalisation in excess of US$ 10 billion, are already involved in modern offshoring and no amount of protests or protectionism will stop the force of this wave seeking to gain cost advantage over competitors or at least not to be outdone by competitors who offshore.
It is expected that by 2010 the value of transactions offshored will increase from US$ 215 billion to US$ 415 billion and that one third of this value will be recouped in saved costs making the investment easily self financing and hugely profitable.
What the manufacturing industry experienced following `the oil shock of the seventies is now being experienced by the financial services industry.` Levi`s had all manufacturing in the US in 1970.` Now it has none.` The last four US factories were closed in 2003. However the scale of shift will be less pronounced for the financial sector as the need for greater customer contact demands the maintenance of a large base in close proximity to the end client.
The processes that are mostly being offshored range from IT, to call centres and include also customer support, business transaction processing, customer transaction processing, accounting, bill payments, fund administration as well as human resources functions.` These functions would necessitate minimal contact with clients and are therefore easier to offshore without diminishing the quality of service to clients.
India is emerging as the clear winner in the offshoring race. 80% of all financial services offshoring takes place in India. The Philippines is also emerging as an attractive offshoring centre. But for smaller countries who cannot justify the volume of offshoring to Asia, there is also a process of offshoring to new accession EU countries in Eastern Europe as well as to Rumania and Bulgaria who are expected to join the EU later this decade.
Why am I saying all this? Because Malta seems to be leaving no impact whatsoever in this process of globalised division of labour.
Whilst we cannot compete with India or Philippines on cost, we should be able to compete on service quality, especially for those medium sized companies whose volume does not justify the risk of establishment in Asia.
We should have long had permanent representation in Ireland and Luxembourg scouting the financial institutions there, encouraging them to offshore their processes to Malta where we speak their language, carry their own culture, operate in their own time-zone and can perform their back office operations at a much cheaper cost.
We should be investing in a modern finance transaction processing centre making it easy for such companies to initially outsource` with the option to purchase the outsource firm to gain control over operations when they are confident of the tangible benefits of shifting to Malta.
Malta Enterprise cannot hope to attract the manufacturing concerns as the MDC used to do in the seventies and early eighties. The fashion these days is outsourcing and offshoring and we have to offer what investors want.
Can one imagine how environmentally gainful it would be if we could replace the Marsa power station site with a financial district where we offer physical facilities for European financial institutions to offshore their operations to Malta?
Opportunities don`t last forever. Once an investment decision is taken normally companies will have to live with that decision even if a better centre comes on stream offering more competitive terms. Each day we sleep over the matter, each day we are losing opportunities for growth and employment.
9th July 2004
Research just published by Auditors Deloitte Touche Tohmatsu shows that the year 2003 registered 46% increase in the number of financial institutions that undertook offshoring operations.
Let`s get the definitions right. This modern offshoring has nothing to do with the conventional offshore concept of establishing offices or booking operations in tax haven centres to transfer profits permitting reduction of tax incidence on profits from international operations.
Modern offshoring is the process of moving some of the work to another country with cheaper operational costs to gain from the efficiency of international division of labour whilst keeping ownership control over the offshore subsidiary to protect quality and consistency.` This modern offshoring is the maturity of the process of outsourcing which generally started in the eighties inside the same country jurisdiction by contracting out some operations to specialised third parties.
According to Deloitte`s research, 80% of the world largest financial institutions, those with market capitalisation in excess of US$ 10 billion, are already involved in modern offshoring and no amount of protests or protectionism will stop the force of this wave seeking to gain cost advantage over competitors or at least not to be outdone by competitors who offshore.
It is expected that by 2010 the value of transactions offshored will increase from US$ 215 billion to US$ 415 billion and that one third of this value will be recouped in saved costs making the investment easily self financing and hugely profitable.
What the manufacturing industry experienced following `the oil shock of the seventies is now being experienced by the financial services industry.` Levi`s had all manufacturing in the US in 1970.` Now it has none.` The last four US factories were closed in 2003. However the scale of shift will be less pronounced for the financial sector as the need for greater customer contact demands the maintenance of a large base in close proximity to the end client.
The processes that are mostly being offshored range from IT, to call centres and include also customer support, business transaction processing, customer transaction processing, accounting, bill payments, fund administration as well as human resources functions.` These functions would necessitate minimal contact with clients and are therefore easier to offshore without diminishing the quality of service to clients.
India is emerging as the clear winner in the offshoring race. 80% of all financial services offshoring takes place in India. The Philippines is also emerging as an attractive offshoring centre. But for smaller countries who cannot justify the volume of offshoring to Asia, there is also a process of offshoring to new accession EU countries in Eastern Europe as well as to Rumania and Bulgaria who are expected to join the EU later this decade.
Why am I saying all this? Because Malta seems to be leaving no impact whatsoever in this process of globalised division of labour.
Whilst we cannot compete with India or Philippines on cost, we should be able to compete on service quality, especially for those medium sized companies whose volume does not justify the risk of establishment in Asia.
We should have long had permanent representation in Ireland and Luxembourg scouting the financial institutions there, encouraging them to offshore their processes to Malta where we speak their language, carry their own culture, operate in their own time-zone and can perform their back office operations at a much cheaper cost.
We should be investing in a modern finance transaction processing centre making it easy for such companies to initially outsource` with the option to purchase the outsource firm to gain control over operations when they are confident of the tangible benefits of shifting to Malta.
Malta Enterprise cannot hope to attract the manufacturing concerns as the MDC used to do in the seventies and early eighties. The fashion these days is outsourcing and offshoring and we have to offer what investors want.
Can one imagine how environmentally gainful it would be if we could replace the Marsa power station site with a financial district where we offer physical facilities for European financial institutions to offshore their operations to Malta?
Opportunities don`t last forever. Once an investment decision is taken normally companies will have to live with that decision even if a better centre comes on stream offering more competitive terms. Each day we sleep over the matter, each day we are losing opportunities for growth and employment.
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