Offshoring: high price of low cost

Matt Wade and Mark Hawthorne January 28, 2012

ANZ's global website had 55 jobs advertised at its new Manila operation yesterday. They ranged from a new head of human resources to credit-risk officers and business analysts. Almost all required a high level of university education, two years of similar experience and fluent written English. A further 10 jobs are available with the bank in Indonesia. But not a single job is advertised in Australia.

It's a similar story across the financial services sector.

When you run the numbers, it's easy to see why banks are transferring jobs overseas. An Australian-based credit risk officer with National Australia Bank told The Saturday Age a ''reasonable wage'' was $60,000 a year, ranging up to $80,000 for someone with more experience.

In Manila, jobs for overseas banks are advertised in local papers, working out of one of the many sparkling new facilities that have been built near the capital.

Jobs for credit-risk officers working for overseas banks - none of them identified - are being advertised at 20,000-30,000 Philippine pesos a month.

That is equivalent to $5000-$7800 a year. For this a university education and a minimum of four years of similar experience are needed. The jobs websites and newspapers of Manila are filled with ads for such jobs.

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So far Australian companies have not pursued overseas outsourcing as aggressively as businesses in some advanced economies. One reason for this is the strong performance of the Australian economy, especially compared with the US and Europe.

But as technological innovations expand the range of activities that can be outsourced, the number of service-sector jobs that are vulnerable to offshoring has grown, at least in theory.

Modelling commissioned by several unions, including the one representing financial-sector workers, showed at least 250,000 jobs across Australia's service sector could be susceptible to outsourcing over time, especially in finance, telecommunications and IT.

Now, as economic storm clouds threaten, there is growing scrutiny of business costs, especially in the financial services sector. A report this month by UBS banking analyst Jonathan Mott predicted Australian banks were set to shed thousands of jobs and come under increasing pressure to move more operations to cheaper locations overseas.

''Opportunities to achieve cost savings by moving processing offshore to India and other areas are now likely to be reinvestigated,'' the report said.

In the boardrooms of Collins Street and Martin Place, talk of a ''white-collar recession'' in banking and finance has been going on for months. It's only in recent weeks that the extent of the losses is becoming clear.

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After slashing 3309 jobs last year, according to figures compiled by the Financial Services Union, more pain is in store in 2012. The big four banks are expected to slash a further 2 per cent of their Australian workforces this year, in the face of rising borrowing costs caused by the euro-zone crisis and amid fears of global recession.

''This will be bigger than the job cuts that followed the GFC,'' said one ANZ executive, who spoke on condition of anonymity.

But, while Australian workforces slide, the number of staff employed in Asia by Australian banks continues to grow.

''If you look at our operations site in Church Street [Richmond], there are now two empty floors,'' said the ANZ executive. ''All those jobs have been outsourced to Manila. There have been no announcements, just creeping cuts across the staff numbers.''

When discussing international wage discrepancies, former Victorian premier Jeff Kennett raises an eyebrow. ''I've long held the belief that in Australia we are pricing ourselves out of global markets,'' he said.

''We are a very highly paid nation of people in some areas, and it's making it hard for many industries to compete. In particular, I look at the retail sector, and the penalty rates, the double time and triple time, paid on a Saturday or Sunday. These are the leisure days, when people are out spending money, but the retailers and restaurateurs of Sydney and Melbourne will tell you it's impossible to make a buck. It's an issue we have to address as a society.''

Kennett wants the abolition of penalty rates across the Australian economy. ''Same pay for a 38-hour week, regardless of what day of the week or what time of day it is,'' he said.

The global outsourcing industry has thrived on economic crisis. The dotcom bust of 2000 sparked a boom for IT service providers in India as US tech companies cut costs by sending operations overseas. India's business-process outsourcing (BPO) firms then prospered when the GFC smashed the American finance sector and teetering financial institutions scrambled to slash costs by offshoring. When the global economy was in the doldrums in 2009, India's 20 biggest BPOs increased their export earnings by 15 per cent. The industry's second player, Tata Consulting Services, grew by 73 per cent in the period.

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