India beckons … so too do the Philippines, China and African countries where outsourcing operations like this call centre. Photo: AFP
Finance sector workers are under threat from the global drive towards outsourcing, write Matt Wade and Mark Hawthorne.
ANZ’s global website had 55 jobs advertised at its new Manila operation this week. 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 being advertised in Australia.
It’s a similar story across the financial services sector.
Run the numbers and it’s easy to see why banks are transferring jobs overseas. An Australian-based credit risk officer with NAB told Weekend Business a “reasonable wage” was $60,000 a year, up to $80,000 for someone with more experience.
In Manila, jobs for overseas banks are advertised in local papers, to work out of one of the many brand spanking new offices near the capital.
Jobs for credit risk officers working for overseas banks – which one is never identified – are being advertised at between 20,000 and 30,000 pesos a month, equivalent to $5000 to $7800 a year. For that a university education and a minimum of four years of similar experience are needed. The jobs websites and newspapers in Manila are filled with ads for such jobs.
So far Australian companies have not pursued overseas outsourcing as aggressively as businesses in some advanced economies. One reason is the strong performance of the Australian economy, especially compared with 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 unions, including the one representing financial sector workers, showed at least 250,000 jobs across Australia’s service sector could be susceptible to outsourcing, especially in finance, telecommunications and IT.
And as economic storm clouds threaten, there is growing scrutiny on business costs, especially in the financial services sector. A report this month by the 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 re-investigated,” the report says.
In the boardrooms of Sydney’s Martin Place and Melbourne’s Collins Street, 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 has been becoming clear.
After slashing 3309 jobs last year, according to figures from the Financial Services Union, more pain is in store this year. The big four banks are expected to slash a further 2 per cent of their Australian workforces in both this year and next, in the face of rising borrowing costs caused by the euro zone crisis and amid fears of global recession. That’s about 7000 jobs.
“This will be bigger than the job cuts that followed the GFC [global financial crisis],” says an ANZ executive, off the record.
But, while the 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,” says 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, the 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 says.
“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.”
The global outsourcing industry has thrived on economic crisis. The dotcom bust of 2001 sparked a boom for IT service providers in India as US tech firms cut costs by sending operations offshore. India’s business process outsourcing firms – or BPOs as they are known – then prospered when the global financial crisis smashed the US finance sector and teetering financial institutions scrambled to slash costs. When the global economy was in the doldrums in 2009, India’s 20 biggest BPOs managed to grow their export earnings by 15 per cent. The industry’s second-biggest player, TCS BPO, grew by 73 per cent.
Now, with tougher times again forecast, the Financial Services Union fears foreign firms will soon be getting more work from Australia.
Leon Carter, the union’s national secretary, says 5000 jobs have been sent offshore by the financial services sector in almost four years.
“The bulk of those jobs have gone to Bangalore, some have gone to Manila and also New Zealand,” he says. The banks’ outsourcing slowed during the global financial crisis but is now gathering pace again.
The big four have adopted different approaches to offshoring. NAB and Westpac have outsourced operations to specialist business processing firms while ANZ has adopted a “captive” strategy where it directly employs staff in lower-cost Asian countries. ANZ has recently opened “operations hubs” in Manila and Chengdu, in China, to go with a long-established centre in Bangalore.
The ANZ’s chief, Mike Smith, has emphasised the importance of these hubs, which facilitate the bank’s operations across Asia, not just Australia. “Our investment in our operations hubs continues to support our productivity agenda and we’re also placing a stronger emphasis on generating ongoing efficiencies,” he said in November.
“This isn’t a matter of reacting to events, but of dynamically managing our costs to reflect our business strategy and the market conditions.”
Commonwealth Bank is the only one of the big four, which has not opted for much offshoring, Carter says. “I think they understand that keeping work here … can be a positive differentiation from the other three,” he says.
Despite the deteriorating outlook for banks, Commonwealth is holding firm. “We don’t offshore and we have no plans to offshore,” a Commonwealth spokeswoman told Weekend Business yesterday.
Like the Commonwealth, smaller “second-tier” banks have not opted for major offshoring.
Among the insurers, Suncorp says about 100 jobs have been “impacted by partnering activity” over the past six months. The union says it has plans to send off many more.
Telstra is another big employer that has reduced costs by outsourcing operations over the years.
Carter says that the profitability of Australian banks means there is no justification for sacking Australians and sending the work overseas. “These institutions, particularly the big four banks, are incredibly profitable and they can afford to protect Australian jobs,” he says.
“They have an obligation to the community, the country, and part of that obligation is protecting Australian jobs. Yet they continue to sacrifice Australian jobs on the altar of profit.”
Attention has recently been fixed on troubles in the manufacturing sector but the political heat could shift to the finance industry if job losses in the sector mount. Banks and insurers are likely to come under pressure not to send operations overseas.
A Westpac spokesman says it continues to “access specialist skills from its global sourcing providers” but has no specific targets.
“Our partners provide us global scale and capability that we could not achieve on our own.”
Westpac’s chief, Gail Kelly, has tried to shift the debate by talking about “best sourcing”. “It’s called best sourcing rather than outsourcing because in some cases we in-source as well,” she said in November.
A spokesman for National Australia Bank says with a workforce of 44,000 worldwide, numbers “will fluctuate in various parts of the business at times due to the completion of programs, outsourcing of some projects and continuing focus on efficiency”.
He says NAB always tries to redeploy people within the business.
The union says offshoring is being done to please big institutional shareholders at the expense of workers and customers.
“If we want our banks to be run to benefit the rich shareholders, then we will see an increase in job losses and in offshoring,” Carter says.
The union wants more regulations to make it harder for banks to send jobs offshore. It has successfully campaigned for a financial sector “right to know policy” to be included in the ALP’s policy platform which, if legislated by the federal government, would require financial institutions to get customers’ permission before sending personal financial data offshore.
If adopted, this rule could make it much more difficult for banks to efficiently deploy back office operations offshore. Surveys done by the union have found more than 80 percent of Australians believe their financial data should not be sent overseas.
“If we can expose the practice and make the banks and insurance companies say out loud that they’re sending Australian data – that is deeply personal financial information – overseas, as well as Australian jobs overseas, that is not an argument they will win with their customers and as a result offshoring will be substantially reduced,” Carter says.
“We are working very hard with the government to get that policy position converted into legislation.”
The government has so far resisted the union’s push but it is working with the independent senator Nick Xenophon to introduce a private member’s bill on the issue.
Carter says offshoring is “all about cost reduction” but advocates for the outsourcing industry, such as Sri Annaswamy, director of the Sydney outsourcing consultancy Swamy and Associates, say it now offers much more than just lower costs.
Cashed-up Indian outsourcing firms are moving “onshore” by buying back-office operations of financial institutions in the US and Europe.
They have developed expertise to “use capital in back offices more efficiently”, Annaswamy says. This includes selling the services of back-office operations, once only available to the financial institution, to third parties. “It’s no longer just a cost game,” he says. “That is a point people often miss.”
Annaswamy sees signs of this process in Australia. Last month, the Indian technology giant Infosys purchased the Australian consulting firm Copeland. “They have found that getting an onshore skill set, particularly for procurement consulting for their BPO, was a great benefit.”
He says it would be counterproductive and xenophobic to introduce regulations to contain or prohibit the latest innovations in outsourcing. Instead, Australia should welcome Indian BPOs and work to create an outsourcing industry here.
“These companies are willing to make massive investments and employ thousands of people.
“To speak of them as some sort of slave traders trying to take jobs away from Australia is an absolute nonsense. The best way is to proactively embrace them and show that our own back offices can be transformed.”
The global outsourcing industry has changed dramatically over the past decade but is still in its infancy.
It is bound to throw up challenges for companies and workers in high-wage economies such as Australia for some time yet.
Source: Sydney Morning Herald
