Globalthink or Job Shrink: Offshore Outsourcing Brings Some Banks Key Benefits. If Only It Didn't Carry All the Cachet of Leprosy. A Look at What's Actually Happening

Article excerpt

Should American banks be sending work to Elbonia?

Elbonia, of course, exists only in the fertile imagination of cartoonist and corporate anti-maven Scott Adams. His Dilbert comic strips periodically skewer the concept of outsourcing work to Elbonia. It's a land of people with funny hats, beards and shapeless clothing, where the citizens wade waist deep in mud.

"Xenophobic" doesn't begin to do the strips justice. But behind the laughter is a genuine debate that was already brewing before a so-called jobless recovery, presidential-election politics, and Lou Dobbs combined to make it boil over. Suddenly, a legitimate, though certainly debatable, business strategy became the P.R. equivalent of admitting to spousal abuse.

A raucous debate and no easy answers

For every study purporting to prove that offshoring is eroding America's job base, there is a match purporting to demonstrate that, net, America is gaining from the process. (Links to noted studies appear on our website; www.ababj.com.) The propaganda and promotion quotient climbs daily. Federal and state legislation dealing with facets of this fill a thick printout only summarizing what's there.

Indeed, in an April report concerning U.S. technology companies that outsource offshore, Smith Barney analysts characterized new regulation as the biggest risk to the business and said it could likely take three forms: restrictions on visas; new privacy laws targeting offshoring specifically; and restrictive state o legislation, such as bills that would require call center staff to tell customers where they are working.

Then there's the real world of clients with tasks to be done. Banks and other financial services companies either outsourcing or exploring it face a difficult choice. "Hire American," second-cousin to "Buy American," has strong gut appeal, but in an age when Fords are made overseas and toys based on American movies are produced by the billion in China and popped into our hamburger bags, that appeal sometimes feels quaint.

On the other hand, Wall Street always expects improvement, and offshoring, at least at some stages, can save a buck, though not always as much as expected.

The conundrum facing banks in this is summed up neatly by John Kanas, chairman, president, and CEO of North Fork Bancorporation, which will be the country's 16th-largest holding company after its pending merger with GreenPoint Financial Corp. Though North Fork has not outsourced overseas thus far, Kanas will actually be inheriting a decision to outsource to India. GreenPoint has experimented with outsourcing its call center offshore and has already outsourced some of its back office and mortgage processing functions to India, to the tune of around 200 positions.

"They were first attracted to the model by the allure of cost-savings, which are significant," says Kanas, who heads a firm with an excellent efficiency ratio.

However, Kanas continues, "what GreenPoint's found out, as I think have most people who've engaged in outsourcing, is that the real advantage seems to be that they are able to improve the quality of some of the back office work because of the relative level of skilled labor available in India as compared to here in the United States."

"We're not ready to condemn or confirm our use of it in the future," says Kanas, "but it's certainly not something that's going to go away and certainly something that American industry and business are going to continue to experiment with and use over time."

The big question mark for Kanas is the reputational and political risks involved. "We would not do something to ourselves that we think would be indelibly politically damaging," he says.

Macro picture for banking

As new a trend as offshore outsourcing may seem, among the top 15 global financial services companies it has been going on with information technology services for years, according to Virginia Garcia, senior analyst in the financial services strategies and IT investments section of TowerGroup, the consultancy. …