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Europe job-losses not due to offshoring: Report

August 08, 2008 13:33 IST

Offshoring to low-cost places like India may have been perceived as the key reason for job losses in the Western world, but it is mostly internal restructuring that is behind the falling employment rate at European banks, a new report has said.

"Less than 10 per cent of all publicly announced job cuts at European banks since 2002 are due to offshoring. Internal restructuring accounts for the lion's share," according to a latest research report by German banking giant Deutsche Bank.

The recent decline in employment rate of European banks is because of internal restructuring and not due to job-offshoring to various countries including India, it said.

Across Europe, there is no correlation between the share of banks that have offshored IT functions and the changes in bank employment between 2002 and 2006, it noted.

However, India still maintains its position as a major offshore destination, largely because of its large pool of affordable, educated and English-speaking workers, Deutsche Bank Research said, adding that "financial services account for more than 40 per cent of Indian IT and BPO exports."

Financial services account for 41 per cent of IT and BPO exports, while telecom account for 19 per cent, manufacturing 15 per cent, retail 8 per cent and media 3 per cent.

The banks that use offshoring services at present employ about 32 per cent for IT operations, 38 per cent for support functions, it said.

Emphasising on the growing satisfaction and reliance of European banks on offshore vendors the report said "going forward, this share is planned to rise to 40-44 per cent."

In a global survey of 50 retail banks, nearly half of all respondents plan to offshore some IT functions during next five years, compared to 38 per cent presently.

Back office and other routine support functions are also increasingly considered to be ready for offshoring.

Close to 90 per cent of European banks source ICT functions from external suppliers (outsourcing), while more than 22 per cent buy from a foreign supplier (offshoring) and 11 per cent of banks procure from a foreign affiliate (captive offshoring).

Most banks resort to offsourcing as they save costs compared to onshore production. However, these savings only materialise over time. In the first year more than 30 per cent of banks report an increase in costs, but after five years this share melts down to 2 per cent.

Beside offshoring, other factors such as reduction in bank branches in Germany or the catching-up in financial development in some Eastern European countries were the major dampeners in the employment aspect.

Since the year 2001, European bank employment has dropped by more than 125,000. On an average, bank employment has dropped by around 4 per cent between 2001 and 2006.

British and German banks lost strongly, whereas banks in Estonia and Latvia but also in Ireland and Spain added many new employees.

Besides, subprime crisis and market turmoil has put pressure on job prospects. "The market turmoil has put more than 100,000 jobs at risk but primarily in the United States."

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