: As It Tries to Cut Costs, Wall Street Looks to India

[Dave Farber <dave () farber net>]

> As It Tries to Cut Costs, Wall Street Looks to India
>
> October 8, 2003
>  By SARITHA RAI
>
>
>
>
>
> BANGALORE, India, Oct. 7 - Global companies have long taken
> advantage of India's large college-educated, low-cost work
> force. Now Wall Street firms, including J. P. Morgan,
> Lehman Brothers and Morgan Stanley, are joining the chase
> for more highly skilled Indian labor.
>
> J. P. Morgan, the investment banking arm of J. P. Morgan
> Chase, plans to hire a few dozen researchers in Bombay by
> the end of the year. Morgan Stanley, which already has
> investment banking and mutual fund operations in India,
> will employ a similar number of researchers this year, also
> in Bombay. Both teams will consist of junior-level analysts
> collecting data, analyzing balance sheets and working on
> basic financial models.
>
> This shifting of more sophisticated work to India comes on
> the heels of a rush of call center and other back-office
> nonmanufacturing jobs here, and is seen by many experts as
> yet another phase in the latest drift of jobs to low-cost
> countries that began in the early 1990's with Silicon
> Valley companies.
>
> Some Wall Street firms are just observing the research
> trend for now, though they already have a presence here.
> Merrill Lynch has an investment banking, brokerage and
> asset management joint venture in India as well as a
> technology development center to build proprietary software
> for its global operations.
>
> And Goldman Sachs plans to establish an Indian unit with
> 250 employees working on operations and technology. But
> neither firm has moved any financial research to the
> country.
>
> Other skeptical firms are, however, being drawn in. Among
> them is Lehman, "though we are not big fans of business
> process outsourcing," said Peter Nag, vice president and
> global program management officer for Lehman in New York.
> Lehman has cautiously started a few pilot programs in
> Bombay for research-related tasks like data cleansing and
> creating presentations. The programs, which began a couple
> of months ago, are run by boutique Indian firms set up by
> former Wall Street employees.
>
> Other financial giants, like Citigroup, are expanding the
> Indian side of their corporate and investment banking
> activities. Citigroup executives did not respond to
> requests for comment on research being shifted to India.
> But the company's Web site says: "Citigroup's global
> corporate and investment bank has expanded in India rapidly
> over the last two years. Currently, the firm has more than
> 40 staff based in Mumbai working in investment banking,
> equities, and equity research departments." Mumbai is the
> local name for Bombay.
>
> There are two main forces behind the experimentation with
> research operations in India, experts say. Wall Street
> revenues are well below where they were when the market
> peaked, so cost-cutting is imperative. And the investment
> advice scandal involving 10 big securities firms that was
> resolved with a $1.4 billion settlement this spring has
> resulted in a heightened awareness of the need for fair and
> untainted research.
>
> "The downturn in the capital markets has collided with
> cutthroat competition among Wall Street firms to create
> pressure on costs," said Christopher Gentle, the research
> director at Deloitte Consulting in London.
>
> Such pressure is being felt across a broad spectrum of
> industries in the United States, and the farming out of all
> kinds of work once done only or largely domestically has
> been increasing rapidly.
>
> The total outsourcing of business-process jobs by American
> companies is expected to grow to $136 billion by 2015, from
> $4 billion in 2000, and create 3.3 million jobs, according
> to Forrester Research of Cambridge, Mass. An estimated one
> million of these jobs will move abroad - a trend that
> dismays some American workers.
>
> China, India, the Philippines and Russia are expected to
> gain most of the work. And many people expect India to
> snare much of the highly prized jobs, like the kind Wall
> Street is starting to export.
>
> "India will see increased outsourcing of research in
> equities, economics, derivatives and debt research because
> of cheaper talent as well as language skills," said Andrew
> Holland, executive vice president for DSP Merrill Lynch in
> Bombay, a firm 40 percent owned by Merrill Lynch.
>
> India's low real estate costs and salaries make it possible
> for investment banks to sustain the necessary
> round-the-clock coverage. On Wall Street, salaries
> constitute as much as three-quarters of total research
> costs. But, Dushyant Shahrawat, a senior analyst at
> TowerGroup, a financial services consulting firm in
> Needham, Mass., said "a junior sell-side research analyst
> from an Ivy League school costs $150,000 a year to the
> company, while an Indian equivalent from a top business
> school would cost $35,000 a year."
>
> Hiring inexpensive junior-level researchers in India will
> free J. P. Morgan's highly paid senior analysts to spend
> more time with the companies they cover and with investors,
> a J. P. Morgan spokeswoman, Joanne Shephard, said.
>
> The number of Wall Street research jobs in India is still
> small compared with the thousands of back-office jobs being
> added each year. The National Association of Software and
> Services Companies, the industry trade group known as
> Nasscom, estimates that only 200 such jobs have been
> created in India so far.
>
> Sunil Mehta, vice president of Nasscom, said the movement
> of services jobs followed the model perfected by the auto
> industry.
>
> "In the auto industry, the engine could be built in Brazil,
> parts could be sourced from India and China, and the
> assembly line could be in Michigan," Mr. Mehta said. And
> now, he said, "global corporations, including Wall Street
> firms, are obtaining portions of the service wherever it is
> available at the lowest price."
>
> But shifting research is not as easy as shifting many other
> types of work, Mr. Shahrawat of TowerGroup said, and the
> trend will be slow growing, particularly for more senior
> research work.
>
> Among the impediments, he said, is that research analysts
> need to be in close touch with management of the firms they
> cover.
>
> "An analyst sitting in Bombay will find it very difficult
> to do a competent job writing a report that values
> Wal-Mart's stock if he has never even been to Wal-Mart and
> doesn't have a close relationship with Wal-Mart's
> management," he said.
>
> He and other analysts foresee thorny regulatory issues in
> sending research abroad. "If it is anything more than basic
> number crunching and comes even remotely close to
> investment advice," Mr. Shahrawat said, "Indian researchers
> will be required to be registered as investment advisers,
> and have other accreditations."
>
> There are other concerns as well. "The feasibility and risk
> mitigation aspects require much greater due diligence
> before we make any outsourcing commitments," Mr. Nag of
> Lehman Brothers said, although the firm's due diligence
> last year showed that India had a large pool of skilled
> workers.
>
> Still, experts see the trend accelerating. Mr. Gentle of
> Deloitte Consulting, which has forecast that financial
> services companies will move a million jobs, mainly
> back-office and technology-related work, to India by 2008,
> said, "I see a significant increase in research jobs as
> well."
>
> That, he added, would put the total "in the thousands
> rather than hundreds." And some consultants say that
> higher-end and more complicated tasks could eventually
> shift overseas.
>
> At top Indian business schools, like the Indian Institute
> of Management, the prospect of a job with Wall Street firms
> has students excited.
>
> Gayatri Srinivasan, 24, in the graduating class of the
> institute's Bangalore campus, says she dreams of a job with
> a top American investment bank; she will be competing for
> her dream job with at least 50 of the 200 students on her
> campus.
>
> "Imagine working directly for a Wall Street firm while
> continuing to live in India," said Ms. Srinivasan, who
> interned this summer at Lehman's office in Tokyo.
>
> Entry into the institute's four schools is highly
> competitive - only 1 percent of applicants get in, said
> Ganesh Prabhu, chairman of placement at the Bangalore
> campus. Still, the average entry-level salary for graduates
> last year was just 600,000 rupees, or $13,226, for jobs in
> India.
>
> The jobs may not transport them to Wall Street, but Ms.
> Srinivasan and her peers feel that does not detract from
> the glamour of it all."It is not the location," she said,
> "but the job and the bank that matters."
>
> http://www.nytimes.com/2003/10/08/business/worldbusiness/08rese.html?ex=1066623479&ei=1&en=345b945e7d610e9d
>
>
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