by 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.
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.
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.
Now, with tougher times again forecast for the finance sector, the FSU fears foreign outsourcing firms will soon be getting more work from Australia.
Leon Carter, the union’s national secretary, says 5000 jobs have been offshored by Australia’s 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 said. Overseas outsourcing by the banks slowed during the GFC 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” offshoring strategy where it directly employs staff in lower-cost Asian countries. ANZ has recently opened new ”operations hubs” in Manila and the Chinese city of Chengdu to go with a long-established centre in Bangalore.
ANZ chief Mike Smith has emphasised the importance of these operations hubs, which facilitate ANZ’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 given the more constrained conditions,” 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 that has not opted for much offshoring, says Carter.
”I think we understand that keeping work here and not going down the offshoring route can be a positive differentiation from the other three,” he said. 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 The Saturday Age yesterday.
Among the insurers, Suncorp says about 100 jobs have been ”impacted by partnering activity” over the past six months and the FSU claims it has plans to offshore many more.
Telstra is another big employer that has reduced costs by outsourcing operations to other countries over the years.
Carter argues 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, to the country, and part of that obligation is protecting Australian jobs. And yet they continue to sacrifice Australian jobs on the altar of profit.”
Public 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 said it continued to ”access the specialist skills its global sourcing providers” but had no specific targets. ”Our partners provide us global scale and capability that we could not achieve on our own,” he said.
Westpac chief Gail Kelly has tried to shift the outsourcing 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 said that 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 said NAB always tried to redeploy people within the business if possible.
The FSU wants regulations to make offshoring more difficult for banks. 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 the permission of customers before they send any of their personal financial data offshore. If adopted, this rule could make it much more difficult for banks to efficiently carry out back-office operations overseas. FSU surveys have found more than 80 per cent of Australians believe their financial data should not be sent overseas.
”If we can we 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,” says Carter.
”We are working very hard with the government to get that policy position converted into legislation.”
The Gillard government has so far resisted the FSU’s push, but the union is working with independent senator Nick Xenophon to introduce a private member’s bill on the issue.
Carter says offshoring is ”all about cost reduction” but advocates of the outsourcing industry, like Sri Annaswamy, director of Sydney-based outsourcing consultancy Swamy and Associates, say it now offers much more than just lower costs.
Some cashed-up Indian outsourcing firms have started to move ”onshore” by buying the back-office operations of financial institutions in the US and Europe. They have developed the expertise to ”use capital in back offices more efficiently”, says Annaswamy. This includes selling the services of back-office operations to third parties. ”It’s no longer just a cost game,” Annaswamy said. ”That is a point people often miss.”
Annaswamy sees signs of this process in Australia. Last month the Indian IT services company Infosys bought Australian consulting firm Copeland.
”They have found that getting an onshore skill set, particularly for procurement consulting for their BPO, was a great benefit,” Annaswamy said.
He said 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,” he said.
”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.”
Global outsourcing has changed dramatically in the past decade but is still in its infancy. It’s bound to challenge companies and workers in high-wage economies like Australia for some time yet.