Explosion
``We can hire people who are first-rate at a fraction of the cost,'' Robert Vaudry, Morgan Stanley's Hong Kong-based head of research in Asia and Japan, said in a telephone interview. ``We'll offshore as much non-client-facing research as possible, modeling and databases in particular.'' The moves coincide with an explosion in the use of India for back-office jobs. By the end of this year, HSBC Holdings Plc plans to employ 8,000 people in India, China and Malaysia for such jobs, said HSBC Chairman Sir John Bond. The jobs, mostly in India and China, come at the expense of similar positions in Hong Kong and the U.K., he said. HSBC set up its first processing center in Guangzhou in 1996 and started moving back-office employees to India in 2000. ``When revenues are under pressure, you have to look at your cost base,'' Bond told reporters in Hong Kong after the London- based bank reported a 25 percent increase in first-half profit on Monday. HSBC has spent $45.7 billion on U.S. and European acquisitions in five years.
`Pivotal Year'
The world's top 100 financial companies will move 1 million mainly back-office and technology-related jobs to India by 2008, Deloitte Research forecast in an April report. That's half the 2 million positions, or about 15 percent of financial jobs worldwide, that will probably be moved offshore by then, the report said. Three-quarters of research expenses are wages. Salaries in India are between a 10th and a quarter of what they would be in New York, London or Hong Kong, according to Ganesh Prabhu, chairman in charge of placement at the Indian Institute of Management in Bangalore. ``This year is the pivotal year,'' said Christopher Gentle, the London-based director of financial services at Deloitte Consulting, citing banks' plans to reduce costs by about $1.4 billion each by 2008. ``It's gone beyond the cyclical to the structural, caused by the worst bear market in a generation.''
Improving Wages
A decision by more overseas financial institutions to add higher paying positions in India would be a boon to efforts by the world's second-most-populous nation to improve wages. Some 28 million Indians, or 2.8 percent of the population, pay tax, indicating they earn more than $1,300 annually. About 400 million of India's 1 billion people live on less than $1 a day. The government is trying to double foreign investment to $10 billion annually as part of a goal of boosting economic growth to 8 percent from last year's 4.3 percent. India's revenue from the outsourcing of call centers, computer processes and other services may increase to as much as $24 billion a year by 2008 from about $2.3 billion currently, according to the National Association of Software and Service Companies and management consultant McKinsey & Co. The shifting of operations by companies from the U.S., Europe and Asia offshore, to countries including India, is also increasing. ``All these investment banks coming to India to recruit is good news for us,'' said Ameya Shenoy, a 25-year-old accountant who's now studying for his M.B.A. at the Indian Institute of Management in Bangalore. ``I've never been keen on settling abroad and salary has never been an issue.''
Adding Resources
J.P. Morgan, which has had banking operations in India since 1930, plans to hire the M.B.A. graduates to do company research, complementing work by its analysts in six to eight industries globally. The bank is also hiring people to do financial modeling, compiling company data and analyzing balance sheets using computer spreadsheets, and others with the computer and technical skills they need to support the division. The new hires in Mumbai will total about 40 people. None will replace employees in other locations. ``We are adding resources to our equity research,'' J.P. Morgan's Lee said. India stands out when companies seek to move jobs overseas, partly because of its skilled workforce and widely spoken English, Accenture said in a report published earlier this year. The country produces 2.1 million graduates a year. The country has a workforce of 400 million, half of whom are farmers. About 87 million work in white-collar jobs, according to government statistics. Financial institutions employ 4.6 million people.
Indian M.B.A.
J.P. Morgan, Lehman Brothers Holdings Inc. and ABN Amro Holding NV joined Citigroup, Deutsche Bank AG and HSBC in recruiting graduates from India's top M.B.A. programs for jobs globally in the past three years, said Prabhu of the Indian Institute of Management in Bangalore. Citigroup has 8,000 employees in India, including 40 in Mumbai working in investment banking, equities and research, according to the bank's Web site. Citigroup first operated in India in 1902. Goldman Sachs Group Inc. has only been hiring graduates from the Indian Institute of Management in Ahmedabad, the top-ranked institute. ``They come to India because they can find exceptionally good students here,'' Prabhu said. Salaries for Indians who earn M.B.A.s at the nation's top three business schools -- the institutes of management in Bangalore, Ahmedabad and Calcutta -- and work in India average the equivalent of about $13,000 a year.
Reaching a Limit?
Those hired in India for overseas investment banking jobs can earn $30,000 in Singapore to as much as $130,000 in Tokyo, said Prabhu. The salaries in India are lower than in the U.S. and Europe. Associates, the second-lowest level of bankers, earn between $70,000 and $100,000 in base salary, according to London-based recruitment firm Armstrong International. The average Wall Street bonus alone stood at $48,500 last year, New York State Comptroller Alan Hevesi said in a report in January. There's a limit to how much of a bank's research division can be moved outside a company's main markets, said Glenn Henricksen, a former risk manager at Bear Stearns Cos. in Hong Kong who now runs CIF Consultants in the city. ``There isn't going to be a major shift in Wall Street research to India,'' he said. ``Research is marketing. It's not important what you say, it's just whether you get the deal or not. You lose a measure of control by moving it offshore.'' The strategy ``may only work best at the more junior end,'' said Hogarth Davies Lloyd's Davies.
Real Estate Prices
India provides other cost-cutting incentives. Real estate in Bangalore is about a sixth of the price in Tokyo, a third of Singapore and New York prices and 20 percent of those in the city of London when comparing average grade A office space, according to real estate broker Jones Lang LaSalle Inc. Bangalore office rents average about $111 per square meter a year and rents in Mumbai about $334 per square meter. That compares to $934 in the city of London. Office space in Mumbai and New Delhi is similarly priced to Singapore. Investment banks may also face opposition from unions and lawmakers in Europe and the U.S. to any efforts to shift operations and people overseas. In the U.K., unions at BT Group Plc, Aviva Plc and Prudential Plc have expressed concerns about the loss of jobs as the companies tried to lower costs by opening call centers in India. Aviva, the U.K.'s second-biggest insurer by total premiums, said in February it plans a 1,000-person call center and claims-processing unit in India, with the goal of reducing costs by as much as 40 percent.
Opposition
Protests in the U.S. have reached state level. New Jersey's Senate passed a bill banning the outsourcing of government technology services contracts to developing countries and the full legislature in the state will discuss it later this year. In Maryland and Connecticut, such bills were discussed before failing to pass the committee stage. Morgan Stanley is looking at renting offices in Mumbai, said Kay, the Hong Kong-based spokesman. He declined to say which industries the researchers and supporting employees would cover. JM Morgan Stanley, set up in the mid-1990s, is the U.S. firm's joint-owned investment bank in India. Deutsche Bank last year said it plans to set up an investment-banking unit in India and is currently assessing how and when to proceed. It started an asset management unit there at the beginning of this year.
Drudgery vs. Investment Banking
Goldman Sachs, which has 25 percent stakes in investment banking and broking companies with Mumbai-based Kotak Mahindra Bank Ltd., said last month it will move 250 administrative and technology jobs to Bangalore by the middle of next year to cut costs. The world's third-biggest securities firm has not shifted research jobs to India. Gouri Gupta says she hopes to be hired as an investment banker. The 25-year-old has already worked for HSBC in Mumbai for a year and spent nine weeks on an internship with Deutsche Bank in London and Singapore. Now she's studying for an M.B.A. at Bangalore's Institute of Management in order to upgrade her job. ``There is a clear division between the drudgery of back- office work and the more exciting investment banking,'' Gupta said. ``To be successful, you have to be really smart -- not just academically good.''
--Rob Stewart in the Hong Kong newsroom (852) 2977 6630 or at <r.stewart at bloomberg.net> and Sam Nagarajan in Bangalore, with reporting by Saikat Chatterjee in New Delhi, Christine Harper in London, Danielle Kost in Princeton and Cherian Thomas in New Delhi. Editors: McCabe, Pozsgay, Henry, Swardson.