UK outsourcing is more popular than offshoring

65% of respondents surveyed at a recent industry briefing hosted by solutions provider Marlborough Stirling said they would consider re-engineering operations through business process outsourcing here in the UK before considering offshoring.

Marlborough Stirling says that this is encouraging for the UK financial services industry because although Life Companies, in the current climate of potential price capping, have to look for ways to reduce their costs, offshoring in isolation is not necessarily a long-term sustainable solution. The company claims that offshoring jobs simply to take advantage of lower salaries is not in the best long term interests of the financial services industry or its consumers.

Marlborough Stirling says that first and foremost companies need to update their core systems and re-engineer their businesses to maximise the effectiveness of these new systems, either internally or via an appropriate outsourcing contract. This is a view widely supported by the life companies that took part in the survey. 66% agreed that the widescale adoption of technology, as advocated in the Sandler report, could reduce costs sufficiently to negate the benefits of locating operations overseas. More encouragingly this figure is up from 54% from when the survey was carried out a year ago.

Marlborough Stirling claims that once companies have re-engineered their business process then offshoring may be a viable strategy to achieve lowest possible costs. But it warns that offshore outsourcing should only be considered with an outsourcing operation that can offer a clearly defined repatriation programme that can be exercised should any political instability arise in the chosen country. This approach reduces the regulatory risks associated with moving jobs offshore and provides an exit strategy if labour costs overseas escalate to such an extent that there is no longer any financial benefit - a scenario that many are now suggesting could be very possible in the medium term.

The ability to move operations relatively easily between countries also gives companies the flexibility to be able to relocate to another offshore territory if it emerges as a more commercially attractive destination. This level of portability is hard to achieve with cumbersome legacy platforms.

Brian Please, head of life and pensions propositions at Marlborough Stirling, comments:

"In light of recent media attention on companies moving operations offshore the findings of this survey are very encouraging for the UK financial services industry. Offshoring may appear to offer immediate cost reductions but it relies heavily on the labour market of the chosen country - something providers have no control over. Business process re-engineering and systems upgrade can offer long-term efficiencies and cost savings without the inherent risks of offshoring."