http://www.nytimes.com/2003/10/08/business/worldbusiness/08rese.html
October 8, 2003
As It Tries to Cut Costs, Wall Street Looks to India
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."
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