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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