Outsourcing: Kiss of death to research?

Jorgé's picture
Rank: Neanderthal | 2,121

Every year or so the threat of losing jobs to outsourcing looms its head and shakes the core of a few aspiring monkeys. You've worked hard in college, you've busted your ass to get those internships, and now that you're finally at the cusp of pursuing your career the banks seem to have found another way not to hire you.

A little exaggerated yes, but with SocGen's recent hiring of India-based Copal partners for its ER, the outsourcing "threat" has again been raised.

I thought it'd be good to dissect which parts of finance should be on yellow alert, and maybe see how this would affect Wall Street's future.

Let's start with banking; at the "bitch" levels investment banking could definitely be outsourced- and some of it already is. Copal even says that their specialty is making pitchbooks. MD's however prefer actual people to scream and throw printers at, so we probably won't be seeing smashed monitors on a daily basis anytime soon.

Sales in S&T won't be going anywhere, but some have argued that plain vanilla trading would be wiped out by BPO. I don't think that's the case and I believe that if anything would wipe out trading it would be advancing technology, rather than outsourcing.

Equity Research however is in a pickle, not to put it down but I think anyone who understands the markets, is versed in fundamental and technical analysis, and can put his thoughts on a stock eloquently can be a researcher. Firms like Copal know this and could theoretically pose a threat to analyst jobs in the US and in the UK- places where they've incidentally been gaining a lot of business.

Thing is, most of the BB's have been already outsourced their research and some even partially own these firms- which totally makes sense for them, why pay hundreds of thousands to an analyst if someone else can do it in Asia for almost 75% less right?

But what does this mean for ER people?

Should they be looking over their shoulder for the outsourcing monster?

Or is this just overblown job hunt paranoia?

What do you think?

Comments (15)

Oct 12, 2010

I worked for a Big 4 advisory practice that occasionally outsourced certain parts of our non-modelling process to India-things like industry research, comp sets, etc. While the "meat" of the product from our India offices generally ranged from acceptable to pretty good, there were some definite weaknesses in terms of qualitative analysis and presentation (English grammar/spelling, etc).

We would occasionally review work created by another Big 4 practice group that outsourced their modelling to India, and the results were pretty weak-significant errors both technical (formula errors) and theoretical (tax-affecting cost of equity, for example).

Some of the Indian employees in our group in the US told us that working for the Big 4 advisory was basically behind working A) anywhere in the US/EU and B) for a bank in India but otherwise was a pretty prestigous career that paid very competitively and most of the employees of our Indian firm were graduates of top Indian schools.

The value proposition for most corporate finance and consulting work is that work can get done both a) FAST and b) with a high degree of detail and accuracy. Outsourcing to India can help with a) to an extent because of the timezone advantage, but if work isn't done right or if things need to go through multiple iterations quickly (like tweaking a model) whatever cost savings you can find are a moot point. I think that India, like China, is more likely to develop internal demand for banking-related services than to "win" the work from US providers. Unlike programming, which is done in a universal language and has less chance of qualitative error, the physical distance and langauge barrier are too much to overcome.

NB: Some of the best and smartest people I've worked for/with are Indian, both immigrants and natural-born Americans. This is just my honest experience from working with outsourcing of high-level consulting work to India.

Oct 12, 2010

My fellow analysts are all Indian. Smart guys, but to be very honest, company execs don't trust them as much as they otherwise could because of the names and accents. That said, I think SocGen fails to realize that ER is also very much a sales job, because you have to sell the buyside guys on your assumptions.

Oct 12, 2010

what people seem to misunderstand is the ratio between communicative tasks and analytical tasks in global markets research.

communicative tasks =/= outsourcing.

True investment research will never be outsourced as the communication is too big of a part.

Oct 12, 2010

A lot of bitch work could be outsourced, but often times--as is the case for IB analysts--bitch work is where the future department heads begin. It seems most financial firms are very cognizant about developing future talent. My estimate is that tasks won't be outsourced en masse for positions that have traditionally been first steps toward higher positions.

Oct 12, 2010

For all you 4-hour work week guys out there, have any of you ever tried outsourcing any of your work?

If you feel that YOU could hire somebody overseas to do your job, then should should a) hire them and start impressing people at how time efficient you are or b) find a new line of work.

Oct 12, 2010

We already work in my team with 2 "support analysts" outsourced in India and they do the Bitch work of the bitch work aka 2 pages profiles, listings, crappy research...

We never send them "real" work - too many errors on the simple stuff already, don t want to spent more time finding mistakes than doing the stuff ourselves...

But, if you think about it, I agree with the OP, this may lead to a drastic decrease of Monkeys in Wall Street recreating another food chain:

BSD>MD>VP>Ass>Monkeys>Monkeys' Monkeys...

The good thing about the system is that Analysts can now blame somebody else for their mistakes...

Oct 12, 2010

My friend from India said the CFA designation is getting hugely popular there

Oct 12, 2010

I think you might see outsourcing to a certain extent, but the fact is you really don't want to be sending deal info to India just because you want to spread the deal cheaply. Analysts salary is a small part of the overall bottom line.

Education and memorizing material is great, but there is much more to a deal than being a finance robot.

Oct 12, 2010

I went into the whole WSO careers world because 1) you can't outsource a BSD-hopeful mentality/personality/attitude
2) if you are worried about outsourcing, you are not making yourself valuable enough... differentiate as best you can!

Still not sure if I want to spend the next 30+ years grinding away in corporate finance and the WSO dream chase or look to have enough passive income to live simply and work minimally.

Oct 12, 2010

the whole reason wall street cares so much about pedigree is because perceptions matter. IMO the deciding factor in outsourcing ER is whether it looks bad to clients, makes bank look cheap.

Oct 13, 2010

Will never happen wholesale - maybe will go as far as some above posters have mentioned (outsourcing menial work). Clients (as in issuers / companies) are cognizant of the bank's research stature in certain spaces and are very interested in speaking to ER analysts to get their view. It's also a (non-trivial) factor in some companies' choice of underwriter, both for IPOs and follow-ons. That whole dynamic just wouldn't work if you outsourced the entire function.

Oct 13, 2010

"not to put it down but I think anyone who understands the markets, is versed in fundamental and technical analysis, and can put his thoughts on a stock eloquently can be a researcher."

Oversimplified much? How about this: "Anybody who understands how certain products trade and can make a profit off of them can be a trader." So you just read a book or two and voila you're the next star research analyst? Doesn't work like that in reality. A lot of the value add in sell-side ER is providing clients with access to company management and access to analysts. Its a relationship game like anything else. What exactly would get outsourced in that game? Its not like IBD where you're building endless boilerplate-type models to go into a pitch book that might never get looked at. The learning curve is much steeper in ER because you're expected to know one particular sector and a group of 15-20 companies in that sector extremely well. Aside from maybe the research assistant functions of binding marketing books and booking travel, I think ER (atleast decent research that people will pay for) would be a difficult thing to outsource.

Oct 13, 2010
rjroberts1:

Oversimplified much? How about this: "Anybody who understands how certain products trade and can make a profit off of them can be a trader." So you just read a book or two and voila you're the next star research analyst? Doesn't work like that in reality

Yeah, I know I did and I apologize for that but I didn't say it would be anything spectacular either.

rjroberts1:

A lot of the value add in sell-side ER is providing clients with access to company management and access to analysts. Its a relationship game like anything else. What exactly would get outsourced in that game? Its not like IBD where you're building endless boilerplate-type models to go into a pitch book that might never get looked at. The learning curve is much steeper in ER because you're expected to know one particular sector and a group of 15-20 companies in that sector extremely well. Aside from maybe the research assistant functions of binding marketing books and booking travel, I think ER (atleast decent research that people will pay for) would be a difficult thing to outsource.

Good post, but if you've read the article you'd notice that a majority of the client-facing work is not outsourced, what is though is the research and reporting part.

People like Coldplay and voted for the Nazis, you can't trust people Jeremy

Oct 13, 2010

This is messed up. All these greedy CEOs getting fatter and richer while our generation struggles. Can't blame Indians for trying to earn a living though.

Oct 13, 2010
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