Picture this: A big ticket acquisition is announced in Japan at 1630 hours Tokyo Time (0230 EST). Somewhere in India, an analyst is sitting in front of a Bloomberg terminal trying to get his hands on the first news stories surrounding the announcement. Pretty soon he starts putting in a few numbers in an MS Excel model. He works relentlessly for the next four hours, preparing models and reports. At 0630 EST (1700 IST) he sends out a research note, complete with models, numbers and the likes, to an equity analyst in the US who just entered his office on Wall Street. The analyst has a quick call with his India counterpart, makes a few changes and sends the note out for the morning research call, just as investors are reading the news in the WSJ, wanting a piece of the action.

Of course, offshoring Finance and Investment Analytics (FIA) is not only about leveraging time zones.  It’s also about making more informed and better investing and financing decisions at lower cost. FIA is certainly not the latest fad on the block as far as offshoring is concerned. In fact, given the relative recency of the knowledge offshoring space, it is a grand dad. As early as 2002, some Investment Banks had started exploring the idea of using India as a hub for analytical support. So what makes it so exciting for Inductis to enter this space now?

The segment, which provides research and analytics support to capital market players such as the buy-side, corporate centres (CFO, Head of Strategy and CEOs) and Investment banks, is uniquely positioned to take advantage of India’s strength as a source of analytical talent.  The burgeoning Indian economy in particular and the Asia story in general have attracted a lot of interest from fund managers and Investment Banks alike.

The fact that eight out of the top 10 investment banks  have set up captives in India in the last four years is proof of the concept. Part of their interest in India seems to stem from India’s value proposition as an offshoring hub, an oft repeated story. But a large part of the decision making has also been influenced by factors which are specific to capital market players. The growth that this region of the world has clocked in the last couple of years and the optimism around the future has sparked considerable interest from fund managers, who need to have an India story when they face their investors. In addition, Investment banks, can sense an emerging opportunity for their IBD business (M&A, IPOs etc) in the short term, and for also setting up trading operations in the long term. So, while these players are leveraging India’s talent pool to get work done at a lower cost (helping them in the short term), it is also helping them establish presence and get a taste of business practices and the work culture, which they hope to leverage in the long term.

However, while the logic for locating a captive in India is compelling, it can be a tricky business. The fundamental factor that one has to keep in mind is scale. Vikram Suri, Head of Inductis’s FIA practice says “While the cost arbitrage when taking into account only salaries is significant and might lead one to conclude that setting up a captive is viable, the factor that one has to keep in mind is total cost of offshoring. The total cost of offshoring includes costs such as recruitment costs, the cost of transition and training, setting up the IT and other infrastructure. Most of these costs are fixed costs which necessitate scale, otherwise the payback period makes these projects unviable. Further, captives, as cost centres, tend to be 33% more expensive than lean, profitable, third party service providers. So while some in the bulge-bracket have chosen to set up their own captives, a large proportion of players should choose to go the third party way when making offshoring decisions.”

Partnering with a third party player has other advantages as well, but none more compelling than flexibility. The third party route allows clients to try the concept without having to make a substantial initial commitment in training etc, while also allowing them to ramp up or ramp down to mirror their business needs, a privilege not allowed if you have the people on your payroll. In addition, third party players bring to the table offshoring experience which can help avoid potential pitfalls.

So what makes Inductis different from the number of other third party players who claim to have achieved some scale in this business already? Vikram Suri comments:”For one, we are not looking at this business as offshoring non-core parts of our client’s business. We are very much targeting the core business, only we don’t think of this as a pure cost game. We want to be seen as strategic partners for our clients, who look at a holistic picture and add value for their clients.”

So for example, when Inductis talks to an Investment bank, it is not peddling junior research analysts’ time and making money out of cost arbitrage. We are looking to begin by standardizing their entire comp set, and add value by building macros around repeatable tasks. We provide end-to-end deliverables so as to truly augment your resources. Also, as a part of the EXL group, we bring to the table a unique blend of process excellence and analytical rigor, which few others can claim to possess. Of course, with the EXL umbrella, Inductis has the financial strength on its balance sheet, to take on very large sized contracts. Being part of such a large offshoring group also helps Inductis provide comfort to its clients in the form of Business Continuity Planning (BCP) and Information Security (IS) guidelines and certifications, a primary concern for capital market players where information is very much the competitive strength.

You can find out more about the FIA service line from the Inductis Corporate Website (www.inductis.com) or get in touch with Vikram Suri (vsuri@Inductis.com).

-- Kshitij Jain, Project Manager, Management Consulting