100 Economics Question of the Day: An Intermittent Blog: Why do research when your computer can compile press releases?

Thursday, February 23, 2006

Why do research when your computer can compile press releases?

If it's true thatthe outsourcing wave hits investment bankers, then why is all the talk about moving research and analysis offshore?

Pull quote:
"Investment banking has a lot of number crunching that to a large degree can be done anywhere," said Alenka Grealish, manager of the banking group at Celent LLC. "By taking press releases and data feeds and digesting them offshore, the components can be made into basic analyst reports" that are available to clients early in the morning.

And those investors should certainly pay just as much for an edited press release as actual research being done.

Pull quote 2:
The [Deloitte Touche Tohmatsu] report also predicts that driven by the need to take aggressive cost-cutting measures, the financial services industry will move 20 percent of its total costs base offshore by the end of 2010, compared to the current average of 3.5 percent.

This presents some additional risk to investors. Will they be compensated for it? (see also quote 4, below)

Pull quote 3:
Top performers can see cost savings of up to 60 percent while bottom performers report savings of less than 20 percent, [Peter Lowes, principle and head of outsourcing advisory services at Deloitte Consulting LLP] said.

Combining this allegation and the statement above, we would conclude that about 1/3 of the investment banking jobs currently in the United States will be offshored by 2010. How much will that reduce the value of an MBA?

Pull quote 4:
"The economics (of offshoring in banking) are strong and the risks are being successfully mitigated" [Lowes]said. "Today it's a competitive necessity."

Uh huh.

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