BT: Local companies get lion's share in outsourcing by banks, wealth firms

           

Business Times - 26 Oct 2006   Local companies get lion's share in outsourcing by banks, wealth firms Strong spillover from financial to business services By ANNA TEO     (SINGAPORE) For every dollar Singapore banks spent outsourcing non-core activities in the past five years, 93 cents went to local firms and only seven cents flowed overseas. A similarly high proportion of the wealth advisory industry's outsourcing expenditure has gone to Singapore firms - 74 cents per dollar of spending. This trend reflects the strong spillover - in terms of income and employment - from financial services to the business services sector, the Monetary Authority of Singapore (MAS) says in its latest Macroeconomic Review. Financial institutions typically engage advertising companies for promotional activities, while accounting, legal and IT functions have - increasingly in recent years - been outsourced to external specialists. Official surveys found that banks and advisory firms - the two financial services with the biggest positive spin-offs to support services - spent respective averages of S$1.2 billion and S$86 million each year between 2001 and 2005 on business services. About a third of banks' business-related expenditure, for instance, went to outsourced data processing, consulting & research, and accounting & audit services. And growth of the banks' domestic outsourcing has outpaced that of their offshore activities in recent years, boosted by a sharp rise in management consulting activity, the MAS report notes. This reflects in part the engagement of consultants for new regulatory initiatives, and for market research amid growing industry competition, it adds. In the wealth advisory industry, management consulting and market research appear to be increasingly outsourced offshore, while accounting and secretarial work are still predominantly outsourced locally. MAS economists estimate that every S$1 billion increase in final demand in financial services generates 920 jobs in business services. In all, financial services 'contributed' an average of around 1,100 jobs a year in business services - or about 8 per cent of total jobs created - between 2001 and 2006. And Singapore's input-output data shows that a dollar increase in financial sector final demand generates 27 cents of spillover to the rest of the economy, with business services, the biggest beneficiary, receiving 11 cents - or 40 per cent of the total spin-offs. Meanwhile, a new 'financial development index' constructed by MAS economists suggests that the domestic financial sector made 'steady progress' over the past 15 years, with the pace of development picking up particularly since the late 1990s. The emergence of an 'affluent class' in various Asian markets has boosted demand for specialty financial services and presented opportunities for Singapore to play a hub role in asset management, private banking, brokerage and treasury services - segments that are expected to play a growing role in the country's financial industry in the years ahead.   Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.