Offshoring Evolves as Cost of Overseas Talent Rises
The third wave of mortgage offshoring appears to have transformed the business into something unlike what it originally was in some striking ways.
Perhaps most notably: Although it continues to be known primarily for its staffing cost-effectiveness, prices being paid for talent are said to be rising.
Russ Watts, senior vice president of operations in First American's international services group, said offshoring has reached a point where "you start to hear things like wage and salary inflation being an issue ... in some cities" such as Bangalore and Mumbai in India.
This has resulted, in part, from notable growth in the number of companies in the business, Mr. Watts and some other market participants interviewed about mortgage offshoring for this article said.
"There's a ... price hike every year in India because ... it is almost fashionable for everybody to go and set up a shop there," said Arshad Masood, president of Visionet Systems, Cranbury, N.J.
Because of this increase in salaries and competition for talent, effective offshoring has become a matter of more than simply moving certain processes to a cheaper market, according to some market participants.
"Yes, you can get a labor arbitrage impact immediately [by offshoring]. However, in the long range ... that benefit [may] go away [due to rising salaries and attrition]," Mr. Masood said.
Mr. Watts said he doesn't think that the higher salaries in India have reached a point where they've threatened staffing cost-effectiveness relative to the United States - something he said remains compelling to his clients. He added that First American uses effective non-monetary staff-retention efforts.
Offshore employees have been commanding higher salaries not only because of competition between employers but because, during what might be thought of as the practice's second wave, those employees developed enough vertical market expertise to be considered in some cases somewhat proficient in handling a broader range of industry-specific tasks.
"The competency of the staff - certainly in India, in particular - has been proven," Mr. Watts said.
Hank Boggio, senior vice president of marketing at document process outsourcer Archive Systems, Fairfield, N.J., also agreed that U.S. mortgage industry - specific experience overseas has grown.
Generally, the processes mortgage market participants may find attractive to outsource are certain production, post-closing and default management functions. Josh Stallings, vice president of strategic initiatives at No Red Tape - a mortgage wholesaler based in the Sherman Oaks section of Los Angeles - said individual companies' needs may play a big part in what to offshore. His company, for example, used an overall analysis of its needs when determining what was best to offshore, he said.
Interestingly, while offshore staff have been getting relatively higher wages for handling mortgage-related tasks, there seems to be less and less interest in some quarters when it comes using them to handle the call center and programming processes originally associated with offshoring, some market participants have said.
"A lot of the call center work is either coming back to the U.S. or going to the Philippines at a much higher price. The reason is that the pricing and the attrition in the call center market out there in India has gone to a level where this is not viable anymore," said Mr. Masood. He and other market participants seem to agree this is also due to the fact that there has been a growing consensus that customer-facing tasks are among the least effective to offshore.
Mr. Watts said that First American does not currently even offer certain call center services.
When it comes to programming, in some cases U.S. mortgage market participants might be able to avoid offshoring programming because increasingly flexible domestic automation is available that makes avoiding certain types of expensive and/or time-consuming information technology work available.
Tom Johnson, vice president of product development at Zoot Enterprises, Bozeman, Mont., said that his company has been able to offer technology that allows users to do some of the work themselves, in certain cases. "So instead of going and creating a project and getting an outsourcer overseas to build ... technology ... for them they can actually build it ... so that they don't need any involvement from their IT people. Or at least the IT involved is limited to building interfaces between different systems as opposed to actually having to write the code to do the work."
Mr. Stallings said he believes whether IT or call center functions are useful to offshore may depend on an individual company's needs. While his company doesn't offshore in those areas he believes large servicers, for example, may still find these forms of offshoring useful.
While mortgage market participants may be questioning offshoring is useful for its original purpose of handling call center or programming work, at least in some quarters, the original oft-cited political downside to the practice - the belief that it would hurt domestic employment by moving U.S. jobs elsewhere - seems to be much less of a concern.
"Years ago, and when I say 'years ago' let's say five years ago ... offshoring was somewhat of a negative topic. There was an awful lot of, I suppose, fear of all the jobs going offshore, [that] people would be losing work. There was, I guess, some concern back then also that safety and security was an issue. Many of those issues now have sort of normalized," First American's Mr. Watts said. "We find it's just much different talking to clients today than it was years ago. People are actively seeking offshoring as opposed to having to be dragged into it with a cost argument. They now understand that, I think, in order to even be competitive ... many people are feeling like they need to be offshore and that's different than it was a number of years ago.
"I suspect that when rates go up [and] obviously things slow down ... that may have something to do with the heightened interest but I think even beyond that ... we don't see the [discomfort] in offshore discussion that you would have seen a number of years ago," he said. (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com