Internationalisation, regulation and flexibility are the key drivers of Asian outsourcing, although price is still important. That is according to a new BNP Paribas Securities Services survey. This is the fifth year the firm has run a survey about outsourcing in Asia. It is a global endeavour and earlier in 2014, they conducted a similar survey with the same provider, YouGov, that covered the UK market.
The Asian survey shows significant differences in terms of the usage of outsourcing services compared to either Europe or the US.
In Asia, one of the key themes was that of internationalisation. In Asia, players have tended to operate in one or a handful of markets. There has been an emerging trend of building regional capabilities. Such strategic moves include CIMB Securities’ acquisition of the RBS network or CITIC Securities’ purchase of CLSA.
97% of survey respondents stated that they are conducting outsourcing. That is a higher figure than in previous years. BNP thinks that people probably answered this question in a fairly broad way. It might be risk management they are outsourcing, or, they might be outsourcing to a technology provider, but they do not expect that respondents were confirming that they were conducting full post-trade outsourcing.
Three-quarters of respondents said that they currently outsource part of their back office, but comparing that number to those who outsource their back office in whole, the former number is small; just two per cent, which is consistent with survey findings in previous years.
Just over half of respondents said they outsource their clearing. Public information suggests that very few people use a third party clearer in Hong Kong and Singapore and so that this may refer to the outsourcing of risk management, where that forms part of the clearing function.
The survey asked about people’s concerns in relation to outsourcing. The number one concern was the potential loss of control and that is consistent with the survey’s results from previous years.
Of the factors in selecting outsourcing providers, number one was price. In Asia, price is very important, being seen as a value for money provider is key.
“Cost is definitely a pressure for everyone, but we don’t see cost as the main driver,” said Stephanie Marelle, the head of BNP Paribas Securities Services in Hong Kong. “The main driver is keeping up with the pace of change and when you combine the pressure of keeping up with regulatory change with the need to grow and expand regionally, it is very difficult to both keep up with such a pace and come up with the right IT infrastructure and manage the rate of change on the IT side.
She added that firms could cope with the pace of change of regulation if the operating environment was to stand still and never grow, “but for someone who has the ambition to expand and grow regionally, combined with the need to cope with change of regulation in the home market, it becomes a very difficult equation.”
A number of salient points about outsourcing trends appeared to emerge from the survey.
“Being global is key, so when choosing an outsource supplier you are unlikely to choose someone who is only local or regional,” said James O’Sullivan, head of client development, banks and broker dealers at BNP Securities Services in Hong Kong. ““The second point is regulation. However much regulation today may or may not be affecting some of the respondents to the survey, it is definitely coming in the future and it is going to be a push for people to outsource. Thirdly, it is in the flexibility in the model. As firms start to get more complex, trading more asset classes, they need to have an outsource provider who can actually build relevant solutions.”