Asia moves in on West's Holy Grails
The ‘secret’ for getting rich in western countries, or so it seems is to get into the property market. If you can save the deposit and get a tenant to cover your costs, then you are off and running. Alternatively, if you are sick of renting, see it as dead money, and have bought into the argument that you will always gain from the capital value increasing, property prices double in value about every ten years, then there is a mortgage lender near you who wants your business. You might be considering a home loan, considering an investment loan, already have a mortgage and want a better deal, or considering buying your first property in 6/12 months or considering investment property or weekender. Whatever your situation an institution with wads of cash wants to engage with you. Naturally, the banks are a bit choosey about who they lend their money to. They want to know about your current debt level, your income, how much equity you have in your current property, how long have you been at your current job etc.
The problem with all of this that on the demand side people are very conservative about what may be the biggest decision of their lives and will not shift without due consideration and on the supply side the banks have no idea which of us is right for an approach.
The old days of getting into a suit and tie and making an appointment to see the bank manager are long gone, these days a mortgage originator will visit you in the comfort of your own home and offer you a plethora of products and services to suit your lifestyle and needs. A completely new industry has been set up to try to identify potential targets and make appointments to sell money. It can be expensive to try to sort out the wheat from the chaff. Many people want the money but many do not qualify. Telemarketing appointment setting is a cost effective way to do the first cut. Theses specialist firms sort through lists, make and confirm qualified appointments and supply daily reports with extensive details about the prospects. In many cases the finance broker simply shows up to close the deal.
Rising interest rates on shaky property prices have made it harder for homeowners and mortgage lenders in America and elsewhere to get together. Many mortgage providers are responding by outsourcing processing work to specialist firms. As yet, only a small proportion is being sent offshore. India in particular is poised to benefit from a huge rise in mortgage process outsourcing in the next few years -- worth anything from US$100 million a year to US$3 billion in 5 years time. The lenders are now using their own captive operations in India for many mortgage processes, and independent third party business process outsourcing firms are also on the searching for this type of work.
The principle driver, as usual is cost. Higher interest rates and the costs of refinancing outstanding mortgages squeeze margins. So the attraction of a low-cost destination, such as India, increase. Mortgages, moreover, involve a whole range of processes right for outsourcing. At origination, they might include telemarketing, data entry and document verification. Servicing a mortgage can be performed remotely. So, to some extent, can managing defaults and securitizing mortgages by aggregating them into tradable instruments. It is estimated that 50 to 80% of mortgage related work could be done offshore.
Firms can make savings of 30 percent of each mortgage compared with an American bank. However the main driver behind the outsourcing industry as a whole is not so much cost cutting as shifting from a fixed cost base to a variable one: the contracts give companies more flexibility to scale up and down as volumes vary.
Another holy grail is legal work. Who would be upset if we outsourced the work of lawyers, with their outrageous fees and endless strategies for adding years to litigation? Is legal work too sensitive and technical to risk farming out to Asia. Apparently not! Filipino lawyers working in three shifts seven days a week, read, analyze, and annotate digital images of memos, payroll and medical records, old engineering specs, and other documents that might be used as evidence in legal cases. Much of the work is monotonous: digitizing and indexing decades-old paperwork. But some requires judgment normally provided by expensive U.S. lawyers, such as determining whether documents are relevant to a case or violate confidentiality.
Cost-cutting pioneers
By going offshore, firms save 40% to 60% on document work and cut millions in legal spending. It also shaves months off the discovery process in court cases. It does not mean U.S. lawyers will be getting DCMs (Don’t Come on Monday), or even lowering their hourly fees. They are still being required for developing complex arguments, writing briefs, and other trial work. 70% of the labor in a typical insurance or liability case can be outsourced. U.S. law firms often bill around US$150 an hour for document processing by paralegals. Filipino firms charge around US$30 an hour for the same work. (Average fees for a lawyer is US$250 - $300 an hour) Yikes!
What outsourcing does is bring the cost of the law back within reasonable parameters.
-- Martin Conboy
(Martin Conboy is the Co-founder and President of FooBooOnLine.com. He has extensive knowledge of Asia Pacific market trends and he is one of the most quoted commentators in the call center and outsourcing space in the in the Asia Pacific.)
The content on this site is Copyright © 2006 by FooBooOnLine.com & Contributors. These articles may be used for publication in magazines and newsletters with prior permission from the authors. Please contact us at info@foobooonline.com for further information