It's been less than two months since fellow Fool Dave Marino-Nachison first reported on British news giant Reuters' (Nasdaq: RTRSY ) decision to move 60 editorial jobs to India. Yet already, the company seems to have decided that the project is a success and worthy of expansion. That shouldn't come as a shock to anyone following the global phenomenon of offshoring recently. Just last month, I was describing how General Electric (NYSE: GE ) had built its GE Capital International Services subsidiary from nothing into a $1 billion outsourcing powerhouse in just 12 years. Clearly, outsourcing to India can be really good business.
What's surprising about the Reuters story, though, is just how vast an operation it is becoming, and how quickly. Right now, most of Reuters' Indian employees are doing data processing work, but about 20 are journalists. Editorially speaking, the Bangalore office of Reuters currently concentrates on providing basic information on companies -- for example, reports on debt and equity issuances. Reuters intends to increase its staff in Bangalore to about 400 by the end of 2004 -- then continue ramping it up all the way through 2006, by which time the company wants to have 1,500 employees working in India. That would be about 50% of Reuters' data processing jobs and fully 10% of its total head count worldwide.
All of this is part of the company's master plan to cut its operating costs by $780 million by the end of 2006. Reuters estimates that operations in Bangalore cost approximately 40% of the expense of getting similar work done in New York or London. Between the savings to be reaped and the kind of work being delegated to India, this move makes a lot of sense for Reuters. It's also part of a trend among data providers to move essential, but low-value-added, work offshore. Thomson (NYSE: TOC ) , for example, has been engaged in a similar project for about a year now.
Much of the work done by data providers such as Thomson and Reuters, or MarketWatch.com (Nasdaq: MKTW ) and Dow Jones (NYSE: DJ ) for that matter, is pretty low-skill stuff. Reading a company's five-page earnings release and digesting it into 50 words along the lines of "IBM's (NYSE: IBM ) revenues increased 5%" or "Wal-Mart (NYSE: WMT ) earned $0.25 a share" is basic, just-the-facts-ma'am stuff. If Reuters can get that kind of work done by Bangaloreans making $5 an hour rather than Londoners making $20 and pass the savings along to its customers, or the profits along to its shareholders, then more power to 'em.
Fearless of the flames, Foolish writers dauntlessly carry on the offshoring/outsourcing debate in the following articles:
- Weighing Outsourcing's Impact
- Energy Crisis Spurs Outsourcing
- Outsourcing to the Heartland
- Thoughts on Offshoring and Outsourcing
Fool contributorRich Smithowns no shares in any company mentioned in this article.