OFFSHORING AND INSHORING IN AUSTRALIA

OFFSHORING AND INSHORING IN AUSTRALIA

Case Studies of Australian Financial Institutions that are Inshoring Activities

One of Australia’s big four banks, National Australia Bank (NAB) has recently pledged to bring its technology operations back to Australia. Another, ANZ Bank, announced plans to bring IT in-house in 2017. The remaining two big banks (Commonwealth Bank and Westpac) have not announced plans to bring technology activities or operations activities back from outside vendors.

1. National Australia Bank’s Inshoring of Tech

  • National Australia Bank (NAB) pledged in 2019 to bring thousands of jobs back to the bank “from external providers.”
  • NAB is upgrading its tech operations on Amazon Web Services as part of a technology transformation that has been ongoing since 2017 and costing the bank a large investment of cash: $4.5 billion and three to five years to accomplish. The bank had dragged its feet before 2017 on moving to “cloud-based services.”
  • According to the Australian Financial Review (AFR), as of 2019, NAB had “moved just 8 percent of its 2000 applications to the cloud and it [had] a target of 35 percent by 2020.”
  • AFR reported that “In just under 18 months NAB has ‘in-sourced’ 838 tech roles from providers like IBM and Telstra, produced $512 million in cost savings and reduced the number of its products from 600 at the end of the 2017 full year to 420.” The new hires replace offshore tech roles.
  • The reason for the insourcing, according to Steve Day, NAB enterprise general manager of infrastructure, cloud and workplace, was that the bank was “at a point in the transformation to tackle the more significant systems like internet banking,” but was still dealing with challenges caused by the bank’s decision 10-15 years ago “to outsource many of its IT services and staff.”
  • The tech outsourcing “isn’t suitable for modern, agile applications, as we’re bringing those applications both in-house and onto the cloud,” Mr. Day told AFR staff.
  • In 2010, NAB outsourced hundreds of technology jobs to IBM.
  • But in late 2017, the bank reversed this practice and hired “hundreds of software engineering, data, architecture and security” employees for jobs in Australia.
  • The 2017 NAB IT hiring session “bucks a years-long trend within the bank and the wider sector towards outsourcing IT workers.”
  • NAB’s IT staffing change works to “rebalance the shift from outsourced suppliers based in Australia and overseas, to bring talent back inside the bank in NAB’s Australian offices to increase competitive advantage” the bank said.

2. ANZ Bank Proposed Inshoring of Tech

  • ANZ Bank outsourced “more than a hundred tech roles to Capgemini in 2012.” The nature of the tech roles was not disclosed.
  • In 2017, a new bank executive, Maile Carnegie, announced plans to “rewire” ANZ Bank “by building up internal data and technology skillsets rather than outsourcing.” Carnegie did not specify which data and technology skills were to be targeted.
  • The reason for bringing data and technology skills back to the bank, Carnegie said was because “it was fundamental the bank build up its own data and technology capabilities.” No further explanation was provided by Carnegie.
  • Apparently, IT staff were hired by the bank during 2018 and 2019, because during FY19 ANZ Bank was able to cut costs by replacing “higher cost managed services with internal resources in technology”, according to Computerworld.com.

3. Commonwealth Bank and Westpac Bank Continue Outsourcing Tech

  • Commonwealth Bank and Westpac Banks do not seem to have changed their outsourcing of tech jobs.
OFFSHORING AND INSHORING IN AUSTRALIA
  • Outsourcing took place at some Australian banks nearly a decade ago. According to CIO.com, in 2012, Westpac sent IT jobs offshore, with then CIO Clive Whincup saying there “simply aren’t enough people” in Australia with the necessary skills. Commonwealth Bank of Australia (CBA) in September [2017] was reported to have briefed cyber security staff that some of their jobs would likely be taken by overseas vendors.”
  • In 2019, Westpac signed an agreement with IBM for more outsourcing. Westpac has a 40-year history of working with IBM.
  • Commonwealth Bank markets itself as the leading Australian bank in technology, but it is unclear whether the bank has any of its own tech employees or continues to outsource tech work. 10

Case Studies of Australian companies that are Inshoring Activities

This research provides case studies of Australian companies that are inshoring their operations activities. Due to the current economic situation, UPmovement has moved its manufacturing operations back to Australia in order to support more manufacturers. Lynas, a rare earths producer, is relocating some of its processing operations back to Australia.

1. UPmovement

  • UPmovement, an Australian social enterprise, has recently moved its manufacturing operations back to Australia.
  • Due to lower operating costs in China, the company originally manufactured its socks there. However, as the current economic situation has worsened, UPmovement wanted to do as much as it could to support more manufacturers in Australia. This inspired its decision to relocate back to Australia.
  • To achieve its goal, as of April 21, 2020, UPmovement had already secured a manufacturer based in Melbourne. Besides supporting local businesses in Australia, UPmovement’s inshoring is also geared towards supporting local artists.
  • Since the pandemic began, artists have been one of the hardest-hit professionals. Also, many of these artists are not eligible for government support. In supporting these local artists, the company has launched an initiative, Project Oz, aimed at engaging artists to design new styles for its socks.
  • Through the collaboration, UPmovement’s socks will showcase the artists’ new designs while simultaneously creating awareness of their work. For every pair of socks sold, the artists will earn a commission.

2. Lynas

  • Lynas, an Australian rare earths producer, is working on inshoring its processing operations. These activities were originally carried out in Malaysia.
  • In May 2019, the company announced that it will be moving its “processing operations which involve radioactivity back to Australia.” Moving forward, it will only carry out non-radioactive processing in Malaysia.
  • The reason for this decision is to appease Malaysian regulators and boost production. Also, the decision is aimed at fending off takeover attempts. In December 2018, Malaysian authorities “ordered Lynas to remove 450,000 tonnes of radioactive waste stockpiled at its processing plant by [September 2], when the company’s license is up for renewal.”
  • Reacting to the government order, Lynas revealed that it would not be able to comply with that demand by the given deadline.
  • To achieve the inshoring of its processing operations, Lynas would “relocate its contentious processing plant from Malaysia to one of two preferred sites in Western Australia, where its Mt Weld mine is located.”
  • The plan is to invest in upstream processing close to its source, Mt Weld. Downstream processing, on the other hand, would continue in Malaysia close to its customers. Through this strategy, the company would become independent of external pressures.
OFFSHORING AND INSHORING IN AUSTRALIA

Case Studies of Australian companies that are Offshoring Activities

Two companies that are offshoring their technology activities are Telstra and Seccom Global. The former offshores software engineering, information, and cybersecurity activities, while the latter offshores a part of its IT support activities.

1. Telstra

Processes They Are Offshoring

  • Telstra is offshoring technology activities related to software engineering, information, and cybersecurity.

How They Are Offshoring

  • In 2019, the company created 1,500 new roles that fit the above profile. The majority was filled by offshore hires.
  • However, Andy Penn, Telstra’s CEO, claimed that the company didn’t prioritize offshore candidates. Job offers were open both from applicants from Australia and those from other countries, depending on their qualifications.
  • Due to the fact that most of the talent was from India, Telstra launched the Innovation and Capability Centre in Bangalore. There, 300 of the offshore employees (mainly network and software engineers) work on developments in artificial intelligence, machine learning, networking, and Internet-of-Things.

Reasoning Behind Offshoring

  • According to Andy Penn, Australia lacks tech talent. In 2018, there were only 1200 new software engineers in Australia, while there were 44,000 in India.
  • He also noted that the ICT sector in Australia would have a shortage of 60,000 skilled workers in the period 2019-2024.
  • At the same time, Telstra has to compete with other companies for local talent, which makes it harder to find and retain.
  • While the company is investing in initiatives related to developing skilled IT employees in Australia, it needed to hire rapidly, which is why it turned to India.

Additional Notes

  • Massive offshore hiring and launching the Innovation and Capability Centre coincided with 8,000 local job cuts, which is why the company received a lot of backlash for the move.

2. Seccom Global

Processes They Are Offshoring

  • Seccom Global, a managed services security provider, has recently launched a managed services support center in Ahmedadab, India.
  • The center has IT support capabilities and employs senior IT engineers.

How They Are Offshoring

  • Seccom’s India-based support center is the company’s second facility (after the one in Australia).
  • The team in India works as an extension of the one in Australia. They are well-integrated and work in close communication, with “a really strong reporting structure.”
  • The India-based support center is responsible for handling security issues that occur after-hours, which enables Seccom to provide services 24/7.
OFFSHORING AND INSHORING IN AUSTRALIA

Reasoning Behind Offshoring

  • The company works in the cybersecurity sector. Many of the cyber attacks occur in the middle of the night, as they are more likely to be unnoticed.
  • Therefore, for Seccom Global, providing around the clock services is a competitive advantage.
  • At the same time, the company is able to serve leading companies better by having its own office overseas, as opposed to using an IT outsourcing firm.
  • It provides a point of differentiation because an external provider can’t ensure the same point of security.
  • Also, usually, companies that offer 24/7 service have an after-hours reception and an on-call engineer. However, such services are not very effective since the engineer is woken up in the middle of the night.
  • Additionally, offshoring some of the activities is cost-effective. Hiring 20 people in India costs around the same amount as hiring six people in Australia.

Research Strategy

The information on Australian companies that have recently outsourced their operations or technology companies was scarce. While there were a few relevant articles about Telstra in the business, news, finance, or technology media, they didn’t provide more detail than what we described above. Similarly, we couldn’t find a second example that would allow us to build a highly detailed case study. We settled for Seccom Global, as it was the only recent and relevant example. Please note that it wasn’t specified when Seccom Global launched its managed services support center in India. However, the earliest mention of it comes from 2019, when its opening was called “recent,” which is why we deemed it applicable.
We tried to find other examples of offshoring by analyzing multiple articles about offshoring by Australian companies. For instance, we looked into a 2019 article on labor strikes related to offshoring, which named several companies that do it. However, after researching news articles, press releases, and reports related to them, we couldn’t find any information on recent offshoring moves that would fit the criteria. Since financial institutions and telecommunications companies were preferred, we also looked into several of the top companies from bothsectors. Still, there were no articles, reports, case studies, or press releases that would suggest relevant offshoring-related developments.

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