MALAYSIA is among the top choice for US and European financial services companies that are looking to relocate for better cost-savings.

A recent survey revealed that the world's top 100 financial services providers have plans to relocate operations in the next five years, and a good offshore location can share some of the US$356 billion (US$1 = RM3.80) spent in the host countries for operations costs.

Malaysia's capacity as a choice offshore location is backed by a strong pro-information technology (IT) Government, which has led to the birth of the Multimedia Super Corridor, said Deloitte Consulting Pte Ltd practice leader (Asean financial services industry) Gerrit Q. Andersen.

"Other pull factors include low labour and real estate costs and potential scalability issues."

" There are also fair levels of infrastructure relative to Asia such as excellent communications and IT infrastructure... above all, it has to do with largely English-speaking workforce," he told Business Times.

He said apart from Malaysia, India, South Africa, Australia, Singapore and China are other top contenders as viable offshore locations around the Indian Ocean Rim.

Deloitte Research, in a survey on how offshoring will transform the financial services industry, said apart from the operation cost transfer to offshore locations, the financial services giants also expect to create up to two million jobs in the host countries.

The offshoring exercise will eventually translate into a bottom line annual cost-savings of US$138 billion or US$1.4 billion each for the world's top 100 financial services company by 2008.

Andersen said the urgency to move offshore is growing as markets are expecting financial institutions to demonstrate their offshoring strategies. The need for offshoring is also increasing as the institutions battle to remain competitive.

The organisational benefits of relocating to lower-cost locations are enhanced ability to capture and accelerate cost-savings. It will also lead to the upgrading of delivery quality, building of improved operational efficiencies/capabilities, organisational resilience and reacting to competitive pressures.

" For insurance underwriting function, you might want to retain it in your home base but close book operations such as claims processing can be done easily in Malaysia or India rather than high-cost locations such as Zurich or New York," he said.

In Malaysia, Standard Chartered Bank and HSBC have set up global processing hubs in Cyberjaya, while Citibank's regional trade processing centre in Penang is successfully conducting a high number of transactions.

Citigroup Inc, which has been developing offshore-processing hubs internationally for many years "as a core part of its scalable business model", has seen its costs grew by US$12 billion while revenue rose nearly US$35 billion over the last five years.

HSBC, a relative latecomer to the offshoring game, has also built the so-called global processing centres quickly and efficiently. Its strategy drew praise from Goldman Sachs, which said the bank "benefits from non-discounted cost benefits (IT hubs, global processing) for a multi-year period... giving a positive view on HSBC".

Deloitte Research said to date, only a minority of financial institutions have yet to have offshore operations. It noted that one-third of major finance companies have relocated their functions to places such as India.

"Typically, these involve IT functions, notably software development. Momentum has built up rapidly within the industry and we estimate that nearly three of four major financial institutions will be offshore within two years," it said.

Of financial services firms transferring functions offshore, nearly half are targeting India, which has a huge market of IT professionals who earn much lower wages than elsewhere.

India stands to be the major offshore hub because of its combination of low cost and high technology expertise. However, the country's relative poor infrastructure and political instability might be an obstacle to business continuity.

But there's no guaranteed bonanza for India unless it continues to deliver improved services at globally competitive wage rates.

Hyderabad and Chennai were rated in a recent report to be above Bangalore as cities of choice for IT-enabled services and although Mumbai has two financial markets, it suffers from high real estate costs, congestion and pollution.

China, with its large pool of labour, is seen as the next destination for IT offshore functions, but language barriers exist. Singapore, Hong Kong, Australia have strong points, but suffer from high costs.