The Official Blog of Acuity Knowledge Partners

The Real Economics of Research Outsourcing

Published on June 6, 2013 by Guest Blogger

Outsourcing of research support is now a mainstream activity for all major investment banks. As the business has matured, I’m still surprised by the number of times prospective clients tell us “I can hire a really good graduate for about the same price as you are charging.”

It’s easy to understand the reasoning of a department manager who only sees salary costs and bonus on his internal P&L. Central outsourcing teams and senior management tend to appreciate the bigger picture on employee costs. In major financial centers such as New York, London, Tokyo, and Hong Kong, the direct costs of employing an additional member of staff at a salary of USD65,000 take the direct costs of employment to between USD100,000 and USD125,000. In making this calculation, I’ve assumed the employee receives no bonus and take no account of head office overhead charges, which are frequently applied as a “headcount tax” on different departments of the business. I’ve also taken no account of the costs of training and supervising fresh graduates. Overall, I believe it is a fairly safe bet to say that junior employees of an investment bank cost around two times their salary in total cost to the company.

Therefore, despite the decline in junior bankers’ salaries over the past few years, it is my contention that the economics of outsourced support remain attractive.

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