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Home > Special Topics > Undercurrent Last Updated: 15:19 03/09/2007
Undercurrent #7: November 12, 2003

Passage to Nago, if not to India

Tomohiko Taniguchi (Editor-at-Large, Nikkei Business Publications, Inc.)


"To offshore", they say in the US and UK financial industries, is to relocate some of their back-office functions abroad, especially to countries like India, where educated labour that speaks excellent English is abundantly available at a stunningly cheap cost.

Information technology has made it possible for both ends of the value chain to meet. The cheapest labour in the world is now ready to serve 24/7, those on Wall Street and in the City of London.

Hence in the UK, a plethora of banks such as HSBC, Barclays, Lloyds TSB, and Abbey National are joining the current exodus to India, all uprooting their "call centres" and other back-office works from the soil of Scotland and Ireland to Mumbai, Hyderabad, and Bangalore. Picking up the telephone to call a help desk has hitherto led you to speak with a man or woman with heavy "northern" accent. In the very near future it will be an Indian from thousands of miles "offshore" who answers your call.

This "offshoring" is now even further underway with companies such as JP Morgan Securities, Morgan Stanley, Deutsche Bank and Lehman Brothers beginning the process of sending not only low value added IT-enabled services (ITES) such as call centres and business processing, but also select stock-research services to the subcontinent. Many of them are hiring analysts in India.

Japanese banks are an exception. Because the language they speak is peculiar, they cannot benefit from the passage to India. This may be a good thing, for in Japan, college graduates can still find positions with major banks and start working as junior research assistants, which is increasingly beyond the reach of their American and British counterparts. However, it is also a horrible disadvantage for the nation's banks, as their operations must remain costly. Already, they are grossly uncompetitive compared to their rival Western banks, as over the last decade they have had to focus narrowly on getting rid of non performing loans and nothing else. That they cannot offshore now may well keep them uncompetitive for even longer.

But are they really unable to offshore? The answer is no, and herein the city of Nago (pronounced Nah-go) in Okinawa prefecture fits in a unique way.

Nago is a town designated by the central government as a special zone where red tape is eliminated and the tax burden lowered. Hope amongst the locals is understandably high as firstly it is the only city in the entire nation specifically designated as a financial centre, and secondly amongst its 56,000 dwellers, those unemployed make up 6%, higher than the national average.

Anyone who has incorporated a new company in the city and hired at least 20 people is eligible to claim such benefits as substantial corporate tax deduction, cheap office rent of around 1400 yen per square meter, and an 80 per cent reduction of telephone bills. It is possible to hire a person who would ordinarily cost the company a monthly salary of 180,000 yen, for only 120,000 yen, with the balance covered by the city. All the more importantly, residents of Nago speak Japanese!

Then why are companies such as Mizuho, MTFG, SMBC, and UFJ not offshoring their back-office functions to Nago? The lack of interest is itself indicative, is it not, of their closed-mindedness.

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