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Irrespective of whether it is a captive or a third party, the vast majority of outsourced research work supports investment decisions taken offshore. Fewer than 5 percent of the people based in India are directly or even indirectly making valuation calls on securities. Instead, what they are doing is reading the regulatory filings every page, including footnotes, looking for the SPVs, negative pledges, cross default provisions and the other clues that you may have a company with shaky financials if not quite the next Enron, taking historical data and putting it into the onshore analysts format, Excel model, and performing Internetbased research on the industry, competition, regulatory trends, etc.
Meanwhile, the very highly paid onshore analyst has a lot more time to do what investors like you want her to do, namely visit companies, go to trade shows, participate in conference calls, determine their earnings assumptions which are then inputted by their offshore assistant and make the buy, sell recommendations based on their many more years experience as analysts.
Without cheap offshore analysts to do the grunt work, brokerages simply cant afford to retain their expensive onshore analysts. So rather than throw the research in the garbage can, you might rightly ask your 100 percent made in America investment analyst why she is not out kicking the tires in person and leaving all the deskbased, Internet sourced work to be done overnight by someone costing onefifth what her employer pays her.
The implications of outsourcing professional services such as investment research, corporate finance, legal, pharma, patent research, etc are still incompletely appreciated by most Americans. In short, if your service job doesnt involve meeting customers, creating intellectual property or physical delivery e.g. fire fighters, electricians and plumbers comes to mind then why isnt it being done somewhere else where the wages are lower and the quality while not as good in an absolute sense is very high on a value for money basis.
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