Conventional wisdom will say that you should offshore “low-end” functions that are simple and low-risk. And this is certainly true when one looks at the origins of offshoring in financial services. According to “Beyond Cost Reduction: The Risks and Rewards of Global Services Sourcing,” a report based on a study conducted at Columbia Business School, the landscape is starting to shift substantially as firms grasp the full potentialities of the talent pool they have access to in offshore locations.
The study pinpoints the financial services sector and investigates the dynamics of offshoring along three segments: venture capital and private equity, retail banking, and institutional banking. It identifies the early triggers that initially garnered an interest in offshoring, by sector, and the factors that are fueling its ongoing growth. The study presents a fascinating range of case studies, including an in-depth account of a retail institution’s bumpy ride on the offshoring trail and the ultimate equilibrium it has established between the risks and rewards of global services sourcing.
“A key finding from the study was the wide-ranging level of adoption and awareness by different companies — and in fact, different industry segments,” states Prof. Hitendra Wadhwa, co-author. “The Venture Capital community is by far the leading adopter within the financial services industry — their technology focus led them to get an early taste for offshoring in the ’90s through IT initiatives. Retail Banking comes next in its level of adoption. While these institutions have a lot to gain from small percentage improvements in operating costs, this same scale means that there are significant challenges as offshoring is put into high gear – from a pilot to a full-scale operation. Institutional Banks and Private Equity firms have historically been the most cautious segments, given the low-volume/high-skill nature of Institutional Banking work and the limited international and IT exposure of the Private Equity community.”