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Offshoring Financial is Here to Stay

Dabblers and dawdlers beware: Despite lingering uncertainties about exactly how to approach offshoring, it could be even riskier not to jump in.

Peter Lowes, Principal, Deloitte Consulting LLP  (Nov 06)
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The Important Role of Location Selection
As mentioned earlier, the location selected for offshoring can widely influence all four of the results factors, especially when operating in a hybrid or in-sourced model. It certainly figures into cost considerations, but also can significantly impact the complexity of planning and implementation arrangements, the ease or difficulty of meeting compliance requirements, and the level of challenge posed by cultural adaptation - both to locals and to prospective recruits for offshore assignments.

Location selection criteria typically should focus heavily on the scalability and sustainability of operations in a particular geographic location. This is especially true when it comes to assessing availability of skilled labor and other talent, the sophistication of required infrastructure - or lack thereof - and the perceived (versus actual) risk of operating in the local business climate. All of these factors should be evaluated against the cost of similar operations in alternative locations using a process that iteratively screens, analyzes, and investigates all countries, cities, and localities that could be considered. Some companies are finding that a globally distributed workplace model is a helpful planning tool for assessing and balancing the opportunities and risks of offshoring against more traditional options, such as choosing onshoring or near-shoring locations.

In addition, as experience with offshoring matures, newcomers and those exploring expansion opportunities should bear in mind that some of the more popular locations are now well treaded. Major Indian cities would fit this category, for example. Location selectors should weigh the challenges posed by potentially co-existing with competitors in a well-known and tested offshoring environment versus pioneering in an emerging location.


Sooner or Later.

We believe that there is no time to waste. Offshoring is maturing so rapidly that companies slow to act may expose themselves to undue competitive risks. Onshorers, on the other hand, potentially face the most significant challenges. So far, those who have chosen to remain onshore have stayed competitive through aggressive process improvements and cost-cutting. However, at some point onshore players will exhaust their improvement opportunities and have no other way to cut costs, potentially putting them at competitive disadvantage. Acquiring other companies or using shared services in back offices to gain economies of scale may stave off margin pressures for a while, but sooner or later they will very likely need to address the growing cost gap between themselves and offshorers that are operating from a lower-cost base. Later, in this case, just may be too late.

Whatever the situation, the main message is clear: dabblers and dawdlers beware. Offshoring is here to stay and it should be pursued with commitment and enthusiasm. Effective financial services companies of the future have little choice other than to dive in and swim energetically toward the competitive advantages that lie on other shores.

Peter Lowes is a Principal at Deloitte Consulting LLP in New York, where he leads the Outsourcing Advisory Services practice. He has led or advised on outsourcing and offshoring transactions valued at over $14 billion in aggregate revenue. He can be reached at (212) 618-4380.

Note: This publication contains general information only and Deloitte Consulting LLP is not, by means of this publication, rendering business, financial, investment, or other professional advice or services
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