The pros and cons of offshoring your financial services

27-05-2021

In a long line of efficiency measures designed to improve the finance process, offshoring is a method which might achieve major gains, but also has some potential pitfalls. Improvements in the finance processes are no new development. Some say it started with the implementation of mainframe computing and punch cards in the 1950’s, followed by the mass implementation of personal computers in the 1980’s. This line of efficiency gains is on-going, with amongst others the break-through of robotization of administrative processes and reporting.

Offshoring financial services

One of the trends gaining an upswing around the millennium was the off- and nearshoring of finance activities. Some larger companies have implemented this way-of-working by themselves, others might use service providers who utilize this process. Offshoring means that a part of the finance process, usually accounting and reporting, but also controlling might be part of the scope, is executed in lower wage countries. Distinguished can be offshoring (India, Indonesia) or nearshoring (Poland, Ukraine).

Significant benefits to reap…

The advantages can be many:

  • First of all a major reduction in cost can be achieved. A reduction of between 30% to 70% of labor cost is feasible. As experience learns this might not necessarily be caused by less hours spent, but mainly by lower hourly cost. As the latter more than compensates the first, considerable cost savings can be achieved.
  • Another advantage lies in the availability and quality of staffing: A high level of professional education and generally wider availability of personnel in these regions can be expected.
  • Thirdly the systems and processes used by the local services providers are usually of a professional standard, highly standardized and with a constant quality level (ISO certified). Performance indicators, such as response- and process times, will be defined in a service level agreement.

…But assess the risks properly

There might also be some pitfalls to consider:

  • You might lose some flexibility, as processes are standardized and should be followed to the letter. Exceptions can be disruptive and might cause delays both in time and cost.
  • Also to consider might be some cultural differences. You may note a difference in initiative and assertiveness of staff, and knowledge of your local business will be less.
  • Finally, and for certain the most important, is the fact that a successful offshoring process fully depends on the degree to which the process-to-be-offshored is standardized, normalized and If this is not the case, offshoring will only lead to exporting your existing problems and issues, causing possible disturbances in the future.

This is part of an ongoing blog series about early stage finance and fundraising. If you’re interested to be first informed on our next posts you can click on this link.

 

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