Strategic Implications of Offshoring by Financial Services Firms

The financial service industry is facing intense pressures to reduce costs while growing new customers and introducing new products to attract those customers. Recently, more firms are using offshoring strategies (i.e. outsourcing of operations to foreign countries) to cut costs. However there is some empirical evidence that financial service firms are increasingly offshoring operations to improve their cost structure as well as develop added capacity and improve their capabilities. In this paper, I explore the development of offshoring as a strategy and elaborate how the buyers of offshoring services (the financial service firms, or FSFs) may use offshoring as a strategy for competitive success. In addition, the development of offshoring capabilities by the offshore service providers (or OSPs) and their competitive activities and relationships with competing local financial service providers may influence how both the FSFs and OSPs compete in new markets.