The Key Advantages of Friendshoring for Financial Services

It’s growing immensely harder to ignore the news.

The global economy is still feeling the economic aftershock of the Covid-19 pandemic that continues to drive inflation, while some nations still struggle to contain the virus. Other countries still struggle with supply-chain concerns and economic downturns. With so many ongoing problems around the world, the need for friendly business allies is vital.

To face this challenge in the financial services industry, businesses and organizations must consider how their outsourcing models can be optimized. Ensuring that outsourcing partners are located within friendly countries or regions and align with a business’s home culture can be a sustainable strategy in the coming years.

This practice of partnering with specific, well-aligned regions is what we call friend-sourcing, a trend that is poised to take financial services and other industries by storm.

What is Friend-Sourcing?

Friend-sourcing — also called friendshoring — is a term used to describe a type of outsourcing that is provided by friendly countries and regions. This friendliness can be influenced by several factors, including proximity and legal ties.

For instance, the region of Latin America (LatAm for short) can be a beneficial professional ally to the U.S. thanks to its close positioning and low resource costs. Outsourcing services from a U.S.-based company to a LatAm provider can, thus, be considered friend-sourcing.

Friend-sourcing is also referred to as reshoring, though reshoring is a slightly different process.

Reshoring is the process of moving an outsourced service back to its home location. This is a business practice seen in times of economic uncertainty and geopolitical conflict — two key factors that are influencing the global business space in the present day.

Environmental impacts, natural disasters, war, and the aftermath of the economic destruction brought on by the Covid-19 pandemic, has made outsourcing to certain parts of the world very difficult. This is thanks to many reasons, including rising inflation and interest rates, as well as major supply chain issues.

In Deloitte’s Reshoring and “Friendshoring” Supply Chains report, the need for a hybrid approach that focuses on reshoring to friendly locations is greatly emphasized. The report further states:

As this report reveals, the government has an essential role to play in enabling friend-sourcing for businesses across various industries. Without the proper foreign relationships, finding countries that match the needs of a friend-sourcing approach can be difficult.

Why Friend-Sourcing is Gaining Traction in Financial Services

Friend-sourcing draws on the practices of nearshoring and onshoring, prioritizing outsourcing partners that share similar cultural and regulatory characteristics to a company’s home country.

In the financial services industry, this business practice is beginning to gain traction.

According to Deloitte’s Current Trends in Outsourcing and Addressing Third Party Risk report, three key technologies are driving the adoption of disruptive outsourcing as a whole:

Some consider friend-sourcing to be a disruptive model of outsourcing, as it relies on a nation or region’s legal structure to be allied with one’s own home country. This is seen by some as an inhibitor to a thriving global trade system that could cause greater problems down the line.

However, in times when things like sanctions and geopolitical conflicts are already inhibiting unlimited global collaboration, friend-sourcing can offer a financial service provider the right outsourcing model that allows them to continue cutting costs without sacrificing efficiency or quality.

For financial service businesses, finding a viable alternative to full reshoring is key. Competitive companies in the financial services space leverage outsourcing regularly as part of their overall business strategies, with a recent Fortunly review revealing that the global financial services outsourcing market is worth more than $130 billion (USD).

As acquiring resources from third parties becomes a more commonplace practice in the financial space, financial service providers must consider the key potential benefits of friend-sourcing.

These benefits include:

Who Can North America & the UK Turn to for Friend-Sourcing?

Now that we have discussed some of the advantages and risks associated with friend-sourcing, let’s move on to an examination of what friend-sourcing may look like for North America and the UK, specifically.

There are two many regions that financial service providers from either North America or the UK can turn to for friend-sourcing: Latin America (LatAm for short) and Eastern & Central Europe (comprising several key outsourcing countries such as Poland and Hungary).

Here is a more in-depth breakdown of why these regions are great friend-sourcing locations for North America and the UK.

Not only does the region offer a wide pool of talent available at affordable rates but its proximity to North America makes it easier to collaborate as well. North American businesses are more likely to find LatAm partners that work in their time zones and speak their languages with fluency.

According to McKinsey & Company, FinTechs have created roughly 134,000 jobs across Europe, attracting both domestic and international talent alike.

Though Central and Eastern Europe generally cannot compete with their Western counterparts in terms of economic performance, these regions offer key opportunities to foreigners to acquire high-quality outsourcing services at more affordable rates — including the UK, one of Europe’s FinTech powerhouses.

Like LatAm to North America, Eastern and Central Europe offer proximity advantages to the UK that help reduce costs further and ensure collaborative opportunities are optimized.

Final Thoughts: Exadel is Strategically Positioned for Friend-Sourcing

For financial service providers all across the globe, Exadel can help ensure the right resources and talent are accessible from nearby, friendly sources.

Exadel is strategically positioned, with nearshore offices located all across the globe including in North America, South America, Europe, and Asia. Each of our locations is complete with the experts and resources financial service businesses need for implementing innovative technologies and embracing digital transformation.

For financial services, Exadel offers key solutions for:

Plus, Exadel is committed to providing exceptional consultation services when working with international partners. We focus on four main pillars when building our financial services digital solutions — business data, employee experience, customer experience, and stakeholder goals.

No matter where you are in the world, Exadel offers the unique blend of technical expertise you need and deep experience in the financial services industry to provide you with a personalized resourcing solution.

With a global economy that continues to be tumultuous in 2023, the time is now to fortify your business against major business hurdles, like supply chain issues and economic headwinds.

Contact the Exadel team today to learn more about our resourcing solutions.