What is Friendshoring?

Financial institutions need the right technology providers and partners to help bolster their digital infrastructure, supplement their existing talent and resources, and prepare them for conducting business on a global scale.

Global collaboration has always been a vital component of success in the financial industry. However, ongoing economic challenges around the globe can hinder this collaboration, leaving firms back at square one when working to build a resilient outsourcing strategy.

In times like these, it is crucial for institutions to know which friends they can lean on.

This article outlines what friendshoring and friend-sourcing are, what the benefits are for financial institutions, some of the potential risks, how to overcome these risks, and how you can start friendshoring today.

What is Friendshoring?

Digital finance and banking are becoming more and more prevalent, requiring financial institutions and other financial institutions to consider how they can keep up with increasing technological demands.

Outsourcing is often vital to achieving sustainable operational change to meet these demands.

Yet, with ongoing economic headwinds around the world, outsourcing is not always the most reliable approach to supplementing internal talent and resources.

To better convey this idea, let’s take a look at how the European Central Bank defines these strategies:

“The global trade disruptions experienced since 2020 have raised concerns over the resilience of supply chains and reinforced discussions about economic security. As a result, some countries have started taking supply chain measures aimed either at “reshoring” (bringing production home) or “friend-shoring” (sourcing inputs from suppliers in allied countries) in order to secure access to critical production inputs.”

Improving the supply chain for financial institutions is far from the only advantage of friend-sourcing — though it is one of the most essential benefits that make friend-sourcing effective.

As we move into a deeper discussion of the potential benefits, keep in mind the concept of friend-sourcing not as a sole solution but rather as one piece of a larger whole for increasing business flexibility.

What are the Benefits of Friend-Sourcing for Financial Institutions?

Friend-sourcing offers many excellent benefits that are key to consider when building a resourcing and staff augmentation strategy in 2023. For financial institutions in particular, friend-sourcing can provide an extra layer of stability and business flexibility that ensures vital support during times of uncertainty and exceptional growth potential during times of economic expansion. The benefits of friend-sourcing for financial institutions include:

Boosted Supply Chain Resilience

The world economy is constantly cycling between phases of stability and uncertainty. During the more stable times, financial institutions have greater freedom to collaborate with fintechs and other providers from all over the world — but during times of instability, access to such providers may be drastically limited. Friend-sourcing can be a necessary component in a larger outsourcing strategy that helps ensure financial institutions always have access to the talent and resources they need, no matter the state of the world economy.

Increased Convenience

While there are certainly benefits to working with outsourcing providers outside of your financial institution’s geographic region, one of the biggest hurdles can be the lack of synchronization that occurs due to time zone differences. These differences can be especially important to consider when it comes to the banking sector, as financial institutions and other institutions need the ability to act quickly according to market changes and time-sensitive financial tasks. If all of a financial institution’s outsourcing providers are located in a different time zone, this can make achieving these tasks within a set timeframe substantially more difficult.

Cultural Unity

Although fostering a global and diversified financial industry is essential, it is hard to overstate the advantages of working with an outsourcing provider that understands the nuances of your financial institution’s home country and culture. Not only can this be incredibly helpful in establishing meaningful and long-lasting business connections but it can also ensure that the provider you work with understands the specific expectations and preferences of customers in your local and national region.

At Exadel, we are no strangers to friend-sourcing. If you want to take an even deeper dive into this topic, make sure to check out our article on The Key Advantages of Friendshoring for Financial Services.

Are There Disadvantages to Friend-Sourcing for Financial Institutions?

Although friend-sourcing certainly has a myriad of advantages to offer to financial institutions, it is not without its disadvantages as well. As with all business strategies, it is critically important to consider the risks associated with friend-sourcing when deciding whether or not to adopt this approach to outsourcing.

Here are three key disadvantages of friend-sourcing to consider:

Alienation

Working with companies based out of allied countries can be great for boosting convenience and strengthening existing business connections. However, it can also result in alienation from other global financial markets without the right planning and preparation. When adopting a friend-sourcing strategy, it is highly important to do so by choosing a provider with deep connections across the global banking industry, even if the people who will be working on your project are based in your country, so they can help you understand what’s going on around the world. They can even provide helpful tips and strategies based on their global connections, for example, our innovative work within the banking sector in Brazil has enabled us to further enhance our open banking and neo-banking services, and because of that, we’re able to deliver on these initiatives in other countries across the world. We have more experience in some of these newer technologies than a company that may be solely based in a country where most firms have not started working on these newer initiatives.

Disrupted Growth & Diversification

When nations with well-established financial industries begin working solely with one another, it can disrupt global financial institution growth and market diversification. As such, when adopting friend-sourcing, financial institutions should strive to ensure they do not close themselves off from other markets entirely. When done right, friend-sourcing can actually provide a way to open yourself up to new, overlooked markets. This is made possible by working with providers who have deeply considered their location strategies.

Higher Costs

One of the key perks of working with fintechs and other technology solution providers outside of your home region and time zone is that these providers often offer quality talent and resources at lower rates. In turn, choosing to work primarily with providers located in nearby allied countries can result in higher overall costs for outsourcing. That’s why it’s important to partner with a company that has split-site options and offices in countries where the location is close, but the costs are still very effective, for example, Brazil’s timezone alignment to the USA, coupled with its exceptional pool of resources, makes it a prime candidate to help reduce costs while also sourcing the best talent.

Can These Disadvantages be Solved for Financial Institutions?

To balance the benefits and risks of friend-sourcing, financial institutions should consider building diversification into their outsourcing strategy. This can be achieved through a combination of nearshoring, friend-sourcing, onshoring, and split-site models.

By taking this hybrid approach and embracing multiple different outsourcing tactics, a financial institution can better prepare itself to weather any storm, be it regional challenges or larger global uncertainties.

This focus on outsourcing diversification can also help financial institutions to differentiate themselves from competitors by providing customers with greater access to innovative products.

In the coming years, friend-sourcing will no longer be a convenience to help during times of instability, but rather an essential pillar of financial business. The sooner financial institutions around the globe embrace this fact, the better equipped these institutions will be to successfully serve modern-day customers.

Final Thoughts: Establish a Diversified Friend-Sourcing Strategy with Exadel

Friend-sourcing is the final piece to the larger puzzle of creating a sustainable, scalable, and cost-effective outsourcing strategy.

At Exadel, our expertise in facilitating exceptional outsourcing partnerships runs deep.

With offices spread out all across North America, South America, Europe, and Asia, Exadel has both the talent and resources your financial institution needs no matter where in the world you are. Plus, we specialize in building transformative solution for the financial services industry, meaning the experts you work with have an exceptional understanding of both technology and how to employ it within the financial space.

Our offices are based in innovative countries with strong pools of highly trained resources and close ties to North America and Europe, these countries include:

Regardless of how far along your financial institution is on its strategic resourcing journey, Exadel can help you not only catch up with but accelerate past your competitors.

Along with staff augmentation and strategic resourcing, our solution for financial services include:

When you work with Exadel, we leave no stone unturned when it comes to building the ideal approach to outsourcing and friendshoring for your financial institution.

Get in touch with Exadel today to learn more about our resourcing services and solution.