Frank Tortorici

The push by financial services and insurance companies to
establish new offshore operations leveled off in 2009. At the same time, firms seeking cost
reductions show greater interest in contracting with large international service providers to
benefit from their economies of scale and scope, rather than creating fully owned offshore
subsidiaries.

These are among the findings of Financial Services Offshoring: Moving Toward Fewer
Captives and Global Cost Competitiveness released today, which is based on the fifth annual study on
offshoring trends by the Center for International Business Education and Research’s (CIBER)
Offshoring Research Network (ORN) at Duke University’s Fuqua School of Business and The
Conference Board. The study is part of a wider research project into the effects of offshoring
trends on American competitiveness.

The report is based on a survey of companies across the United States, Europe, and
Australia from 2007-2009. It measures the sentiments of business managers as economies
recover from the effects of the global financial crisis and grapple with subsequent economic
upheaval in Europe.

The research also shows 2009 was marked by increasing efforts of finance and insurance
firms to monetize current captive operations (in which processes are performed by a fully owned subsidiary in an offshore location). In addition, Latin America has emerged as a preferred location for offshoring contact centers and information technology functions.

“The global recession of the last two years seems to have slowed the creation of new
offshore operations,” said Fuqua Professor of Strategy and International Business Arie Lewin.
“But we can expect the companies to expand the existing offshore operations they established over the past decade. Nearly two-thirds of finance and insurance firms in our survey plan new offshoring initiatives within three years, an increase from 42 percent in the 2007/2008 survey.”

Although finance and insurance companies have faced a number of significant challenges
in the past 24 months – from compliance with the Troubled Asset Relief Program (TARP) to
geopolitical issues to the recession itself – the expansion of existing offshoring operations has increased, according to the report.

“Recent events have caused many firms to examine how and where their work is being
done,” said Ton Heijmen, senior advisor at The Conference Board and one of the report's
authors. “A client-facing bank teller in the United States does a significant amount of
administrative work that could be shifted offshore, freeing the teller to concentrate on revenue- generating customer service tasks.”

India remains the primary destination for outsourcing/offshoring, but the country’s
market share of outsourcing has declined slightly in recent years due to higher wages for Indian workers with graduate and doctoral degrees, shortages in certain IT capabilities, and the increasing cost of renting office space. Time differences have also contributed to the shift toward offshoring locations such as Argentina and Costa Rica, which are only one to three time zones away from many U.S. business centers.

For companies considering offshore operations, second- and third-tier cities in the United
States and abroad provide attractive alternatives, offering lower operating costs and reduced
exposure to geopolitical unrest. Areas such as central North Carolina’s Research Triangle Park (Raleigh/Durham/Chapel Hill) and Jacksonville, Florida, have seen significant interest as offshoring destinations.

Source: Financial Services Offshoring: Moving Toward Fewer Captives and Global Cost
Competitiveness, Executive Action #323, The Conference Board

ABOUT DUKE CIBER
Duke’s Center for International Business Education and Research (CIBER) was established in 1992 by The Fuqua School of Business and has been directed by Professor Arie Y. Lewin since 1995. The Offshoring Research Network (ORN) was conceived as a multi-year initiative focused on understanding the relationship between offshoring and American competitiveness.

There are 33 CIBERs located throughout the US that are funded by the US Department of
Education under Title VI through a competitive bid process. Duke CIBER collaborates with
other CIBERs to carry out projects, and engages in outreach activities with other centers and
departments at Duke as well as other colleges and universities, businesses and communities.
To learn more about Duke CIBER, visit http://faculty.fuqua.duke.edu/ciber/site2006/.

ABOUT DUKE OFFSHORING RESEARCH NETWORK (ORN)

The global Offshoring Research Network was established at Duke University’s Fuqua School of Business in 2004. ORN is a network of research partner universities, scholars and practitioners and has become the most recognized international research network tracking the globalization of services over time.

ABOUT THE CONFERENCE BOARD

The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world’s leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States.