Nearshoring in the United States

Image © Gensler

Editor's Note: This post is part of a series on the state of the financial services industry.

“Everybody's doing it!” No, they’re not dancing to that great Irving Berlin song. The “it” that everybody's doing in the world of financial services is "nearshoring." Nearshoring? What on earth is nearshoring? You might ask, “Do I want to be doing it? What are the consequences?”

Nearshoring is a cousin of offshoring in that it locates certain segments of a firm’s operations to locales that are remote from headquarters, but, as the title suggests, “nearer” to headquarters than an off-shore site. The proximity affords the firm with similar language and cultural practices, often within similar time zones with the added benefit of diversity in locations, which can provide a back-up site if one site unexpectedly goes down.

But these are secondary benefits. The primary driver that has ignited the trend is economics, real estate, taxes and labor costs, all of which tend to be lower in regional centers than the main urban centers. It is the regional cities, sometimes and somewhat disparagingly referred to as second-tier cities, which have attracted firms looking for new homes for their business support activities. While headquarters remain in the large global urban centers of New York, Chicago and San Francisco, other cities, such as Phoenix, Tampa and Charlotte, have all become attractive locales. These cities offer not only primary economic benefits to these companies, but also strong secondary benefits in access to a different talent pool while affording the employees a different urban quality of life.

The departments in financial services firms initially targeted for nearshoring are legal, human resources and accounting. These activities require sophisticated language skills, an innate understanding of cultural practices and adept knowledge of regulations and standard practices, yet they don’t necessarily need to be under the same roof or in the same region as the headquarters.

Of course, the great enabler that has fanned the sparks of this trend is technology. Cloud computing and Skype provide equal access to information and each other, no matter the location. Without these capabilities, we’d all be getting on planes, trains and automobiles to interact and collaborate.

It all seems seamless with happy consequences of a reduced transportation carbon footprint, revitalized urban centers and a redistribution of talents. But are there unintended consequences? As the business support teams are being transferred away from the main urban centers what is left behind? On the one hand, it’s a less stressed infrastructure; I don’t think New York’s subway or London’s tube can handle many more riders. On the other hand, it can leave behind swaths of unemployed people, emptied buildings and vacant car parks whose carbon footprint to build cannot be ignored. And, reduced tax coffers can limit a community’s ability to provide the numerous public services that knit together its population.

It’s one strategy to locate new capabilities and needs to new locales with all its happy consequences. It’s quite a different strategy to re-locate existing functions, leaving behind under-utilized talents, disrupted lives and torn communities.

So should you do ‘it’? We should all dance to great songs, but nearshoring? That requires a long hard look to balance the happy consequences and the unhappy consequences before taking on such a disbursement initiative.

Belinda Watts moved to New York after graduating with a Bachelor of Architecture degree from Curtin University in Perth, Australia and went on to receive a Master of Architecture degree from Pratt Institute in Brooklyn. She is regional leader for Gensler’s NE Region financial services practice area, with a focus on the private investment sector. She continues to work with many long-term clients, including The Carlyle Group, JC Flowers & Company, Fiduciary Trust, and Franklin Templeton. Her leadership within the Financial Services sector is reinforced by a broad experience across many industries and project types ranging from building adaptive re-use to high-end retail. She brings to each project a deep understanding of workplace modes and an extensive knowledge of the project process. Contact her at belinda_watts@gensler.com.