Striking the Right Balance: Onshore vs. Offshore Finance Operations

For CFOs and COOs navigating today's complex global landscape, the strategic decision of whether to keep finance processes onshore or establish an offshore shared service centre (SSC) or business process outsourcing (BPO) centre has become increasingly crucial. This decision can significantly impact the company’s cost structure, operational flexibility, and overall performance, especially in the context of digital capabilities, automation, and geopolitical considerations.

This blog shares key considerations CFOs and CTrOs must weigh when determining the optimal balance between onshore and offshore operations. It underscores the potential for significant cost optimisation, providing reassurance about the financial benefits of the decision, and highlights the potential for process efficiency, risk management, and strategic alignment with business goals.

The Cost vs. Value Equation

One of the primary motivations for offshoring finance and transactional processes has historically been cost reduction. Offshore locations, particularly in regions like India, the Philippines, or Eastern Europe, offer significant cost advantages in lower labour costs. By shifting non-core processes such as accounts payable (AP), accounts receivable (AR), and general ledger (GL) activities to offshore centres, companies can often achieve cost savings of 30% to 50% compared to onshore operations.

However, it's crucial that finance leaders don't get caught in the trap of focusing solely on cost reduction. This blog emphasises the need for a broader view, encouraging finance leaders to evaluate the total value delivered by offshore operations. This includes process quality, service level agreements (SLAs), and the ability to scale operations as the business grows. This approach will make finance leaders feel insightful and strategic.

Strategic Considerations:

• Onshore: This option offers greater control and proximity to core business activities, allowing for higher-quality interactions, tighter governance, and immediate access to decision-makers.
• Offshore: While cost-effective, offshoring may introduce challenges in communication, time zone differences, and varying levels of governance or compliance standards.

Optimising Efficiency and Process Excellence

Finance leaders increasingly see shared service centres or outsourced models as cost-saving hubs and vehicles for process excellence. Offshore centres can be highly effective when supported by the right technological infrastructure—such as robotic process automation (RPA), artificial intelligence (AI), and advanced analytics—to streamline processes, reduce manual effort, and ensure consistent execution. Leveraging these technologies can make offshore centres as efficient as onshore teams without sacrificing service quality.

However, certain finance processes are inherently more complex or sensitive, and maintaining them onshore can ensure higher control, quicker turnaround, and better alignment with regulatory requirements. Processes like financial planning and analysis (FP&A), tax reporting, and compliance management may benefit from being closer to headquarters, where strategic decisions are made.

Strategic Considerations:

• Onshore: Favours processes requiring high-touch interaction, collaboration, or confidentiality. Complex FP&A tasks, regulatory reporting, and business partnering benefit from proximity to key decision-makers.
• Offshore: Suitable for standardised, high-volume, and repeatable tasks such as transactional accounting, payroll, and basic reporting. The introduction of automation can further enhance the efficiency of offshore operations.

Risk Management and Compliance

Finance operations are increasingly subject to stringent regulatory and compliance requirements. Onshoring specific critical processes may help reduce compliance risks associated with data security, financial reporting accuracy, and adherence to local regulations. Onshore teams are often better positioned to manage regulatory shifts in real time and maintain tight control over sensitive financial information.

In contrast, offshoring finance processes can expose businesses to more significant operational and compliance risks. For example, data transfer across borders may complicate adherence to data privacy laws such as the GDPR in Europe or evolving regulations like SOX compliance in the US. Risk mitigation strategies, such as establishing dual governance models or conducting regular audits, can help mitigate these risks but can also introduce additional layers of complexity and cost.

Strategic Considerations:

• Onshore: Provides greater risk control and quicker adaptability to local regulatory changes. It is ideal for managing susceptible processes, including tax compliance and complex regulatory reporting.
• Offshore: Can handle low-risk, high-volume transactions but requires strong governance structures and compliance frameworks to mitigate regulatory and operational risks.

Strategic Flexibility and Repatriation Considerations

Many organisations are now exploring the option of repatriating finance processes that were previously offshored, driven by factors such as rising offshore costs, changes in political or economic environments, or the need for closer integration between finance and the business. Repatriation offers a chance to re-evaluate the service delivery model, particularly in areas where technology has evolved enough to drive automation at scale, reducing the need for offshore labour arbitrage.

That said, repatriation is a complex and resource-intensive process, often requiring significant investment in onshore capabilities, including systems integration, staffing, and compliance functions. It is essential to weigh the long-term benefits against the costs of rebuilding onshore capacity.

Strategic Considerations:

• Repatriation: This may be suitable for processes where control, compliance, or business alignment have become more critical than labour cost savings. Investing in technology-driven onshore operations can enable firms to regain control over vital functions while maintaining efficiency.
• Offshore Retention: In cases where cost remains a critical factor, and offshore models perform well, retaining offshore processes supported by advanced technology and continuous improvement strategies may be more beneficial.

Making the Right Choice: A Hybrid Approach

Many CFOs and COOs are finding success with a hybrid model that combines the benefits of both onshore and offshore operations. For instance, a global manufacturing company might keep its strategic financial planning and analysis onshore while leveraging an offshore SSC for transactional processes like payroll and basic reporting. This approach allows the company to maintain agility and scalability while optimising cost and efficiency.

Additionally, deploying automation and AI across both onshore and offshore teams can help standardise processes, improve accuracy, and accelerate workflows. The key is maintaining flexibility—organisations should continually assess where specific processes are best delivered based on evolving business needs, technological capabilities, and external risks.

Finding the Right Balance

Striking the right balance between onshore and offshore finance operations requires a holistic view. CFOs and COOs should consider cost, quality, risk, and strategic alignment. To facilitate this decision-making process, we've developed a comprehensive checklist that covers all these aspects. This decision is about saving costs and shaping a broader operating model strategy. With the right approach, companies can optimise their global finance delivery, manage risk effectively, and create a more scalable and resilient finance function.

If you're considering repatriating processes or optimising your delivery model, a deep evaluation of your operational goals, risk tolerance, and future growth strategy will ensure you make the best decision for your organisation.