A financial centre, or hub, is a strategic location in a city that houses leading financial institutions, reputed stock exchanges and usually a dense concentration of public and private banks, trading and insurance companies. Due to the nature of the businesses within these hubs, they are equipped with first-class infrastructure, communications and commercial systems.
All of these factors mean real estate comes at a premium. According to Statista, average commercial rental rates in central London for the second quarter of 2019 were £90 per square foot compared to £23 per square foot in central Belfast.
Times Are Changing
For decades, the products and services offered by financial institutions changed very little. However, several factors have challenged the traditional trading model and, in turn, raised a question mark over the viability of remaining in these costly hubs.
Firstly, the 1986 ‘Big Bang’ saw the City of London become deregulated and traditional face-to-face share dealing replaced with electronic trading. In turn, this led to the development of financial centres in other parts of London, notably Canary Wharf, where commercial rents were more than 30 per cent cheaper.
However, perhaps the most significant change has been the evolution of digital technology, which has been disrupting the trading model since the turn of the century. Now, the faster a trading venue can carry out a deal and the more accurate market data it can retrieve and store, the more attractive it is for investors who want to buy and sell quickly and make more informed choices.
Constant innovation is essential for Capital Markets organisations to be able to keep improving financial performance and compete with an increasing number of trading venues. To achieve this, a continuous evolution of processes is required, which has seen these organisations go head-to-head with the likes of Google and Facebook to recruit the very best tech talent.
But There’s A Problem…
With commercial rents high in financial hubs, desk space is a premium, and some are already operating at capacity. For example, the Financial Times reported that expensive real estate in London has led some financial organisations to employ an oversubscription model to cut costs while still retaining a presence in the capital. And a report by property services company CBRE found that banks’ space requirements in London are dropping as they move more jobs overseas and reduce staff, pushing them to “optimise their footprint in the capital”.
Oversubscription, coupled with the urgent requirement for dedicated tech teams to retain a competitive edge, means organisations are looking further afield at alternative delivery models.
Step Forward, Nearshoring
Nearshore outsourcing sees projects performed by external teams in close geographic proximity and in the same or a similar time zone. Not only does this help organisations to cut costs in comparison to hiring staff and expanding the premises to house them, but it also ensures they’re free to concentrate on core business and free up internal resources. The reason banks opt for nearshore outsourcing, rather than offshore comes down to the need for cultural similarities, enhanced communication options, minimal time differences and greater opportunities for face-to-face meetings.
Some examples of nearshoring in action include Paris-based investment bank Natixis which moved IT operations to Portugal as part of a significant cost-saving exercise. Additionally, NYC-based trader technology communications company Cloud9 selected Neueda’s Belfast team to focus on improving the platform’s UI and UX.
In short, nearshoring offers proximity and cultural alignment – in addition to those critical cost and space savings – that organisations in today’s financial hubs require to develop and maintain a competitive advantage in an increasingly challenging market.
Find Out More
Stay tuned to our nearshoring blog series to learn about all of the benefits of nearshoring and some of the world’s emerging hotspots. Can’t wait that long? Download our free guide: