A quarter of participants currently offshore between 10 percent and 20 percent of their headcount, however, in three years' time, almost half of respondents expect this to be the case. Financial services firms which offshore jobs solely as a cost-saving strategy, or do not approach projects with caution, will fail to reap the full benefits, such as greater operational efficiency and increased shareholder value.

Saving costs was the main reason for offshoring for 79 percent of the 156 executives surveyed. Indeed, in the longer term 74 percent of financial services firms saved costs by offshoring activities. However the benefits were less immediate in the first year of the project; nearly a third of survey participants actually experienced no change in costs in the first year after offshoring functions and 15 percent of respondents reported no change in cost base even after five years of offshoring. Other benefits of offshoring identified by those surveyed were strategic flexibility and improved quality of service.

The survey found that nearly half of financial services firms currently offshore transaction-based IT activities, and only 12 percent of companies surveyed do not offshore any activities at all. By 2008, however, a further third of respondents plan to offshore HR activities such as payroll and a further 25 percent expect to offshore customer contact activities such as scripted sales calls. It is not just transactional activities which will be sourced offshore in the future. Knowledge-based activities such as financial research and modeling will be offshored by 2008, predict 22 percent of the organizations surveyed.

"Financial services executives who are looking to reap the most rewards need to view offshoring as a long-term process to improve performance in the organization as opposed to a cost cutting mechanism," said Jeremy Scott, chairman of PricewaterhouseCoopers Global Financial Services Leadership Team. "Some companies fall victim to initial over-enthusiasm but successful firms will be realistic when drawing up savings targets. They should plan ahead exhaustively when considering offshoring as there can be hidden risks for the unwary, not least to a company's reputation if there are any offshore security breaches."

The survey also showed that only half of the 156 executives surveyed were satisfied with the overall impact of offshoring activities. The top three risks highlighted were finding and attracting people of the right quality to work in offshore centers, deteriorating quality of service and cultural differences between home and host markets. Other concerns were rising wages caused by the demand for educated staff and rising turnover in the most popular offshore destinations.

According to a recent report compiled by PricewaterhouseCoopers, "The Evolution of BPO in India," the turnover of staff in main centers in India can be between 40 percent and 60 percent. Training and career development opportunities were cited by four out of five of executives as the most effective way to retain offshore employees. These staffing pressures will only intensify as the trend to offshore gains ground.

"Regulators are watching to ensure that standards of compliance and governance are maintained, particularly as offshoring shifts into areas which are more critical to business continuity and where concerns over client confidentiality and data protection prevail," according to Paul Horowitz, partner, PricewaterhouseCoopers. "Institutions need to stay close to the regulators [while] developing transparent processes and visible risk management procedures."

While offshoring presents risks to banks, insurance companies and asset managers, by moving jobs abroad companies can reduce costs on a long-term basis and become more profitable, efficient and focused. Ultimately, shareholders may receive a better return on investment which enables growth for the organization as a whole, siad Horowitz.

The report is available to download at PwC Global.