Japanese asset management industry is beginning to embrace the global trend amongst financial institutions toward increased outsourcing of non-core operational back- and middle-office functions, according to a State Street report.
State Street’s latest Vision Focus, entitled "The Trend Toward Outsourcing: A Case Study of Japan" says while Japan’s outsourcing market is still at a relatively early stage, it is beginning to overcome the traditional resistance to outsourcing key operations, driven by increased pressures to remain competitive in the face of global economic challenges.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
Despite the fact that Japan’s asset management sector has remained static in terms of overall growth since 2008 and is currently sluggish, the longer-term outlook is positive, the report added.
Japan’s asset management industry is facing a number of challenges that are compelling asset managers to consider outsourcing. Traditionally, asset managers in Japan have operated back- and middle-office functions in-house in order to control process and ensure the operational excellence expected by clients in a demanding market where reputation is critical to success. However, more than two decades of recession exacerbated by the global financial crisis and a rapidly ageing population are driving asset managers to attain greater efficiency. In addition, greater complexity and increasing regulatory and operational requirements are providing further pressure on asset managers to consider options including outsourcing, the report revealed.
According to the report, there is also clear evidence of a changing mind-set on the part of Japanese asset managers. In the face of the global economic challenges of recent years, some international firms operating in Japan turned to outsourcing as a solution. Others are pursuing growth opportunities overseas, and seek to utilise an outsourcing partner to provide immediate scale and local knowledge to support these ambitions.
Companies interviewed by State Street for this report referred to the ‘huge impact’ that the entry of foreign outsourcing suppliers has had on the market, with one saying that their services and products have ‘significantly lowered the hurdle of using outsourcing service providers for Japanese financial institutions.’
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataCompanies interviewed agreed that outsourcing offers the potential to redeploy staff more effectively by concentrating personnel on the investment side of the business and enabling them to cut relative costs.
"Outsourcing is set to play an increasingly large role in prompting growth in a Japanese market that offers strong growth potential," the report concluded. "The new openness to outsourcing offers the opportunity to increase flexibility, by ensuring that the scale required to support expansion is available during a period of growth, while hedging the downside risk of excessive fixed costs in the event of an extended downturn."
