Increase In Tech Outsourcing Seen

Updated: Apr 17 2004, 05:30am hrs
The worlds top financial services institutions a list that includes Bank of America Corp. are expected to increase the amount of IT work they outsource to vendors abroad, a trend that is likely to send ripples across an industry considered one of Bostons economic pillars.

The IT work outsourced to vendors abroad by the top 15 global financial institutions will grow by 34 per cent annually over the next four years, an increase in spending of nearly $3.9 billion by 2008, according to a new study by The TowerGroup Inc., a Needham, Mass. research firm that focuses on the financial services sector.

The amount spent by the top 15 US financial institutions on IT offshore outsourcing will increase from about $1 billion today to $2.5 billion in 2008, according to the study, suggesting American companies will play a leading role.

The trend cited in the report comes at a critical time for Greater Boston, where many IT and financial services employees are wrestling with unemployment.

The TowerGroup said in a separate analysis of outsourcing trends that half of all IT project work sent offshore by other businesses around the world will go to so-called captive sites or subsidiaries in the future. This work could include claims processing for insurance firms, trades processing for the securities industry, mortgage processing for mortgage companies, and customer service functions in a variety of industries, said Virginia Garcia, senior analyst at The TowerGroup. Some of the financial service organisations are hiring up to 100 people per month at captive sites abroad, said Garcia. They are growing very rapidly.

The TowerGroup believes that, in the future, large financial services institutions will maintain a network of overseas subsidiaries and contractual relationships with foreign vendors. Bank of Americas decision to open a subsidiary in Hyderabad, India, is an example of what Garcia believes will become a growing trend. Last month the bank said it was setting up a subsidiary that will employ up to 1,000 people by next year. Called Continuum Solutions, the site is expected to handle support for transactions involving corporate and consumer accounts, including work done by the banks global treasury services and its international operations group, according to Mary Waller, a bank spokeswoman. She said the banks vendors abroad will continue doing software development and IT maintenance.