Fidelity’s Former Top Trader, David Donovan, Notes Nearshore Outsourcing Becoming Necessary Option for Investment Banks

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Because of the increasing complexity of front office operations and the necessity to support and develop applications in real time that are critical to business success, nearshore outsourcing is now becoming a necessary option for investment banks, according to David Donovan, a former top trader at Fidelity Investments. Today, Donovan is a VP and industry expert for a global business and technology services consulting firm that specializes in advising capital markets firms.

“Nearshore outsourcing puts everyone in the same time zone, promotes closer collaboration between teams and provides intellectual property protection under U.S. trade agreements.” -- David Donovan

Because of the increasing complexity of front office operations and the necessity to support and develop applications in real time that are critical to business success, nearshore outsourcing is now becoming a necessary option for investment banks, according to David Donovan, a former top trader at Fidelity Investments. Today, Donovan is a VP and industry expert for a global business and technology services consulting firm that specializes in advising capital markets firms.

This presents a new option from the offshore outsourcing trend of the past decade when various business processes – from information technology, business processes and software development – were moved to lower-wage foreign countries, mostly in the Far East, like India, Pakistan and The Philippines. The growing trend of nearshore outsourcing (or “nearshoring”) reduces the complexity and risk inherent in traditional offshore outsourcing. By relocating these business applications and operations to locations that are closer in distance and time zone to the businesses they support, companies gain a wide range of benefits. These include fewer language barriers, cultural issues, process and data security concerns and the elimination of time zone conflicts; the result is a compelling overall value proposition.

“In today’s ultracompetitive marketplace, investment banks are looking closely at nearshoring because they understand the importance of having essential applications, like those that calculate risk, profit and loss (P/L), Value at Risk (VaR) and collateral management, being in the same time zone as the businesses that rely on that information to make immediate and informed decisions,” said David K. Donovan. “Nearshore outsourcing puts everyone in the same time zone, promotes closer collaboration between teams and provides intellectual property protection under U.S. trade agreements.”

Today, Donovan leverages his high-level trading experience and contacts in the world of Wall Street to build business relationships in the financial sector. He offers financial service companies a unique real-world understanding of capital markets, client needs and the regulatory environment. He helps drive market strategy, often identifying and capitalizing on emerging global market growth opportunities and trends.

One of these global trends causing banks to leverage nearshoring is the rise in wage rate inflation for skilled development resources in the historical offshore locations. In the past, Donovan noted, these locations offered a large salary advantage, but that advantage has now been greatly reduced. With that in mind, large time zone differences and data security risks make nearshoring a more viable option.

Nearshoring Locations
Because of all of these factors, Donovan explained, we are now seeing investment banks start nearshoring operations right here in the U.S. in such locations as Texas, Florida, North Carolina and the Southwest, keeping jobs in the U.S. Canada is also becoming another key nearshore outsourcing location. The key drivers behind the rise of these locations as nearshoring hubs of choice is their access to quality talent through top local universities and their lower costs of living, like housing and energy, that can be met by lower salaries. In addition, a growing number of states are making themselves more attractive to business and industry in order to grow their local labor forces.

However, Donovan noted, it is important that capital markets firms understand that they need to establish the most efficient IT strategy for their front office (order management, analytics, risk) middle office (collateral management, margining, some P/L) and back office operations (confirmations and settlements of trades, reconciliations). The best “IT portfolio strategy” involves leveraging and balancing both nearshore and offshore outsourcing to maximize their individual advantages and create the most effective global strategy for their businesses.

About David Donovan
David K. Donovan is Vice President of Sapient Global Markets, a business and technology services provider to the capital and commodity markets. Previously, Donovan was the preeminent trader at Fidelity Management & Research (FMR), where his vision and grasp of the intricacies of the global market enabled him to make key decisions across Fidelity’s major funds. For seven consecutive years, from 1999 to 2005, he was one of Fidelity’s highest rated traders and was routinely sought out by top fund managers for his expertise in driving fund performance and met regularly with major Wall Street analysts. Disclaimer: The views and opinions expressed here are those of David Donovan and do not necessarily reflect the views and opinions of Sapient Global Markets or any other company. For more information, visit http://www.davidkdonovan.com.

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