International Business Machines Corp. said it has reached an agreement in principle for its first bank outsourcing deal in Japan.
The proposed 10-year contract calls for IBM Japan to handle nearly all information technology operations of Daiwa Bank Ltd., which has $260 billion of assets.
Financial terms of the relationship were not released. But IBM's general manager for services in the Asia-Pacific region, Mark Lewis, said the contract would rank "among the biggest outsourcing deals in the financial services industry in the world."
The agreement, which Mr. Lewis said is larger than any of IBM's deals with U.S. banks, is evidence of a trend in which overseas markets are generating an increasing amount of bank outsourcing business for U.S. vendors.
Though IBM never really became a significant force in U.S. bank outsourcing, this deal could help it become one in Japan, said Diogo Teixeira, president of Tower Group in Newton, Mass.
He said the forthcoming "big bang" - a deregulation of Japan's financial services industry - "will require the introduction in Japan of a lot of western technology and techniques."
Daiwa executives said deregulation, set to begin in April, is one of the main reasons the bank struck its deal with IBM.
"To cope with the changing environment surrounding the financial industry, our bank is pressing forward with a specialization strategy for concentrating managerial resources in the areas in which we operate best," said Daiwa president Takashi Kaiho. "Outsourcing allows us to reposition our managerial resources to the areas where we feel they are most needed."
Japanese banks generally spend less on technology than U.S. financial institutions, Mr. Teixeira said. According to Tower Group data, Daiwa spent about $250 million on technology in 1996. That same year, Citicorp, which has about the same amount of assets as Daiwa, spent $1.9 billion.
The IBM-Daiwa contract was preceded by a full year of negotiations, Mr. Lewis said.
Talks were slowed by Daiwa's objection to the customary outsourcing practice in which a bank's technology employees become employees of the outsourcing firm.
To circumvent this obstacle, IBM and Daiwa are setting up a joint venture that would supply outsourcing services.
The new company would provide systems support, application development, and computer maintenance services for the banking company.
Daiwa hopes the arrangement will help it save money and speed product development, Mr. Lewis said.
IBM offers systems integration services for banks in Japan and other Asian countries, but the Daiwa deal is its first outsourcing agreement with any major company in that region.
