5 reasons why the government doesn't really want to reduce the number of offshore IT workers in the UK

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The immigration cap has kicked in today. The IT industry as we know has mixed feelings about it.

I blog a lot about the government's decision to leave out the controversial Intra Company Transfer (ICT) scheme, and the fact that UK IT professionals feel they are disadvantaged by it. So here is a blog post with some opinions on why the government left out ICTs from the cap.

1 - Professor Ilan Oshri at the Rotterdam School of Management who is also a Warwick Business School associate fellow says offshoring is a business reality and without it UK businesses would struggle to compete, which would harm the UK in the long run.

He says lower cost IT services are vital to UK businesses. "Many of these companies are competing with companies with much lower cost bases." One vehicle to reduce costs is offshoring. It means fewer jobs in the UK but it improves competitiveness which is important in the long run."

He says cost is not the only advantage. "By offshoring UK businesses have become far more nimble because they can scale up and down through suppliers' offshore talent."

He adds that ICTs are a vital ingredient in offshore projects. "Any outsourcing deal relies on staff from the supplier working closely with the client to transfer knowledge from the client to the supplier. This execution of deals is the reason why many offshore workers are in the UK."

2 - Mark Lewis, partner and head of outsourcing at law firm Berwin Leighton Paisner, says the ICT is vital to support the transition and transformation of a deal. "Transition is a critical part of the of the offshoring process. For that reason offshore suppliers need to move staff to the UK."

He says they also need to have staff that have worked closely in the customer environment. "These will then return offshore at some point to lead delivery teams."

He also says if UK businesses are to take significant cost out of operations offshoring is an attractive option. "You will need to have offshore workers onshore in the UK but there is a debate about the size of this presence."


3 - Jeff Smith, group CIO at Torus Insurance, says the business can focus on its core offering and call on offshore resources when required.

"We use offshore suppliers to make the innovation we come up with a reality. If we maintained the software development resources to deliver as fast as offshore suppliers we would be a software company with 90,000 staff. There is no point us doing what other people can do."
Cognizant recently built a new portal for Torus. It took five months and used 50 to 60 developers at any one time. There were also about six business analysts and a couple of project managers. Smith says Torus would have spent ten times more money if it had done it in-house.

4 - Peter Brudenall, partner UK law firm Lawrence Graham says the reason that UK businesses will continue to demand services from offshore suppliers is because of the flexibility they offer as well as the cost advantage.

He says companies can cut costs if they can bring in staff on a project basis rather than having to have them as part of the permanent workforce. Indian companies for example have workers who sit on the bench, he adds. This bench is populated by workers who are brought in to do particular projects.

"Indian companies have a lot of bench strength with people ready to be deployed on short term projects. One month they could be in the US and the next month the UK." This level of flexibility and low cost is not available onshore.

5 - Graeme Cross, head of business systems and development, at Morrison Utility Services told computer Weekly following a deal with Indian tier two supplier Zensar Technology that the company chose to offshore its software development for more than just to lower cost.

He says it also provides flexibility because it allows the company to flex up and down the number of developers it uses at any one time. He says it also gives the company access to skills because its in-house team did not have the cloud and mobile development skills it needed.

5 Comments

Clearly the ICT visa is used both to:
a) bring in cheaper, low tax staff to the UK that are rented out to companies as a flexible workforce
b) acquire skills and knowledge that allow work to be performed offshore

This can be good for businesses but it is terrible for the UK. If having cheaper IT is essential for businesses to compete and the UK IT service industry can't compete with cheaper "tax free" imports and cheaper offshore destinations, then maybe all UK IT workers should get special/similar tax relief to "level the playing field".

Of course, companies will find that handing over their knowledge capital to offshore and temporary onshore resources is easy, but getting it back will be virtually impossible.

@ArgieBee: "This can be good for businesses..."

Actually, from what I've seen it's not even that. I've worked on public sector projects that have been seriously impacted by the poor quality of those inexperienced onshored imports, and all the anecdotal evidence would suggest that this is a widespread phenomenon.

If you pay peanuts, you still get monkeys, even in India: the cheap sweatshops struggle to retain staff long enough for them to build up enough experience to become genuinely valuable, while many such staff are simply biding their time until they can migrate into management or non-development roles, where at least their lack of experience will usually be less damaging to the UK customer's persistent delusion that there is such a thing as a free lunch.

And if offshoring and onshoring are so great, why are IT projects still failing and running over time/budgets after all these years in which the UK has led the world in trashing its own indigenous IT industry to benefit the IT industry of a foreign country? Most of the big public sector IT projects in recent years imported huge numbers of ICTs via the fat consultancies, yet they still failed to deliver. Why is that?

I dunno. The sooner I can finish my current contract and join the exodus abroad the better, because I can see absolutely no future for any serious IT professionals in the UK's IT industry fire-sale. You'd probably have better prospects as coal miner these days.

@Matt
I agree that the quality from offshored and onshored/ICTed projects is lower. The big Indian IT companies have grown rapidly and 50% of their staff have 3 or less years experience and 75% have 5 or less years experience, so it is not surprising. They do have talented techies but those are the 20% who carry the other 80%.

The incompetent and dictatorial management tends to suppress innovation and improvement, and rely on working people 12 hours a day, 6 days a week. What a laugh TCSers had when management officially increased the working week to 45 hours.

It’s interesting that all the opinions about the supposed cost savings which are produced by offshoring IT work seem to come from people who have never worked at the coal face with an offshore team and appear to be quite clueless about the reality and oblivious to the numerous problems faced to make the whole thing work.
Jeff Smith from Torus seems to win the prize for his ability to come up with random unsubstantiated numbers.
Offshoring to India is not that cheap anymore, most offshore rates charged by consultancies are about 50% of the cost of an onshore freelancer. To bring an offshore team up to speed you need to bring them onsite for a while and pay them UK rates in order to comply with UK employment law. This brings their average rate over the year up substantially (assuming they stay on your project for a year). You then have to add on all the hidden costs of offshoring.
I’ll give some examples from my experience of offshoring to India:
1. Training and KT time.
2. Lower quality staff with poorer language and communication skills leading to an inferior functional and technical solution.
3. Drag on the productively of the onshore team. We have a few really good onshore technical developers but they are propping up “coach loads” of poor quality or mediocre offshore staff, substantially impacting their own productivity.
4. Communication overheads. When we have conference calls there is at least 10-15 minutes of waste at the start to get everybody logged on. Also, losing face to face contact and dealing with people who have poor English language skills means that these meetings tend to last for a very long time and achieve very little.
5. A higher rate of defects and rework when compared with work carried out onshore.
6. A higher incidence of total project failure
7. Overbilling. Can you be sure that the staff you are being charged for were truly working full time for your business if you can’t actually see them.
8. Time zone differences, Indian staff on my project work until 2:30pm UK time but they are going to lunch as we arrive to the office and we are going for lunch just before they go home so we can only actually contact each other for 50% of the working day.
9. High turnover of staff in offshore “sweatshops”.
10. More resources, more management and more time required to achieve the same results.
11. Impact on morale of the onshore project team and key business users.

Karl, the comments in your article all seem to imply that the majority of work is 'offshored' and that minimal time is spent by the supplier 'onshore'. This is not the case with many of these foreign service companies bringing staff over to the UK to work onsite for extended periods. Perhaps you can go back and ask Graham Cross about the 60 or so migrant ICT staff working onsite at Morrissons HQ implementing their Peoplesoft systems for the last 3 years?

Foreign IT service companies should be using UK IT resources for these phases of any projects, either hiring their own UK resident workers or using resident service companies to fill the gap. Such an approach would have no impact from the customer’s point of view as the supplier will manage the flexing of resources locally and remotely.

If the government followed the MAC advice on tax free allowances and also ensured that the market salary rates were used for the Job role / product combination for ICT workers, you would find these foreign service companies hiring many more resident workers.

Offshoring of IT work is not the issue, it is onshoring of IT work using cheap ICT labour which is the problem.

Every one of the quotes from ‘business’ mentioned the lower cost of bringing in workers onshore except for Graham Cross, but then you have not had an opportunity to ask the question I posed above. As it is the current arrangement means taxpayers are subsidising foreign service companies to bring their staff here, not surprising then that big businesses and these foreign service companies want to keep things as they are.

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About this Entry

This page contains a single entry by Karl Flinders published on April 6, 2011 9:40 AM.

Public sector IT workers not up to the private sector challenge, or are they? was the previous entry in this blog.

Hopes for level playing field for UK IT workers are fading after mysterious government U-turn on immigrant worker pay is the next entry in this blog.

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