The UK has become a prime location for IT service and business process outsourcing (BPO) suppliers, according to research carried out by the Centre for Global Sourcing and Services (CGSS) at the Loughborough University School of Business and Economics.
Traditionally, low-cost regions such as India were more attractive, as offshore services supported cost-cutting strategies, but this is changing. Today it is a balance between different factors.
The team at CGSS, led by Professor Ilan Oshri, considered three trends: businesses are looking for more from suppliers and expect a positive impact on their business; the increased complexity of sourcing requires managerial capabilities rather than just technical capabilities; and service providers want to set up operations in lucrative markets.
The research, sponsored by UK Trade and Investment, compared seven locations in Western, Central and Eastern European countries that are seen as the main competitors to the UK for outsourcing services
“The results of our analysis leave no doubt - IT and business process outsourcing vendors would benefit from having operations in the UK,” said Oshri.
There is a current trend seeing businesses having IT services and BPO carried out in nearshore locations, particularly in Central and Eastern Europe. These locations offer highly skilled IT professionals and are in relatively close proximity.
“Can the UK compete with Central Eastern European countries on outsourcing services? Yes, it can, but that depends on the line of services and the value delivered from the outsourcing engagement,” said Oshri.
“All the vendors we interviewed have been ramping up operations in the UK and some are looking to add 15% new employees to their UK-based workforce. The new strategy pursued by vendors is also changing the nature of competition from a pure cost-based one to a hybrid mode in which advanced skills coupled by premium price are becoming the winning formula, though this can be compensated by large scale. In this regard, certain regions in the UK are well positioned to win in some outsourcing service segments, such as contact centres."
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Indian service providers, such as TCS, are investing in increasing their UK footprint. This is in reaction to customer demands that they have a local presence; pressure from the government to encourage the hiring of UK citizens; and to gain access to more customers.
But Oshri warned that conclusions of the study do not guarantee that the UK will continue to attract investments from the service industry.
“Current and future governments need to pay attention to threats such as for the lack of talent mobility in rural areas and the development of centres of excellence in Europe , such as Germany’s emergence as a shared service centres hub,” he said.