Offshoring goes onshore

Importing IT skills could have wide repercussions

A few years ago, UK workers worried about employers outsourcing their jobs to low-cost locations such as India. The people affected were mainly call centre or administrative staff. Anyone in a “value added” role, which generally meant one that you couldn’t train for in a matter of days or weeks, was safe from the threat of offshoring.

Not any more. Rising numbers of UK organisations are using offshore centres to cut their technology spending, and the figures are trending inexorably upwards. And in the latest development, “offshore” no longer means somewhere five time zones away. “Offshore” staff could soon be coming to a desk near you.

Home Office figures indicate that 85% of the 22,000 work permits granted in 2004 were to Indian nationals employed in the IT sector, compared to just 1,827 in 1995.

This trend, dubbed “onshore offshoring”, is borne out by the rapidly growing UK presence of major Indian outsourcing suppliers, and the recent £500m purchase of Pearl’s closed-book life and pensions business by India’s TCS in Peterborough, is being seen as a landmark in “onshore” investment.

Cost is rarely, if ever, quoted as a reason for bringing in Indian workers, although when challenged most interviewees admit that cost is an element in the decision. In this and similar cases, there may well be a skills gap driving the decision to bring people over from India, but the main impetus is economics.

Weighing the pros and cons

Organisations that adopt this model gain multiple benefits:

  • Lower people costs
  • A solution to skills shortages
  • Flexible resource pool – the people can go home when they are no longer needed
  • Knowledge of systems which have been built offshore
  • More direct control over “offshore” resources in the UK than if they were in offices in India.

But what are the possible disadvantages for UK organisations? Aside from issues regarding cultural and business awareness, the disadvantages of hiring foreign workers on short-term contracts are potentially the same as with UK contractors:

  • You are developing the skills of someone else’s employees, who can then take their knowledge elsewhere, including to your competitors
  • The business knowledge your short-term resources have acquired is lost when they leave and you have to start all over again with someone new
  • Operational risk may increase because of lack of continuity of personnel, mistakes made by inexperienced staff and the amount of management time spent having to undo errors and redo work.

Muted response

Reaction to the work permit figures has been fairly muted, possibly because this so-called labour arbitrage has been going on for some years, starting with the run up to Y2K.

Perhaps also the lack of agitation reflects an acceptance that the phenomenon of the onshore offshore Indian IT worker is not going to go away, however much UK workers would like it to.

The muted UK response may also be based on an acceptance that the UK itself has been offshoring its own expertise for decades. UK companies for years have exported highly skilled workers to other countries and circumvented work permit regulations by positioning them as “consultants” travelling for “business meetings” and short-term “project work”.

It seems onshore offshoring is here to stay, as an integral part of the evolving global sourcing model. Customers and shareholders of UK organisations, not to mention public sector stakeholders, want to keep costs down, and using lower-cost foreign labour is one way to do this.

As long as UK organisations adopting the model stay within the law and do not expose themselves to unacceptable (mainly operational) risk further down the line, the hiring of willing foreign nationals to meet their IT needs will be a valid policy.

The global playing field is levelling out, and it is a very chilly place that could get chillier. Today, IT workers. Tomorrow, low-cost administrators working in the UK? Accountants? Civil servants? Scientists?

Elizabeth Gordon-Pugh is a senior manager and business process outsourcing specialist at outsourcing consultancy Alsbridge Europe

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