The research based much of its findings on the activities of the IT industry, a sector that has been at the vanguard of the offshore trend.
Speculation about the decline of the IT department was sparked in 2002 by a study conducted by IT analysts, Forrester. It predicted that within the next 15 years, 3.3 million US white-collar service jobs - 500,000 of them in IT - would move offshore to countries such as India, leading to an overseas exodus. US economist and former adviser to Bill Clinton, Alan Blinder, likewise predicted that the offshore trend would result in the ‘third industrial revolution’.
Five years on, Work Foundation author, Katerina Rudiger, concludes that: “high value knowledge-intensive services are still principally located in developed countries”, a view supported by IT offshore practitioners. "Rather than be seen as an avenue of getting rid of bucket loads of staff, [the Indians] are saying we are an avenue to re-tuning service contracts while leveraging economies of scale," comments one offshore broker.
Other key conclusions from the Work Foundation report, Offshoring, a threat for UK’s knowledge jobs? are:
- The tradability of knowledge jobs might increase, but this does not automatically mean that all jobs that are tradable will be offshored.
- The future pattern of offshoring would need to be very different from the one today if it was going to affect knowledge jobs on a large scale.
- The increasing use and sophistication of ICT means that tasks, rather than departments or can be sent offshore. The Economic Council of Finland coined the phrase the ‘great unbundling’ for the phenomenon.
The retention of a large piece of IT management function for offshoring purposes was by no means a foregone conclusion but has rather been the result of bitter experiences. There are too many apocryphal stories to recount about smart Indian programmers following technical specifications to the letter but producing unworkable applications.
The steady trickle of negative stories surrounding these difficulties has ’slowly but surely undermined the offshore proposition’, according to Nick Davies, broker with offshore consultants, Quantum Plus.
And the bad experiences have resulted in another trend, says Davies. "Indian offshore companies are deliberately using a higher proportion of UK national account managers to run the contracts," he notes.
A. S. Lakshminarayanan, vice president and country manager, UK and Ireland, Tata Consultancy Services (TCS) confirms the trend. “Of the UK near-shoring contracts undertaken by TCS, TCS has taken on to its payroll 92% of the employees, under the TUPE regulations. ….but as TCS is primarily an IT services organisation, the majority of these employees are IT professionals.”
TUPE regulations, an acronym for Transfer of Undertakings (Protection of Employment) Regulations 1981, has been put in place to preserve employees’ terms and conditions when a business process is transferred to a new employer.
And when IT professionals are not moving onto the payroll of Indian service suppliers they are being let go less easily by their increasingly nervous incumbent employers. As Susan McClean, lawyer with Morrison & Foerster, comments: “the temptation is to keep people they know and love”. This is in spite of the fact techies may be kept on in supplier management roles for which they have not been trained and may not be suited.
Despite the higher number of UK IT professionals kept on board in recent offshore deals, when a contract is negotiated it generally includes redundancies, says McClean. This can have a damaging impact on the IT operation as staff morale plummets closely followed by levels of service.
Falling quality gains a financial poignance given that many offshore companies agree to match service level standards at the point of handover. Mitigating this incurs further costs in the form of golden handover payouts to keep staff sweet.
So while the development and use of ICT enabling technologies has been the key to the movement of work offshore it hasn’t happened wholesale in the way that the doom mongers initially predicted. Email, messaging and voice over IP (VoIP) technologies have enabled virtual teams to work across time zones and geographies but bridging different business cultures proved the sticking point.
"The number of jobs being lost is starting to tail off," confirms Davies. "There is a declining appetite for many of the traditional offshore services such as helpdesk because of cultural and linguistic issues," he reports. He points out that this helpdesk function includes an IT element as service centres are defined in the ITIL specification.
"There’s no doubt that there are still savings to be made for organisations in the IT space in terms of pure code cutting and mechanistic tasks" and it’s sensible to put this workload in a cheaper location. Even at the ’clever’ end of things, a certain number of business analysts and front office roles are placed overseas.
Fewer companies are offshoring as a purely cost cutting exercise, too. Instead they are using it as a complementary rather than replacement service – this is especially so when it comes to near-shoring, says Chris Gadshill, project director at software development house, Sapphire Group.
"Many companies have a core development team on site and use us a buffer to pass on the slack." Sapphire uses offshore software development resource in both Cairo and St Petersburg as a means to access a different spread of skills. St Petersburg is particularly good for accessing the kind of thinkers who can work on leading edge and innovative projects.
There’s a large pool of .Net, Java and Web Services resident – "they’re not obscure skills but here you find them at a high level," says Gadsby. "Programmers there are highly qualified often with second degrees. They do relish the challenge of solving a technically difficult solution and they’re keen to get involved in innovation," he adds.
He cites fingerPIN as one client that is tapping into creative development skills available offshore. "They’re a small start-up, developing a biometric security solution that uses multiple fingerprints. We had a discussion about the sort of people they’d need and sourced them," said Gadsby.
Such offshore stories seem to substantiate the Work Foundation’s basic conclusion that the rise of outsourcing to far-off lands is not haemorrhaging UK jobs. Indian business protagonists depict offshore outsourcing even more positively.
"It enables Europe to focus on the ‘thinking part of the job’," says Jayant Pendharkar from Tata Consultancy Services. Perhaps not surprisingly, he describes offshore as a ‘no-brainer’. He adds: "Europe should further invest in education and skills and ‘continue to do what it does best: product design, creative work and patents."