19 Feb 2009
Growing pressure on the government to cut its multibillion-pound IT spending bill means it is increasingly likely that major public sector contracts will be awarded to offshore IT service providers.
A new cross-party parliamentary group was launched last week to stimulate India-UK trade and investment opportunities – and IT is an important part of the plan.
MPs met bosses of offshore firms such as Tata Consultancy Services (TCS), HCL and Infosys to discuss ways to overcome barriers to Indian service providers bidding for public sector IT contracts.
During the meeting, minister for trade and development Gareth Thomas accepted there are “mindset issues” around tendering for government IT, but highlighted the need to introduce more competition to reduce public spending.
“There is an issue with how we procure contracts in terms of market reach, which needs to be looked at. We want to allow Indian companies to win these contracts and get more value for money,” said Thomas.
To reduce public sector IT spending – estimated at about £16bn per year – the Treasury has already hired former Logica chief executive Martin Read, who plans to announce his efficiency scheme as part of the Budget in April.
But the government’s interest in taking advantage of offshore delivery models to lower costs will raise concerns about the economic, political and security impact of such arrangements.
With unemployment forecast to peak at more than three million in 2010, other industries are already experiencing protests over jobs going to overseas workers, such as the wildcat strikes at the Lindsey oil refinery last month.
“Government procurement needs to take the situation we are in into account. Many UK-based, skilled IT workers have already lost their jobs and we expect there is more to come,” said Peter Skyte, national officer at trade union Unite.
“It is important that there are safeguards for UK workers and that jobs are created onshore, not offshore.”
If Indian firms stand a better chance of winning public sector contracts, there is a risk that industrial unrest could be mirrored in the IT sector, according to Mark Kobayashi-Hillary, director of the National Outsourcing Association.
“The recent oil refinery issue could spill over into services and with the advent of well-organised single-issue campaigns using social networks, there is a much bigger danger to the government and companies employing outsourcing,” he said.
“In the short term, it may appear that the UK buys more from India than they buy from us, but the government is clearly thinking of the long term. But that does not help the British workers affected in the short term.”
Public sector organisations face particular pressures when it comes to offshoring, said Malcolm Stirling, head of public sector practice at supplier CSC.
“For example, the Department for Work & Pensions (DWP) is working hard to meet efficiency targets and reduce costs but it is also working hard to reduce unemployment. Taking jobs offshore would make them open to the criticism of being in conflict with their remit,” he said.
“At a macro-economic level, the public sector has broader responsibilities. The bigger cost equation includes increases in benefit payments, loss of tax revenues, and cashflow lost from the UK.”
Data security is another factor behind past resistance to offshoring
government IT.
“As public records are becoming increasingly complex and may contain information
such as biometrics, governments will tend to keep that data close to their
chests and not manage it offshore,” said Stirling.
A McAfee survey presented at the World Economic Forum in Davos last month highlighted the dangers of offshoring sensitive data.
The research suggested that although countries such as India are spending more on security than the UK, such locations have poor reputations for investigating security incidents and may be negligent at enforcing regulations.
Despite the challenges, Indian IT firms are confident their public sector experience (see below) will help claim a share of the UK government spend. TCS, for example, said it expects “exponential” growth in business stemming from government projects and plans to bid for work at HM Revenue & Customs, DWP and the Ministry of Justice.
Cost reduction remains the main motivation for offshoring and that is increasing true for heavily indebted governments, said World Bank senior consultant Raja Mitra.
“If public sector bodies can get good-quality work from Indian firms at a lower cost, there is no alternative in the long run,” said Mitra.
“In the short term, there may be implications when trying to create jobs in the UK, but otherwise the strategic factors behind the outsourcing boom will prevail.”
But Indian firms should be aware of what they may be letting themselves in for, according to one well-placed IT industry source, who asked to remain anonymous.
“Firms that supply the public sector must understand it is hugely complex. An approach that says: ‘We can walk into a complex UK environment and do things better’ is horrendously naïve,” said the source.
“The UK government procurement process is among the most open in the world. If Indian suppliers have not been successful, it is because they have not been good enough. To say there has been a catalogue of blunders and then come and ‘solve’ the problems is ridiculous.”
Public sector IT offshoring around the globe
Indian IT firms are keen to stress that their experience in transformational government projects worldwide could bring much-needed expertise to the UK public sector. For example:
I referred in my post of the 20th of February to an interview by insurance company manager that I agreed with. When my post was printed in Computing a link was made to a different but equally interesting story.
I have now found my cutting, which was from the 27-NOV-2008 issue of computing. In this interview Marcia Campbell stated:
"Standard Life has used offshoring for a number of IT projects since 2000, which included successful experiences in areas such as production support. But it lost its appetite for using offshore partners for application development after serious problems beset a previous attempt.
"It was a disaster. The quality of code was really poor and we ended up having to do all the work again ourselves," said Campbell.
"What we seemed to be getting was graduates fresh out of university and our project was their first job."
This agrees with my experience whilst working on the inside of an Indian IT company. Whilst working there I only met one Indian IT worker who really impressed me. What seemed to make the difference in his case was that he had been seconded for 18 months to work for an English team leader who very effectively taught him the ropes. I think that there are many Indian IT workers who should seriously consider working for UK trained team leaders who can take them to the next level of professional development.
Posted by: william squyres 06 Apr 2009
They can't be serious...Gareth Thomas, have you looked at the news, the job figures? What are we thinking giving jobs to other countries when skilled people are being put out of work. This is a double whammy on the taxpayer, they have to fund the unemployed and pay a bunch of money to offshore companies. There is a very simple answer, stop spending the millions on failing, ill-thought out IT projects and reduce your outgoings, keeping people in this country in work so they keep spending and the downturn doesn't turn into depression. This is simple maths, people!!!
Posted by: Jay Cee 11 Mar 2009
The next generation business software does not require the current volume of code with the skill set moving to business knowledge. Even Bill Gates recognised this saying last year "this holy grail of development forever, which is that you shouldn't have to write so much [procedural] code, the dream, the quest, we call it, should take a tenth as much code as it takes today. You should be able to do things on a declarative basis". 'It's something that will change software development ' The good news is it is available now and well ahead of Microsoft and led by UK. No need to offshore - skill set will change to higher added value but kept in UK. Just a pity UK CIO office fails to recognise - well you know what they say you never get fired if you buy from IBM! Maybe the big challenges we face will necessitate changes in attitudes - too late for my generation but for the sake of our kids? status quo is unacceptable?
Posted by: David Chassels 27 Feb 2009
It's interesting to also see how this story has been covered in the Indian media... the impression there is more that UK government messes up every project and *needs* the Indian tech industry to save them! Take a look at this blog I wrote for NASSCOM in India:
http://indialeadershipforum.nasscom.in/blog/2009/02/beware-excessive-hubris/
Posted by: Mark Koabyashi-Hillary 24 Feb 2009
'An e-government portal for the Indian state of Andhra Pradesh offering services including birth and marriage certificates, land and vehicle registration, pensions, tax information and bill payments. TCS worked on the project, which covers 75 million citizens. '
How many people in India pay tax ? if you been to India majority of people pay no formal tax, so how is the above statement true ?
Posted by: Dinesh Shah 24 Feb 2009
It will be interesting to see how the government plan to offshore more services fit in with the security standards that are currently being implemented to meet the Government Connects code of connection that local authorities and others have been working hard to meet. I for one would not like to be completing the code of connection submission for an offshore company in India!
Posted by: Steve Makin 20 Feb 2009
I have worked with Indian IT staff and agree with an insurance company manager who told COMPUTING about 6 months ago that her impression was that the Indian IT staff she used had all worked in the IT industry for less than 5 years. This was certainly the case in the English branch of an Indian IT company that I worked for until very recently. When I met Indian IT staff above the age of thirty they had not been working in IT for any longer than the younger Indian staff.
Any British IT team, even one with a majority of under 25 year olds, will typically include a few 40 year olds who provide a wealth of experience which keeps the project on track. There is no shortage of intelligence but there is a shortage of experience in a typical Indian IT team.
I have many experienced IT developers amongst my friends. It is a source of annoyance to me that many of these highly experienced developers have not found work in IT for the last few years because UK companies have been allowed to bring over rated Indian IT staff into the UK to replace them. Some of my friends have even told me about the remarkable state of affairs where they were retained by UK companies for a few more months than they expected so that they could train those Indian IT staff who replaced them.
Many years ago there was a lot of talk about how one of Britains greatest strengths as a country was in software development. In recent years however companies seem to have been enthusiastic to outsource seemingly trivial skills such as cleaning, catering and IT.
Posted by: william squyres 20 Feb 2009
Paying offshore IT companies is an untaxed import. None of the money gets recycled in the UK economy. At the end of the day the government will have to pay more in unemplyment benefit to ex UK IT Workers. How about MPs and the government having some concern for their own citizens?
Posted by: Trevor Woolnough 19 Feb 2009
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