UK businesses are demanding the use of offshore companies when signing outsourcing contracts, according to industry experts.

And the boss of services giant EDS has warned that, if IT workers in the UK don't develop high value-add skills, employment in the UK could suffer.

EDS UK president Bill Thomas told vnunet.com: "Most of the big deals we are winning have a strong offshore requirement to them.

"The commercial sector wants better quality at a lower price. That may translate into doing it in India or Canada or Ireland or wherever."

Thomas warned that UK jobs could be lost. "As with manufacturing in the 1980s, it is entirely feasible that all the IT could move out of the UK in a way that they couldn't move from continental Europe," he said.

"When these jobs move it's not very visible because you don't have a factory with an empty sign up."

Thomas suggested that IT workers need to develop high value-add skills, such as increasing interaction with customers.

"We need to make sure that the vision we sell is that [staff] will be doing higher and higher value-add work," he explained. "Unless we find value-add jobs to keep, there is an employment threat."

A recent report by analyst Ovum Holway predicted that 25,000 UK jobs are likely to go by 2006 as work moves offshore.

Ovum analyst Phil Codling said: "The drive for offshore is coming from IT services suppliers and users, both of which see cost reductions."

Most of the jobs that go are likely to be in low-level software, and application development and integration.

"It's possible to see an upside for the industry and customer organisations, but it's difficult to be anything but bleak about the job situation," warned Codling.