TCS child support contract stirs up offshoring debate

Experts believe a major Whitehall offshoring deal with India's Tata Consultancy Services heralds a significant shift in public sector IT provision

TCS will manage IT integration for the Child Maintenance and Enforcement Commission

Offsore outsourcing could be an obvious route to reduce public sector IT spending, but the anxiety it creates over job security remains a very real issue for UK IT professionals, according to experts.

Last week, Tata Consultancy Services (TCS) announced its first significant public sector deal in the UK – a multimillion-pound contract to integrate financial, case management and customer relationship management systems for the Child Maintenance and Enforcement Commission. The deal has even greater political significance, as TCS will be delivering what is effectively the replacement for the troubled Child Support Agency IT that became a byword for government computer disasters.

But the TCS contract will help other offshoring suppliers too, because it goes some way towards addressing the issues of jobs going overseas and whether or not it is appropriate for the government to promote such practices in the middle of a recession, said Brian Stones, Europe vice president at Indian outsourcer Patni.

“In the end it is all about cost of service, so if there is a significant cost advantage to the taxpayer then the government should be looking at the offshoring model for provision of IT services,” he said.

If IT jobs are disappearing in the UK, a popular move would be ensuring all public sector contracts go to local firms. But cost containment will ultimately take priority, said Mark Kobayashi-Hillary, director at the National Outsourcing Association.

“The government is spending money that originates from British taxpayers, so it has a duty to find the best resource at the best price, wherever that may exist. This may well allow companies such as TCS to win government contracts because they can offer a great deal,” he said.

“There is also a longer-term need to build strong economic ties with countries such as India because it is destined to become one of the economic powerhouses of the 21st century, so the government appears to be playing the long game.”

Increasing public sector competition among Indian offshoring firms will also have a big effect on the skills required of UK IT professionals. As lower-level technical jobs such as programming go overseas, demand for experts with higher-level business and analysis experience is likely to outpace supply.

“The UK has a shortage of talent when it comes to IT and that is an acknowledged fact,” said AS Lakshmi, TCS head of Europe.

“In which case, this should be looked at by closely aligning the limited talent with that of businesses to drive efficiency. When it comes to building things and delivering IT projects, then we need to use global talent – where the coding gets done is dictated by whether or not the talent is available,” he said.

But the challenge will be to find the job creation opportunities that greater government offshoring could present, said Steria offshore development director Hilary Robertson. “It is not a good idea to look at offshoring as removing jobs from the market,” she said.

“In fact, that model can be used to free up resources that can be better deployed in growth areas and therefore create new vacancies.”

The continuing rise in offshore outsourcing

The adoption of a global IT delivery model by private and public sector organisations is one of the key trends for outsourcing in 2009, along with a rise in the use of services delivered from India, according to a UK study carried out by business advisory firm EquaTerra.

The research looked at more than 400 outsourcing contracts, and found that UK firms’ use of nearshore or offshore resources rose from 57 per cent of deals in 2007 to 66 per cent in 2008.

In addition, the study revealed that IT services provided from India are now used by 89 per cent of organisations that opt for offshoring.

Satisfaction levels with Indian firms are high – albeit lower than many of their more established rivals – but the study claims the gap between offshore suppliers and local IT service providers such as Capgemini and Logica is closing.

However, separate research by the ET Intelligence Group suggests that the top three Indian IT companies – TCS, Infosys and Wipro – are set to experience the worst-ever growth rates in revenue and profit in the quarter ending March 2009.

According to the study, average revenue for the top three is likely to decrease by 0.5 per cent during that three-month period, due to pressure on rates and re-evaluation of client budgets.