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Politically, it might have been a dangerous move, but the timing was impeccable. Early last month (October 2003), the Deputy Prime Minister, John Prescott, risked the wrath of left-wingers in his party when he delivered a speech to the Labour Party conference in favour of offshore outsourcing. "The trade unions here must show a sense of fairness towards India vis-a-vis winning outsourcing deals from some of Britain's biggest firms," he told delegates at the Bournemouth conference. "The furore is unfair and India must be given a chance to develop its skills and markets."

This section of his speech went largely unreported in the UK - the Indian media gave it much more prominence - but not long afterwards, the words were sounding prophetic. Little more than a week later, HSBC, the world's second biggest bank and Britain's largest, announced plans to cut 4,000 jobs in the UK and relocate them to India, Malaysia and China. HSBC said the jobs - mainly processing and call centre workers based in Birmingham, Brentwood, Cardiff and Sheffield - would go offshore between 2004 and 2006.

Prescott's appeal appeared to fall on deaf ears. Unifi, the banking workers' union, did not think HSBC's move was particularly fair to its members. "'The world's local bank' has shown that if the job can be done cheaper somewhere else, then they'll move it," said Rob O'Neill, a Unifi official.

Advocates of offshore outsourcing are watching the HSBC case closely, aware that some banking union officials have hinted darkly that the time may have come for unions to try to block outsourcing deals through industrial action.

In the US, there have been similar rumblings. There, union lobbies have sought concessions from the Bush administration over offshore outsourcing. For example, they want bidders for public sector outsourcing work to have to make assurances that people working on a project will reside within US borders. Those proposals have gained significant support in congress.

If those union demands have struck some observers as a bit odd, the calls for the World Trade Organisation to 'level the playing field' by ordering an end to huge tax incentives offered by developing countries have seemed even stranger. For example, they feel it unfair that companies 'exporting' software or IT-centric services from India (whether western or indigenous) are exempt from corporation tax - until 2010. But that is not dissimilar to the kinds of incentive that western governments and regional development agencies have for a long time offered, says Steve Bohannon, president of human resources business process outsourcing (BPO) at EDS, the IT services giant.

Compelling economics

Although offshore outsourcing has been a feature of some multinationals for over a decade, confidence in the model has grown significantly in recent years as Internet-based technologies have made collaboration easier and bandwidth prices have fallen. Local workforces are also increasingly well trained and managed.

As a result, the list of bluechip companies that have moved back-office and customer-facing functions to low-cost centres in the developing world has grown to include names such as Abbey National, BT, Goldman Sachs, Lehman Brothers and Prudential.

India has been the major beneficiary of the trend. Its call centre market already makes up about 70% of the overall Asian market and it is expected to triple in size again by 2008. India has also been successful in picking up other elements of the wider BPO market, such as insurance claims processing, payroll management and records management. Studies show that about 400 of the world's 500 biggest companies have already outsourced select parts of their businesses to the country, drawn by the prospect of lowering associated costs by 25% to 50%.

Trade barriers

Those kinds of numbers show that businesses value the option of sending parts of their business offshore very highly. Executives understand the implications of their actions on union relationships and staff morale, argues EDS's Bohannon. But they need the freedom to locate their operations where they will deliver the biggest top- and bottom-line benefits.

In any case, economics experts say that protectionist measures rarely - if ever - have the desired effect. As Stephen Pound, a Labour MP and chairman of the Labour Friends of India, put it recently: "The idea that we can revert to imposing trade barriers belongs to the nineteenth century. In India, working conditions [in IT jobs) are extremely good, and leave us far behind in this country."

That point may be debatable, but with industry research group Gartner predicting that 25% of all technology jobs will be located offshore by 2008, one thing is certain: the politics of offshoring are just hotting up.