MPs to investigate impact of offshore outsourcing

19 August 2003 The UK government is to launch a formal investigation into the economic impact of offshore outsourcing, signalling its growing concern about the outflow of jobs to countries such as India and South Africa.

The Commons Trade and Industry Select Committee has yet to decide on the scope of its enquiry, but it is likely to focus on two core areas: the rise in the outsourcing of software development projects and other IT services to offshore facilities, and the explosive growth in the use of offshore call centres and other business process outsourcing activities.

Companies such as Prudential, Aviva and British Telecom are all moving call centre activities offshore. That has meant rich pickings for India-based service providers such as ICICI OneSource and Wipro SpectraMind. The assumption is that if these call centre operations prove successful, wider and more complex business processes will quickly follow.

Meanwhile, IT services companies such as LogicaCMG and Cap Gemini are frantically ramping up their offshore facilities in order to match the price and quality advantages of their Indian counterparts, such as Infosys and Wipro.

Stephen Peattie at offshore call centre consultancy Kinetic suggests that UK organisations can cut their call centre costs by between 40% and 50% by moving offshore. That stems from the fact that the average call centre salary in India is £1,200 a year, a tenth of that in the UK. Moreover, the quality of service is higher, says Peattie, as 95% of call centre workers in India are highly motivated graduates.

While the cost comparisons are not so dramatic with more skilled employees, such as software developers and IT support staff, organisations still find they can wipe one-fifth or more off particular areas of their IT spending by contracting such activities offshore.

Aside from the lower cost of business and a pool of two million fresh graduates hitting the job market each year, another aspect that will concern the UK government is the fact that Indian services exporters are exempt from corporation tax, a perk that will last until 2010.

The announcement of the enquiry comes only weeks after consultancy Ovum Holway forecast that up to 25,000 IT jobs could disappear from the UK over the next four years alone as a result of contracts being placed offshore.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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