CXO

Cheat Sheet: Offshoring

Is it really just about jobs going to India?
Offshoring? That's to do with India isn't it?
Yes and no. It's where companies outsource call centre or IT work overseas, largely because labour and facility costs are much cheaper than here. India is the main destination for this work at the moment but other established offshore locations include South Africa and Ireland.

How much cheaper is it?
Talk to most people in the industry and they'll tell you cost savings of 30 to 40 per cent a year are the norm, with Indian graduates starting in call centres earning around £150-£200 per month. That may seem a pittance to you and me but it's three times what graduates in non-IT professions will be starting on.

But won't it mean thousands of UK jobs will be lost in the process?
Certainly in the short-term some call centre and IT jobs will be lost but the spectre of mass redundancies as work moves to India is a common misconception. The argument isn't that black and white. Many firms have moved services overseas simply because they had become unprofitable or unviable at existing operating costs – meaning the option is close it down or move it offshore. In other cases, it's new jobs that have been created offshore.

I'm still not convinced. Look at what happened in manufacturing.
Other data, from the UK's Department of Trade and Industry and Nasscom (the trade body for Indian IT suppliers), claims that the UK simply doesn't have the volume and skills to fulfil demand for this work in the future and that offshoring is the only way UK firms and the UK economy will be able to remain competitive. They also claim the creation of more consumer spending power in places like India will in itself fuel demand for new products and services that Western countries will provide. The trades unions aren't convinced either and have threatened strikes over offshoring although many are now accepting the reality of the situation and putting their effort into securing the best deal for affected UK staff.

OK, but I've heard the service from some of these Indian customer service centres is terrible. Didn't Dell have problems out there?
When it comes to IT services the anecdotal evidence suggests that the quality of programming is at least as good as here and in many cases better due to the millions of highly skilled, English-speaking graduates being turned out of Indian universities. When it comes to voice-based support services there needs to be more research done on the quality of work. To date, only anecdotal evidence suggests that some consumers are not happy with service they have experienced from offshore customer-service agents. A report out today claims one in seven have even taken their business elsewhere as a result.

I'm not keen on my personal data being stored out in India. How can I ensure it gets the same level of protection as over here?
UK firms using offshore facilities are bound by UK data protection laws to ensure the same level of protection as if it were stored here, while financial firms have to comply with Financial Services Authority regulations. That said, in most cases the data is still stored on servers here. There was a scare last year that Indian workers were being targeted by organised crime gangs with bribes for leaking sensitive personal and financial data. But there is no hard evidence of this and the Indian government is now looking at putting in place its own data protection laws to reassure overseas firms.

Which companies are offshoring?
The first well-known UK names to embrace the Indian offshore model were HSBC and British Airways, which set up their own offshore development centres in India. More recently many firms, especially in financial services, have announced plans to offshore various bits of their IT and call centre operations, including Aviva, Barclays, Lloyds TSB and Shell. However, in an attempt to woo the 'British and proud of it' lobby, Nationwide claimed it will keep all its work in the UK.

Who do firms offshore their work to?
For straightforward offshore outsourcing there are three main options. There's the 'captive' route where a UK firm will set up its own offshore operation but keep it in-house, as HSBC did in India. Or you can outsource it to one of the traditional services firms such as IBM, EDS or Accenture, which have their own offshore facilities, or one of the Indian firms such as Wipro, Infosys or Tata Consultancy Services (TCS).

OK, I think I've got that. But what's this BPO stuff then?
That's business process outsourcing – where a complete function such as HR, finance or customer service is outsourced to a company. The market is still in its infancy and the offshore component of that market is even smaller, with India predicted to take just a two per cent share of a global £200bn market. One of the most high profile offshore BPO deals involving a UK company to date has been Thames Water, which signed a BPO contract with Xansa for some of its billing operations to be handled out in India.

Seems like an open-and-shut case then…
Not quite. Gartner said CIOs are not doing their job properly if they haven't considered offshoring at least some of their non-core work. But it isn't right in every case and firms need to consider the business case very carefully when it comes to customer-facing services, especially with the politically motivated backlash in the US and UK. The buzzword in the industry now is 'right-shoring', which usually involves a combination keeping some of the function in the UK, some in a 'nearshore' location such as Eastern Europe and some in a much lower cost location like India.

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