Outsourcing investigate

What happens to Scottish outsourcing if the UK breaks up?

History shows that capital and enterprises abhor risk...

People assume inshore outsourcing is low risk. But a successful independence campaign in Scotland could show that is a false premise, says outsourcing expert Peter Ryan.

Plans for the Scottish government to hold a referendum on independence from the UK have found favour with some observers, who hope that a decisive vote will finally resolve this decades-old question.

But outsourcers based in Scotland and those using their services should think carefully about how an independence campaign - whether victorious or not - could affect operations in what has been a successful region for service delivery.

These events highlight how it is not only in offshore locations that risks need to be assessed.

Scottish First Minister Alex Salmond's recent announcement that he sees the autumn of 2014 as an ideal time for a vote on independence should send shivers down the spines of any outsourcers based in that region of the UK.

Scotland's referendum is a reminder that risk is omnipresent, not just in the traditional offshore locations

Scotland's referendum is a reminder that risk is omnipresent, not just in the traditional offshore locationsPhoto: Scottish Parliamentary Corporate Body 2012

In the face of some opinion polls that show nearly 40 per cent support for an independent Scotland, what has been demonstrated repeatedly is that capital and enterprises abhor risk.

Thus, the prospect of any IT services or business process outsourcing delivery centre situated in a jurisdiction that is contemplating separation from one of the world's most stable and prosperous countries is certain to cause concern.

Some would argue that indirectly, this political chess game would be a boon for outsourcing. Logically, as more firms reconsider their operations in Scotland in favour of locations without as much political uncertainty, qualified services labour - which has long been a strong selling point for Scottish outsourcing - is sure to become more available.

However, outsourcers should look at the example of initiatives in Quebec in 1980 and 1995, when separatist governments held referendums on independence, which did much to chase talented individuals from the province into other parts of Canada.

In the five years following the 1995 referendum, Quebec's population growth barely rose above one per cent. The local talent pool from which to draw was thus weakened.

In addition, were the referendum to pass and Scotland embarked on a path towards separation, it is highly unlikely that firms would want to work with an outsourcer based in a location where there would be serious questions over currency, economic, political and defence alliances, and taxation - unless these questions were thoroughly addressed before any referendum vote.

Sadly, the Scottish referendum plan is likely to produce casualties across the UK as well. If history repeats itself as in other countries where one region has attempted sovereignty, the national business climate will suffer from risk-averse investors withdrawing capital and operations, including vendors in the outsourcing community.

The spectre of a devalued pound may push some domestic business to stay home as opposed to going abroad. But outsourcers using any place in the UK as a base for pan-European delivery may find pressure from clients to try alternative locations until the political climate improves.

Scotland's referendum is a wake-up call for firms in the IT services industry, reminding them that risk is omnipresent, not just in the traditional offshore locations.

Although Ovum's research shows a resurgence of interest in onshore outsourced delivery, with the global economic recovery as tepid as ever in Western economies, the possibility of other upheavals - though perhaps not evident now - should not be discounted.

Worries about the recently inflamed outsourcing hubs of Egypt and Mexico continue to dominate headlines. But as a vote on Scottish independence comes closer, outsourcers need to prepare for any eventuality in terms of the impact of profitable operations and client satisfaction.

Peter Ryan leads BPO research at Ovum's IT Services practice. His areas of research include company profiling, offshore and outsourcing, self-service technology and speech solutions, national and sectoral market segmentation and sizing, internal and external customer satisfaction, commercial online content analysis, and economic analysis.

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