UK races past US in government offshoring

MUMBAI: They have been close allies for long, sharing similar outlooks on important issues. But, the UK has chosen to depart significantly from the US in its approach towards outsourcing and offshoring. While the US government is leaning towards protectionism, the UK government, which has outlined plans to cut spending to a mammoth £83 billion, could look to outsource and offshore more to deliver quality services at lower costs, say experts and industry veterans.

After the US, the UK is the largest market for Indian IT and BPO vendors, accounting for 18% of the country’s outsourcing services exports.

“The new coalition government led by David Cameron is much more level in their thinking from the perspective of saying that we don’t mind who delivers public services as long as they are delivered at high quality and as cost-effectively as possible,” said Paul Pindar, CEO, Capita Group, one of UK’s largest outsourcing vendors, which also has offshore delivery centres in India.

Capita expects to increase its share of revenues from the central government business, which grew in absolute terms during the term of the previous Labour government but halved in percentage terms from 20% of its turnover to 9%.
“Capita’s business with the central government is likely to thrive in this environment. I think it will be good for the Capita Group as a whole, and I also think it will be good for our friends in India (Indian outsourcing players) because the government will be much more level in its thinking,” Mr Pindar said.

The Indian outsourcing players were less forthcoming and more guarded in their response as to how they hope to benefit from the new UK government’s austerity drive, fearing controversy. “In the UK, the elections are already over, and the government has two years to demonstrate savings. This was the agenda on which it was elected,” said Vineet Nayar, CEO, HCL Technologies.

“The UK government clearly realises the importance of trade and business between India and the UK, as demonstrated by prime minister David Cameron’s recent visit to India, and is keen to see this economic relationship expand significantly,” a spokesperson with another leading Indian outsourcing firm said in response to an ET query.

The clearing up of uncertainty around the £600-million pension project awarded to Tata Consultancy Services ( TCS) is also indicative of the coalition government’s outsourcing stance.

The Personal Accounts Delivery Authority (PADA) project was in danger of being cancelled after a review by the new government but, recently, officials at TCS said it was on track. The officials also said that they did not anticipate any adverse fallout of the austerity measures announced by the UK government.

“The reality of the cuts is that government departments and suppliers will be left with little choice but to go for the cheapest options for service delivery and that will boost the push for offshoring. Demand for offshoring will grow firstly as a result of the government’s negotiations with existing IT suppliers to deliver the same for less. Offshoring is one way for suppliers to deliver the requisite cuts in prices,” said Sarah Burnett, senior analyst at research firm Ovum.

“Furthermore, the spectre of 25%-40% reduction in spending will boost demand for BPOs among government departments,” she added. UK’s chief information officer, John Suffolk, a speaker at this year’s Indian software association Nasscom’s conference, has been publicly quoted as encouraging Indian suppliers to compete for information technology work in the public sector. One report in the UK media quoted him as saying he had “no reservations whatsoever” on Asian firms claiming a slice of the outsourcing pie.

The outlook for offshoring is very optimistic, agreed Mr Pindar. “It’s one thing when you’ve got a modest financial dilemma to be able to pick and choose how you want services to be delivered. But when you are really up against it financially and in a severe debt situation, I think ideologically, people are much more interested in what’s being delivered, how is it being delivered, its reliability and its cost-effectiveness, not whether it is being delivered from London, Blackpool or Bangalore. There’s much more open-mindedness on that count,” Mr Pindar said.

However, for Indian technology vendors to compete successfully for public sector projects, they need to increase visibility and show they have knowledge of the UK public sector, Ms Burnett said.

“I think the companies that are most likely to gain are those that not only have a presence in the UK already but also have strong offshoring capabilities,” she added.

“The public sector will be considering all its options now that the spending review targets have been officially announced. Some will have already planned a strategy for achieving some of the cuts. Others will be looking at bigger business transformation and will take longer to take procurement decisions,” she goes on to explain.