In a series of articles to accompany the new BCS offshoring report we take a closer look at the phenomenon that is offshoring and how UK PLC is fighting back and using increasing globalization to its advantage.
Mark Kobayashi-Hillary looks at Offshore Outsourcing, and the Global Opportunities that it brings.
We now collect our own groceries from the shelves where my parents had shop assistants to do it for them. Our own private cars have replaced delivery vans. Furniture makers persuaded us that it is clever to assemble our own kitchens. Banks long ago worked out that if they could persuade customers to fill in their own deposit slips they, the banks not the customers, would save millions. Now we also draw out our own money from their holes in the wall and call it our convenience.
Charles Handy - 'The Age of Unreason'
Outsourcing is often misunderstood. Not only do some people within the IT industry find it a threatening term, there are all kinds of new and ever-changing jargon associated with the practice - which should have endeared the practice to IT professionals.
'Outsourcing' is the term commonly used for the practice of companies to subcontract work to third party organisations.
Outsourcing is a common practice and allows an organisation to focus on their 'core' activities, leaving other tasks to providers that can supply service at a lower cost or better quality in much the same way as you might outsource the maintenance of your car to a garage or your blocked toilet to a plumber. In the latter case, you might not even question the cost.
'Offshore Outsourcing' is generally the same business arrangement as outsourcing, though the service delivery is performed from a remote location. Software development by a specialist company in India is a good example of this.
'Offshoring' is a similar, but sometimes confusing, term as this refers to an arrangement where the service is performed within the company itself, but at an offshore location - so no third party is involved.
The most controversial flavour of this strategy - offshoring - is really nothing new, even in services. Manufacturers have long used offshore locations to produce clothes, toys and many other products.
For many years, companies have made use of subcontractors to provide everything from canteens or cleaning services to data processing and consultancy. The EDS group was providing outsourced IT services to Frito-Lay in the 1960s.
What has changed in the past decade though is the birth of the Internet and improving global telecommunications. With prices dropping fast toward zero, it is becoming possible to use IT to outsource some company functions to partner firms anywhere across the globe.
Some believe that offshoring creates a major issue for the future of the UK IT industry, reducing our ability to compete with cheap overseas labour; they feel that it presents more of a threat to domestic jobs than an opportunity.
There is an oft-cited vision of our future as heritage tour guides and hairdressers. However, it is worth remembering that the 59m people of the UK still support an IT industry employing ten times those employed in IT in India, with a population exceeding 1bn. Our IT service exports exceed what we may buy from those countries that are perceived as a 'threat'.
Far from killing our industry, this global activity is stimulating it. Far from encouraging young people to shun IT as a career option, as many parents appear to be doing, fearing their children's career will only be 'Bangalored', the UK needs to increase the number of graduates entering the industry.
The late Professor Sumantra Ghoshal of London Business School held a belief that big organisations such General Electric or Hewlett Packard, McKinsey, Disney or 3M have emerged as perhaps the most important social and economic institutions in our modern society.
They are more than just capitalistic devices for enriching shareholders. They are what binds a modern democratic society together and provide the whole of society with the means for progress and development.
With this in mind how can large companies and their global IT sourcing strategy be of value to the UK IT industry? The globalization of business and government is affecting every person on earth and not only those who work in major corporations seeking offshore outsourcing relationships.
Coke is the 'real thing' in almost every country you can name and no British high street would be complete without its Indian takeaway offering the rite-of-passage combination of Cobra beer and a mutton vindaloo.
Globalization as a phenomenon has a somewhat chequered history and status. Detractors, of which the most prominent is probably the economist and Nobel Laureate Joseph Stiglitz, argue that it has a negative effect on society.
These arguments range from Mr Stiglitz, who essentially believes that globalization could work, but not the way it is controlled at present, to the brick-throwing thugs who believe it is an ideological statement to burn down their local Starbucks.
Despite the ongoing protests, there is no way to ignore the fact that the world is becoming a smaller place and this trend is allowing the idea of offshore outsourcing to gradually become accepted as a 'normal' business tool.
Last year the New York Times columnist Thomas Friedman won the Financial Times Business Book of the year award for his polemic on globalization 'The World is Flat'. Friedman's work is full of hope and opportunity and this brave new world is being created by us, the information technologists of the world.
In Friedman's list of 'the ten forces that flattened the world', seven of them are directly related to new technology (Netscape, work-flow software, open source, outsourcing, offshoring, information dissemination, gadgets and mobile telephony). Isn't that an incredible endorsement of our industry and its influence on the world economy?
Global sourcing of IT services is allowing business services and products to be subjected to greater transparency when used across many nations. The choice of suppliers is becoming more attractive to firms because global suppliers are entering the market and all this choice creates competition, ensuring better services and pricing for the end users.
The industry is changing and new opportunities are being created across the world, leading to exciting opportunities for skilled British IT workers.
Imagine the excitement of using your IT skills to work in some fast-growing economic environments such as India, China, or Malaysia? Well, the jobs are being created there right now and those with an insight into the cultural triggers of European consumers are particularly welcome.
In addition to the new opportunities for workers eager to explore a global knowledge society, there is a more serious side to the opportunities that IT and remote sourcing can offer. Buried deep within the 400-page report of the Commission for Africa last year were some references to how IT might help to stimulate economic growth for the continent.
Think about it for a moment. Most knowledge-based processes just require educated people with access to some computer equipment and communications infrastructure.
If you have the people, some PCs and a satellite link to the Internet then you could be in business anywhere, it doesn't matter if the people delivering the IT function are in Nairobi or Norwich.
Could IT and offshoring not only flatten the world of business strategy, but help to generate wealth where once there was only poverty and Bob Geldof?
You'd better believe it, because industrial upheaval is never comfortable, but IT is driving an offshoring revolution that is going to offer as many opportunities to those who want to find them as threats to those who don't want to change.
About the author
Mark Kobayashi-Hillary MBA MBCS CITP is the Commonwealth Liaison Director of the National Outsourcing Association and a member of the BCS Offshore Outsourcing Working Party. He is the author of 'Outsourcing to India: The Offshore Advantage' (Springer 2004, 2005) www.markhillary.com