By Rod Newing, ft.com
Consultants believe they have a key role to play in helping governments – and the UK coalition in particular – achieve the spending cuts they are seeking, and a critical element of this will be to help them overcome concerns about offshore outsourcing.
Offshore outsourcing is relatively mature in the commercial sector, but has so far made only limited inroads into the public sector. But now the public sector is facing the need for the kind of service improvements, efficiencies and cost reductions that offshore outsourcing already delivers so well to the commercial sector.
However, offshore outsourcing is a sensitive political issue. No government wants to be accused of exporting jobs – and they need the taxes and economic activity generated by domestic employment.
“In the US, for example, the sentiment has been very anti offshoring,” says Mark Kobayashi-Hillary, an author, blogger and adviser on globalisation. “The general public has reacted quite strongly and supported any politicians who have said that they will ban any work going offshore.”
Nevertheless, offshore outsourcing is used extensively in the US commercial sector, especially in healthcare and financial services. Mr Kobayashi-Hillary points out that the Australian government sends work to India and the Philippines and the Canadian government has started offshore outsourcing, too. The UK government has no direct offshore outsourcing contracts, but parts of wider contracts are delivered from offshore locations.
NHS Shared Business Services, jointly owned by Steria and the UK Department for Health, carries out finance and accounting. Front office services are performed locally, but much administration and data entry is performed by staff in India. “Government money is paying for people to be working in another country,” says Mr Kobayashi-Hillary, “but, as Steria becomes more efficient and innovative, hard cash is actually returned to the National Health Service.”
The Pensions Authority has a contract with Tata Consultancy Services, under which front office administration is local, but some of the underlying technology is located in India. “The UK government has been more relaxed,” Mr Kobayashi-Hillary says. “Tata was quite open that the contract would be delivered from multiple locations. The government has also been offshoring application development, application management and non-core administrative processes, like data entry and image capture and transfer.”
The offshore delivery model is expanding into new territories for delivery to new geographical markets. John O’Brien, research director for business process outsourcing at TechMarketView, an analyst and research firm, highlights expansion in South America to serve Spanish speaking countries around the world.
Similarly eastern Europe is expanding, as countries such as Romania have a multi-lingual capability, skilled and knowledgeable people with very good degrees and lower wages than western Europe. The Nordic counties have taken to offshoring and France has been using nearshore services from Morocco.
Jonathan Cooper-Bagnall, head of sourcing consulting at PA Consulting Group, says the real question is not where to outsource but whether to outsource at all. “It isn’t a case of offshore, near-shore or local,” he says. “Only once you have determined that outsourcing is right for your business should you look at components like location.”
He says that offshore outsourcing is not a big issue, but organisations rarely understand all the factors that must be considered. These include labour costs, inflation, time zones, data security, political stability, labour availability, language skills, local infrastructure and legislation.
One of the biggest issues in offshore outsourcing is not jobs, but data. Organisations must clearly differentiate between information that legislation prevents crossig borders and that which can be sent to an offshore facility.
“Offshore outsourcing is no longer about labour arbitrage,” says Manish Vinayak Soman, best-shore leader for Hewlett-Packard in Europe, Middle East and Africa, “but finding out what skills you need in different countries and using offshoring as one component of a global delivery model. On-site, onshore, near-shore and offshore resources should be integrated into a balanced global delivery strategy. The process should be capability driven, rather than cost-driven.”
James Cockroft, associate director at Xantus Consulting suggests that transactional services, such as application development, service desk or call centre support, lend themselves to offshoring. In contrast, more strategic activities, where there is a greater need for bigger picture decision-making, or where transactional or cultural ambiguities may exist, should be retained in the home country.
Anthony Golledge, head of technical consulting at Detica, agrees that concerns over offshore outshoring are a red herring. Governments will need the expertise and resources of global operators to achieve the efficiencies they need.
Another reason why offshoring will cease to become such an issue is the increasing use of cloud computing, in which functionality is provided as a service over the internet. Mr Soman says that as long as the service is delivered as expected, people will be less worried about the location from which it is delivered, and will stop talking about offshoring.
“Government departments face a real dichotomy between meeting the savings and budget cuts from the spending review and keeping local jobs,” says Mr Cockroft. “Something will have to give and it will almost certainly be jobs. It is an appetite that leaves a sour taste in the mouth.”
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