Brown's budget may move IT contracts offshore

The government’s decision to plug the skills gap by relaxing work permit regulations for foreign nationals is likely to lead to more offshore outsourcing, where project work is handled in other countries to save money or create other efficiencies.

Acting on last year’s report from the UK government that found the country is about 100,000 staff short of a full complement of IT skills, chancellor Gordon Brown said in his budget speech last month that provision will be made to accelerate permits for IT-qualified people coming in from abroad.

That could in turn lead to the acceleration in moving some software development contracts abroad as the new rules would let consultants come and go more freely. The offshore outsourcing phenomenon has been growing for the last decade as firms have sought to make up for the difficulties in hiring staff but now it should receive another fillip. India is currently the major centre of such services but Israel and Eastern Europe are fast catching up.

"There is a recognition that good developers are getting harder and harder to find," said Tony Lewis, executive director of UK software and services trade body the CSSA. "Offshore development of software is going to be the norm rather than unusual for the user community as well as the supplier."

However, even outsourcing firms themselves urge potential users of such services to think carefully about what they need to achieve.

"Relaxing some of the work permit regulations is going to give incentives to more corporations to look outside their own countries," said Srinjay Sengupta, European head of operations at InfoSys, one of several Indian services companies that conducts the vast majority of its consultancy work offshore.

"The typical model will be global software delivery. Essentially, any activity in the software lifecycle is onshore, and, if not, it’s offshore. Brainstorming needs to be done on-site, writing code and programming can be done offshore."

Even within those parameters, Sengupta believes that any change would be gradual and in specific areas of business activity.

"Many companies not exposed to the offshore model will want to have a look and do some pilots," he said. "Typically we’re looking at servicing companies whose core business is not technology. But things like retail should be retail and the technology implications of it should be outsourced."

While attractive in many ways, using offshore outsourcing also has its risks.

"There are sometimes difficulties in interpretations of the English language," said the CSSA’s Lewis. "In the early days, Indian developers were often too polite and instead of saying ‘it’s not finished’ would build bigger problems for themselves. We’ve had to learn from that and the fact that everything worked with year 2000 helped build good customer relations."

That is true for the IT manager of one financial services company that used an Indian company to work on the date-change problem and to help move towards currency convergence.

"I got a level of service beyond anything I have ever seen in the UK," he said.