Is outsourcing killing British IT?

The British IT worker is an endangered species. That’s the message coming from industry experts, who fear the combination of falling computing graduate numbers, increased outsourcing, and the more recent trend of “body-shopping” is threatening British IT jobs more than ever before.

Rather than shipping work overseas, body-shopping brings workers to the UK on cheap short-term contracts. Staff often enter the country on business visas that avoid the requirement of work permits and avoid immigration caps.

According to Indian outsourcing giant Infosys, between 10% and 15% of the company’s staff on a project might be deployed locally, often acting as liaison with colleagues based in India.

The internal charging rate for basic IT staff is around £400 a day, against less than £120 for outsourced staff

“Intra-company transfers are used because it is easy and saves on employment costs,” said Ann Swain, chief executive of the Association of Professional Staffing Companies. “Employers don’t want the expense of hiring UK or EU nationals. The use of intra-company transfers in the IT sector often has little to do with lack of skills in the UK workforce.

“About 80% of non-EU IT workers come to the UK on intra-company transfers, and if these are excluded the immigration cap becomes pointless.”

A staffer at one of Britain’s largest banks, who didn’t want to be named, said the cost savings can be dramatic. “The internal charging rate for basic IT staff is around £400 a day, against less than £120 for outsourced staff for Tata Consultancy Services, for example, and that’s a huge incentive – it’s the same with all the main banks,” the staffer said.

“The staff themselves are very good and they have a more narrowly focused skills set, which can be an advantage, but it’s a huge problem for the UK.”

Of course, much IT work is still sent overseas. Infosys said companies can save between 25% and 50%, especially if they can remove costly permanent staff from their books.

“We’ve seen it in my bank, with about 70% of the application support and development outsourced to companies such as Tata Consultancy Services and Infosys, and that’s a fairly normal split – 30/70 in-house and outsourced,” said the banking sector worker.

“Banks and insurance companies have been shedding staff and this will continue for sure,” said Dr Brian Nicholson of the Manchester Business School. “These are commodity processes on large systems – development and management can take place anywhere.”

Catch-22 situation

The level of offshoring and outsourcing raises questions over whether UK IT workers can still compete in a global market and whether the education system equips them to do so.

It’s a catch-22 situation because the lack of jobs has led to a lack of interest in IT courses at university, which stifles the number of high-quality graduates.

The effects are already being felt by British tech grads. Figures from the Higher Education Careers Services Unit showed more than 16% of last summer’s IT and computer science students were unemployed six months after graduating.

They were the least employable of all graduates, according to the study, and widespread redundancies in some sectors highlight the precarious position for IT staff.

“The IT outsourcing issue is certainly affecting recruitment, which is one reason there are less computer science applicants,” said Nicholson. “It is not seen as something that will offer job stability now in the same way that it was.”

Official figures certainly support this view – there were just 14,000 computer science graduates in 2009, compared with 20,200 in 2004.

In India, on the other hand, the IT industry is seen as something to aspire to and attracts the best candidates from the country’s schools.
“In India, we are blessed that the best and most intelligent people go into IT,” said Sudhir Chaturvedi, a vice president with Indian giant Infosys. “In Europe, they probably want to go into banking or the law, but in India IT is the career of choice so we have a large, well-educated pool of workers.”

Experts believe that rather than try to compete with global talent, UK IT professionals need to specialise in harnessing outsourced staff. “In many ways, the traditional role for information systems people is no longer relevant – it’s more about managing outsourcing, it’s about managing contracts,” said Nicholson. “People still need to know how to program so they write the contracts, but it’s about managing other people, managing contracts.”

Evolving into managers could be the way forward for the endangered British IT workforce, because outsourcing isn’t going away. According to Nicholson, companies need to hire staff from the global market to stay competitive. “Consider any bank, they have to compete internationally,” he said. “And if they don’t outsource, they can’t compete.”

If they can’t compete, they won’t simply shed British workers – they will cease to exist.