Rethinking Outsourcing Work

LONDON, March 10 (Reuters) – British managers who offshored call centre work and IT services to cheaper locations like India earlier in the decade are now bringing the jobs back to the UK, a trend that could reshape the outsourcing industry.

The U-turn comes as customers question the quality of service offered by non-resident workers, and as data protection concerns and other issues force a re-evaluation of the economic benefit of outsourcing jobs so far from the market they serve.

Martyn Hart, Chairman of the National Outsourcing Association (NOA), said Norwich Union, the life insurance arm of Britain’s biggest insurance group Aviva <AV.L, is just one of its 350 members now looking again at on-shore outsourcing.

“We’ve seen banks and life assurers start to do it. At the time (of mass offshoring) purveyors said they could save 40 percent on costs by going offshore. We have research that says it takes three years to get to that level,” he said.

Both Lloyds TSB and the UK’s train route-finder National Rail Enquiries have reduced customer-contact presence in India in recent times, officials of both organisations confirmed.

“When customers ring up, they want you to be local. To give service and understand the accent. That’s the pure reason why people are coming back,” added Hassan Sadiq, Chief Executive of outsourcing specialist Innovation Group.

He said Innovation, a former dot-com failure now specialising in services to the insurance industry, had seen “two or three” major customers in varying parts of the world reverse earlier decisions to go offshore — although he would not name them.

“If you want local, you can have local. You can mix and match,” he said.

In the early years of this decade, a mass of big British financial players led the run offshore.

Companies including HSBC, Europe’s biggest bank, and Aviva were among corporate giants who cut tens of thousands of British jobs that way.

Now, a spokeswoman for Norwich Union says it goes both ways. “We are constantly looking at the mix of work we have offshore and on,” she said.

IT services firms have positioned themselves to take advantage of the changing philosophy, with both British and Indian companies looking at ways to straddle both markets.

Britain’s LogicaCMG, an IT services firm widely criticised by analysts for not expanding offshore when others did, is now setting up an outsourcing division in India.

Its strategy is to keep so-called ‘voice’ services onshore, while placing internal services such as accounting and billing offshore.

Meanwhile analysts expect big-hitting Indian outsourcing companies such as Tata Consultancy Services, Wipro and Infosys Technologies to look for more opportunities in the UK, or risk losing out on the growing trend towards both on and offshore outsourcing.

“What these companies have is scale, but no presence or base onshore. They need to make a customer-facing acquisition,” said Landsbanki analyst Michael Donnelly.

He added that LogicaCMG was known to have recently beaten one of the Indian firms to a major contract due to its presence onshore in some major European markets.

“Customers are looking for the front end capability, but are looking for the price point too,” new LogicaCMG CEO Andy Green said at the group’s results last month.

The value now seen in having a foot in both camps became apparent last summer, when French IT provider Steria bought British rival Xansa for around 472 million pounds — a 70 percent premium to its share price the day before it said it was in talks.

Xansa was the first British outsourcing company to expand into India, buying a firm called IIS in 1997. It is now in the forefront of a trend towards a mix of offshore and onshore outsourcing work.

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