Brave New World

IBM, the world’s largest provider of computer services, has warned that millions of jobs will be lost in America’s high technology sector over the next decade as companies shift jobs to low-cost markets such as India.

It’s not alone. Oracle plans to increase the number of software development and customer service staff it has in India from 3,000 to more than 6,000, according to company chairman Larry Ellison and Advanced Micro Devices (AMD) is outsourcing most of its IT infrastructure management - including maintenance and support of global IT applications to Delhi.

Meanwhile, closer to home, Investment bank Goldman Sachs has become the latest blue-chip company to move part of its IT operations to India to reduce costs and even my supermarket, Tesco, has announced plans to establish an IT centre in India, in a move will involve the transfer of 350 IT roles from the UK

I know I ‘bang-on’ about the dangers of outsourcing from a domestic industry perspective but in the search for lower labour costs our larger companies are on a path which could irrevocably damage the UK as a competitive service economy.

Last month, I met with the President of Iran’s ‘Special IT Envoy’ Nasrollah Jahangard, in London. Now, you would not normally associate Iran, like India, with outsourcing but the former, which already plans to take on Taiwan as a source of DVD/CD production, also plans to use its position to compete with India as a future software development and IT research hub. Mr Jahangard met with what I would describe as several of ‘the usual suspects’ during his visit. Naturally, some rather difficult international political problems need resolving before Iran can take its great leap forward but the ground is already being prepared.

Research company IDC sees some ‘political backlash’ in developed countries to the idea of "exporting jobs," and expects legislation to be introduced in many jurisdictions that will try to halt this movement. It also believes that in a global economy, businesses will find ways around these restrictions and warns that Bangalore, India's primary IT hub, may no longer offer the world's best IT outsourcing value, that its infrastructure is saturated and that wages for skilled workers are inflated. All of which is rather good news for Iran, China, Russia and any other country with information society ambitions.

Last month, I read a report that one in four UK contractors are looking for work or are ‘resting’. I spoke to one skilled Lotus Notes consultant on Friday who hasn’t found a job in months and commented that the market appears to have dried-up.

I’m writing this from my home in Kent and a bicycle ride away the harvest is being taken in by young men in leather jackets. They could be from anywhere and invariably they are but what they have in common is that they are cheap, much cheaper than I was, when I used to pick strawberries and potatoes to earn money in my school holidays and probably working for 1970’s rates too.

Cost is of course everything when a farmer has to meet the pricing demands of a supermarket chain and it’s the same for a big business trying to satisfy the expectations of its shareholders. The problem, however, is that this represents a law of diminishing returns. When you’ve outsourced everything then what? Britain has little or no manufacturing sector left, the demand for burger flippers at McDonalds is declining and only the public sector is expanding and it produces nothing but cost and higher taxes.

Ten years from now, with most companies having outsourced all they can by 2006, according to predictions, what will the UK IT industry look like and where will people in IT work outside of marketing functions, when development, support and call centres are scattered between Tehran, Shanghai and Bangalore? What will the real benefit to our economy be or will we simply be a nation of civil servants and warehouse workers?

Answers on a postcard please.


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