APPENDIX 18
Memorandum by Intellect
BACKGROUND
Intellect has 1,000 members comprising organisations
both large and small from the UK's information technology, telecommunications
and electronics sectors. Intellect is a vital source of knowledge
and expertise on all aspects of the hi-tech industry.
The following paper provides the initial views
of Intellect member companies on trade and investment opportunities
with India.
Intellect welcomes the opportunity to provide
input at this early stage and looks forward to a programme of
continual engagement with relevant government departments, agencies
and other stakeholders.
INTRODUCTION
Over the last decade the UK Information &
Communication Technology (ICT) and Business Process Outsourcing
(BPO) industries have witnessed a substantial growth in offshoring.
The growth of this global market has been and continues to be
rapid—increasing numbers of companies are adopting offshoring
strategies as a means of deriving benefit from the skilled labour
pools and lower costs available in countries such as, and in particular,
India.
This paper gives a general introduction to the
key areas of trade and investment opportunities that Intellect
has identified with India. The UK cannot afford to underestimate
India's ICT industry and UK businesses must proactively determine
the advantages that can be gained from a two-way flow of resources
and services between India and the UK.
INTELLECT'S
POSITION
The trend towards offshore production of ICT
products and services follows patterns experienced in the UK manufacturing
industries, such as steel and automotive. This has led to concerns
about the loss of UK jobs. However, Intellect believes that these
developments should not be viewed as a threat to the UK ICT industry:
instead, they represent an opportunity for the UK to bolster its
world leading role and ensure that this is sustained into the
future, securing and expanding the opportunities for strong employment
growth across a breadth of sectors in the UK economy.
1. THE "GLOBALISED
TRADE" MODEL
In the last ten years offshoring has seen Indian
companies develop highly cost-competitive software production
centres, a process that has rapidly evolved into a "globalised
trade" model. These companies have offered highly cost-competitive
ICT (and now also BPO) services to their UK clients across many
sectors of the UK economy.
UK ICT companies and foreign-owned ICT companies
based in the UK (including Intellect members Accenture, BT, IBM,
LogicaCMG and Xansa) have successfully invested in their own operations
in India. By the same token, Infosys, Tata Consultancy Services,
Satyam and Wipro are among major Indian companies (also members
of Intellect) that have established rapidly growing operations
in the UK as part of their "internationalisation" into
the global market.
2. UK PLC'S
ACCESS TO
COST-COMPETITIVE
RESOURCES
The UK is the world's second largest exporter
of ICT and ICT-enabled services after the USA, and has a trade
surplus with most countries. (However, the specific trade balance
with India is not clear: Indian trade statistics report far higher
exports to the UK than UK trade statistics record in the import
column.) [16]The
creation and delivery of the majority of specific services that
the UK actively exports (such as computer services, engineering
services, financial services, architectural services) is reliant
on applied ICT. UK trade is in surplus in all of these sectors[17].
The globally competitive cost base of UK plc
in the services sector has been significantly maintained and strengthened
by the growth of the outsourcing/offshoring trade with India.
This means that UK companies are able to access experienced ICT
professional resources in India at competitive costs.
The skills associated with the application of
ICT to business are crucial to heartland UK plc and these skills
must be maintained in an increasingly global marketplace. Intellect
recognises that UK plc needs to demonstrate a high level of professionalism
in the application of these skills and is actively supporting
the development of a modern ICT professionalism across the economy.
3. OPPORTUNITIES
FOR SMES
The major ICT sector companies have formed the
prime players in India over the last decade. However, there is
now growing evidence that some UK SME companies are now partnering
and sourcing in India to ensure they tackle their cost bases and
remain globally competitive.
UK Trade & Investment have the opportunity
to play a critical role in ensuring that UK SMEs have access to
competitively priced resources in India and should work to build
these relationships.
4. EFFICIENT
WORK PERMIT
REGIMES
A relatively free movement of ICT professionals
between India and the UK is vital to ensure the effective operation
of service delivery. The success of the UK ICT industry depends
on `on-shore' resources that can work closely with customers on
complex projects whilst carefully managing operations in India.
The recent demand for IT professionals in the
UK has been fuelled by major public sector projects (eg the NHS-IT
and MOD upgrades). This demand has partially been met by an influx
of experienced resource from overseas, particularly from India
(approximately 85% of the 22,000 foreign IT workers that entered
the UK on work permits in 2005 were from India).
5. ENCOURAGING
INDIAN INVESTMENT
IN THE
UK
The top three Indian IT services companies (Infosys
Technologies, Tata Consultancy Services (TCS), and Wipro Technologies),
all of which are members of Intellect, are rapidly evolving major
global players with annual revenues ranging between US$1.2-1.6
billion in 2005. As noted above, these players have global intentions
and are looking to build European operations through direct investment
and acquisition. The UK, particularly UK Trade & Investment
and the Regional Development Agencies, must offer maximum encouragement
to Indian IT Services companies that plan to build/expand their
European operations in the UK.
6. DATA PROTECTION
ISSUES
In line with the growth in offshoring to India,
concerns have been raised relating to data protection and security.
Indeed, opponents of such offshoring have cited the absence of
data protection and privacy laws as a strong reason to stop the
transfer of ICT, BPO and call centre outsourcing to India.
In response, the Indian government has indicated
that it is likely to introduce a tighter data protection and privacy
regime in the near future. Following from this, it is possible
(and some have indicated likely) that India will seek to negotiate
with the EU in an attempt to gain recognition of India as a country
that offers an adequate level of protection for personal data.
Currently, those outsourcing to India rely upon
contractual protection alone. However, in addition to such contractual
protection it will also be helpful to look to statutory protection.
Accordingly, any steps proposed by the Indian government are welcomed.
In the meantime, those outsourcing to India
will need to continue to ensure that appropriate protection is
contained in their contracts with Indian suppliers and that steps
are taken to monitor the discharge of, and correct any failures
to comply with, the contractual obligations imposed.
CONCLUSION
The UK must promote itself as an attractive
location for ICT companies to operate in and position itself at
the top of the ICT industry value chain, differentiating itself
by focusing on innovation and the application of business leadership
competencies.
In order to achieve this the UK must recognise
that India is a key element in the global market and seek to complement
its growth by encouraging collaboration between all stakeholders
and investing in education and professional development. The UK
must also promote a common legal language—developing contracting
protocols to facilitate innovative contracting and streamlining
company law, which governs subsidiaries and Special Purpose Vehicles
(SPVs)—to ensure that both the UK and India achieve the
maximum benefit from UK offshore trade and investment.
A shared commercial and developmental agenda
should ensure the UK has a new generation of ICT and business
process innovators, designers and managers who will be able to
drive the industry successfully into the future.
NEXT STEPS
Intellect looks forward to discussing these
issues in greater depth with relevant government departments,
agencies and other stakeholders with a view to developing appropriate
strategies that reflect the dynamism of the ICT industry.
January 2006
www.aimresearch.org/release/081104offshoringrpt.pdf?fbr=1101202538843
16 The balance of trade in ICT and ICT-enabled services
between India and the UK is not clear. The OECD 2004 Information
Technology Outlook (Table 2.10) detailed major discrepancies in
exports as reported by India and the balancing imports reported
by OECD members-the Indian figures are much higher. The US GAO,
in a report to Congress released in October 2005 (GA-06-116),
confirmed the extent of this discrepancy in the case of the USA. Back
17
The Institute of Fiscal Studies and AIM Research published a detailed
evaluation of the UK trade performance in ICT-enabled business
services in November 2004 (Offshoring of Business Services and
its impact on the UK economy). More recent trade statistics have
confirmed the main analysis set out in the 2004 paper. See: Back
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