Memorandum submitted by the National Association
of Software and Service Companies (NASSCOM)
1. The recent phase of globalisation is
nothing newthe pace of it is.
2. Globalisation is potentially a win-win
trend for both the developed and developing world. The UK and
India are examples of how both developed and developing countries
3. Offshore outsourcing is one element of
the globalisation phenomenon, and brings manifold benefits to
4. Offshore outsourcing is not a one-way
street. Britain itself is a major destination for high value offshore
5. Globalisation is there to be turned to
the UK's advantage, not resisted.
6. Over the coming years, the Government
should build on the current positive policy mix to get the best
from globalisationNASSCOM has a number of suggestions for
how this can be done.
7. NASSCOM would be delighted to host Members
of the Committee on their visit to India.
8. Globalisation is not a new phenomenon
for the world economy300 years ago Britain was buying tea
from India and selling textiles to the rest of the worldwhat
is new is the role that technology (particularly cheaper
and faster global communications) now plays, as well as better
physical links between countries and lower (though still significant)
trade barriers. The process has merely been sped up in recent
9. In global macroeconomic terms, globalisation
is an opportunity to bring developing countries into the global
economy on a fair footing and raise millions up out of poverty,
whilst the developed world gains through improved productivity,
growth and, crucially, jobs.
10. Globalisation has benefits for all,
and can be a force for good. India, for example, has benefited
very significantly from globalisation with many thousands of people
being lifted out of poverty. Trade in the IT and Business Process
Outsourcing (or BPO) sectors, including offshoring, creates jobs
in India, not only directly but also spin-off jobs in other sectors
(eg construction), has slowed the "brain drain" and
inspires other sectors of the Indian economy. India's economy
has grown by an average of 5.5% over the last 10 years; the development
of the IT/BPO sector has been a major driver of this growth.
11. The UK is particularly well-placed to
benefit from globalisation, as one of the world's foremost trading
nations. Globalisation creates bigger markets for UK-based companies
and helps them operate more efficiently. The more trade, the better
it is for the UK's GDP.
12. Offshore outsourcing, defined as "the
management and/or day-to-day execution of an entire business function
by a third party service provider overseas", is just one
element of the globalisation phenomenon, made easier by improved
IT and telecoms links. Mumbai can service Manchester, Dundee can
Among the benefits of offshore outsourcing are:
13. It helps the UK to stay competitive.
It is estimated that UK companies can reduce overall costs by
between 30% and 70% by sourcing appropriate functions from Indiaa
major factor that helps a growing number of UK companies stay
ahead of overseas competitors, thus creating more jobs.
14. It allows UK companies to focus on their
core strengths, freeing up their energy and resources.
15. It allows UK industry as a whole to
focus on high value, high quality jobs, where the UK has a competitive
advantage. Of course, this ability to move up the value chain
is also dependent on an ongoing domestic supply of highly skilled
workers something that the Government needs to ensure over the
16. It allows UK companies to overcome bottlenecks
in the supply of labour. UK IT and BPO companies often struggle
to recruit sufficiently qualified staff in sufficient numbersa
major factor holding back the performance of many British companies.
Business research company Evaluserve estimates that the shortage
of domestic labour supply will restrain UK economic growth by
almost half a percentage point per year in the period between
2003 and 2010a cumulative total of £110 billion, or
about £1,800 for every man, woman and child in the country.
17. It has given many UK companies a solid
base in India, which will enable them to take advantage of India's
large and growing domestic market.
18. Huge potential also exists for improvement
of public services in the UK, through the global sourcing of appropriate
public sector work eg IT, finance, customer service etc. Every
penny saved by offshoring back office work is a penny more to
devote to frontline public services such as police officers, teachers
and so on.
19. NASSCOM acknowledges that there is often
some displacement of jobs that arises from this offshore outsourcing,
but this is more than offset by the overall number of jobs created.
In November 2004, then Secretary of State for Trade and Industry
the Rt Hon Patricia Hewitt MP stated "announcements by companies
of decisions to transfer operations offshore do not necessarily
imply equivalent job losses in the UK. They can be accounted for
by business growth, and are often accompanied by no compulsory
20. It is important to stress that offshore
outsourcing is not a one-way street. The UK is by far the leading
location in Europe for inward investment by Indian (and other)
companiesat the last count there were around 450 Indian
companies with a presence in the UK. The level of this investment
is growing as the Indian economy growsinvestment in the
UK by Indian companies jumped by 30% in the fiscal year 2004-05,
with investment in 36 new projects in the UK over that period.
This investment creates new jobs, finances new infrastructure
and provides access to new technologies.
21. This paper has argued strongly that
globalisation is, overall, a very powerful force for good. It
is also a reality that it would be foolish and counterproductive
to try to uninvent. The key to success is to harness its power,
not to try to turn back the tide.
22. This section refers to business and
households, since we feel that policy aimed at one will always
eventually have some impact on the other. Overall, the Government
already has a good policy mix of openness to trade, whilst working
to put the UK and its citizens on as competitive a footing as
possible in the global economy. That said, NASSCOM does have a
number of policy recommendations which would make this policy
mix even more beneficial for our consumers and businesses.
23. UK policymakers must continue to make
the case for globalisation: it is not a bad phenomenon! Ministers
and others must explain the benefits to the UK at every opportunity.
24. The Government must push for the removal
of further barriers to trade at WTO level. The UK will benefit
more than most from increased trade.
25. If the public sector is allowed to benefit
from globalisation to a greater extent (eg through increased offshore
outsourcing), the Government would be able to enhance services
and even lower taxes.
26. To harness the power of globalisation,
the Government should endeavour to keep labour markets in the
UK as flexible as possible. Recent experiences in continental
Europe (eg France and Germany) demonstrate what happens when labour
markets are too rigid.
27. The Government should maximise investment
in education. This is important to (a) allow the UK to move up
the value chain and be a magnet for high quality jobs and (b)
to maintain flexibility and to allow people to reskill throughout
their working lives.
28. On a final note, NASSCOM notes that
the Committee intends to visit India as part of its inquiry, and
would welcome the chance to meet members of the Committee in India
to discuss the issues raised above in more detail. NASSCOM can
also arrange visits to member company facilities in India.
NASSCOMthe National Association of Software
and Service Companiesis the premier trade body and chamber
of commerce for the software and IT services industries in India.
NASSCOM is a truly global trade body with around 900 members,
including many UK companies such as Tesco, Lloyds TSB, HSBC and
Standard Chartered. NASSCOM's member companies are in the business
of software development, software services, and IT-enabled/Business
Process Outsourcing (BPO) services.
Example of Indian investment in the UK (1):
HCL Technologies BPO Services, based in New
Delhi (one of India's leading global IT services and product engineering
companies) now has a 90% stake in BT's Apollo contact centre in
Belfast, Northern Ireland. The centre presently employs around
Example of Indian investment in the UK (2):
In October 2005, Tata Consultancy Services (TCS)
announced its intention to move into the UK life and pensions
industry after entering into exclusive discussions with Pearl
Group Limited, the closed fund group, with the intention of transferring
existing Pearl business processes to a new UK company, based in
Peterborough. The new company will be a subsidiary of TCS, and
will employ about 950 of Pearl Group's current 1,100 staff, with
about 150 staying with Pearl.
The deal will generate revenues of over £480
million over the next 12 years as a result of creating a new platform
beyond IT services. The new subsidiary will specialist in Business
Process Outsourcing (BPO) for life and pension business, starting
with Pearl Group's closed books portfolio. It will also focus
on offering similar services to other life companies, presenting
it with an opportunity for significant future growth as BPO is
rolled out across the life assurance industry.