Select Committee on Treasury Written Evidence


Memorandum submitted by the National Association of Software and Service Companies (NASSCOM)

EXECUTIVE SUMMARY

  1.  The recent phase of globalisation is nothing new—the 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 can gain.

  3.  Offshore outsourcing is one element of the globalisation phenomenon, and brings manifold benefits to the UK.

  4.  Offshore outsourcing is not a one-way street. Britain itself is a major destination for high value offshore outsourcing.

  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 globalisation—NASSCOM 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.

THE GLOBALISATION PHENOMENON

  8.  Globalisation is not a new phenomenon for the world economy—300 years ago Britain was buying tea from India and selling textiles to the rest of the world—what 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 years.

  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.

GLOBALISATION AND "OFFSHORING"

  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 service Denver.

  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 India—a 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 coming years.

  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 numbers—a 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 2010—a 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 redundancy policies."

  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) companies—at 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 grows—investment 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.

21ST CENTURY REALITIES

  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.

POLICY RECOMMENDATIONS

  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.

ABOUT NASSCOM

  NASSCOM—the National Association of Software and Service Companies—is 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 1,600 people.

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.

May 2006





 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 16 October 2007