UK IT services staff lose out to offshore

Up to 25,000 jobs in the UK IT software and services industry will be lost over the next four years as a direct result of work moving offshore, according to Ovum Holway.

The UK market for offshore IT services will grow as the offshore model moves from a 'nice to have' to a 'must have' offering for the UK's struggling IT software and services sector players, said the analyst.

The low cost and flexibility offered by the offshore model is driving demand among suppliers and user organisations.

Offshore companies are easily outperforming the flat UK software and IT services market, with revenues in the UK expected to generate £1bn by 2006.

Ovum Holway also predicted that the biggest player, TCS, which last year posted revenues of £92m in the UK alone, may soon be the first Indian company to appear in its rankings of the UK's top 40 IT software and services firms.

Phil Codling, an analyst at Ovum Holway, and author of the report, told vnunet.com that offshore IT services are contributing to pricing pressures across the UK software and IT services market, with offshore firms undercutting UK players by as much as 40 per cent.

"The pressures facing the UK's IT software and services are not going to go away. We don't expect profitability of the industry to return to the levels of three years ago - ever," he said.

"Top tier IT services companies - such as EDS, IBM and Xansa - all have big plans for offshore, and will really ramp up their volumes and increase their services going forward."

But despite lower wages in places such as India, many suppliers - especially those in the £200m turnover category - are finding that offshore outsourcing is not always as cheap as might be expected.

The analyst blamed hidden overheads including management time, cultural hurdles, lower productivity and more expensive communications links.

But Codling warned that, despite some obvious benefits for customers and the growing maturity of the offshore IT services market, challenges remain to be overcome.

"There is still a perception in some areas of the market that offshore is risky, but it's a perception risk rather than an actual one," he concluded.