Competition drives IT services overseas

‘There is still very much a customer mindset out there demanding more value for IT,’ he said. ‘In that context, we are seeing outsourcing fuelling more offshore business.’

Although offshore outsourcing accounts for only 3% of the annual UK IT services market, Indian companies like Tata, Wipro and Infosys now earn more than £50m in annual revenue combined.

But this revenue is still not enough to affect Ovum’s top 25 ITS industry ranking, which puts IBM at number one, followed by EDS, Microsoft and CSC.

Codling said that, without offshoring options, some smaller UK players would find it hard to compete. By partnering with, or acquiring eastern European or Indian outsourcers for long-term application development work, services companies can offer UK customers competitive industry-specialised packages.

While good for customers, this does not bode well for UK services companies.

Ovum advises such firms to address their offshore capabilities before the trend towards market consolidation swallows them up.

Vicki Pryce, chief economic adviser at the DTI, suggested that the range and complexity of resources now offered offshore is shifting from call centre and back-office functions, to more knowledge-based tasks such as IT development, research and analysis.

‘We have a strong knowledge-based sector, but we need to move (the skills base) up-market all the time,’ said Pryce. ‘We need to look for greater value-add as a comparative advantage.’

Related reading