As outsourcing destinations go, Sri Lanka is not having the best of times. Protests have been taking place non-stop in London for months, with Tamils trying to encourage the British government to do something about the civil war in Sri Lanka – generally by making a lot of noise for their cause in Westminster. The heat of these protests has barely died down, though since the death of the Tamil Tiger’s leader, the Sri Lankan government has now declared the country officially ‘at peace’.

So it was with some trepidation that I took a call today from the director and general secretary of SLASSCOM, Madu Ratnayake. SLASSCOM is the Sri Lankan hi-tech services chamber of commerce – and the name sounds familiar to those of us who know similar organisations, such as NASSCOM and BRASSCOM.

With Sri Lanka in the British news over the past year for all the wrong reasons, what was he going to tell me about outsourcing to Sri Lanka that would make it a compelling proposition?

He had some good - and confused - messages in my opinion. The good thing is that Sri Lanka has accepted they need to specialise. They are drilling down into some specific industries, like the legal, and leisure businesses, and trying to focus on becoming a destination of choice for companies in that space. They are also keen to target the Small to Medium sized Enterprises (SME) that often elude much larger offshore destinations, such as India.

The SME focus is essential for Sri Lanka to succeed. They have a very different service industry to some of the larger locations, with over 300 suppliers in this sector. They really do have the potential to be a hub for SME activity because it always works better for smaller companies to work with smaller partners.

But, on the downside, the outreach for SMEs is far harder. SMEs in the UK don’t often go on trade missions, or attend big conferences in London, let alone Colombo – so how do you reach them? Unfortunately SLASSCOM don’t seem to have much of a plan on that yet, though to be fair Madu said it was early days and they not only need to figure out how to reach people, they need to change the war-torn perception of the country too.

The thing I found most unsettling though was the tired low cost argument. I guess it’s one of those things in offshore outsourcing – everyone always returns to cost of labour and service as the primary driver. I asked Madu about why SLASSCOM tries to position Sri Lanka as a specialist, a niche operator, and then returns to the low cost of labour as a ‘key differentiator’. In fact, low cost is the primary reason for outsourcing to Sri Lanka according to their website – and it’s something Madu echoed when we talked. He even stressed that it’s the “primary reason” for anyone to be outsourcing offshore.

But surely that defeats the purpose of SLASSCOM focusing on niche areas, focusing on having top class talent, and focusing on the quality of life in the country? I think SLASSCOM needs to work a bit more on their messaging, but they are at least away from the starting blocks.

So an Infosys executive has finally made it into the upper echelons of the Indian government, but it’s not the one everyone has assumed would eventually seek an elected office. Though rumours about Narayana Murthy one day standing for a senior government position (possibly even President) have swirled around tech business circles for years, now it is actually Nandan Nilekani who has taken the leap into public service.

Nilekani has been a frequent visitor to media studios recently as he has used his celebrity in business circles to write a book about imagining a new India. The government handpicked Nilekani to run a new scheme assigning a unique identification number to every citizen. With over a billion citizens, that’s a tall order, but asking one of the founders of Infosys to run the programme seems like a shrewd move.

I was at the Confederation of British Industry (CBI) this morning because their equivalent body in India (the CII) had brought a large delegation of Indian business leaders over to London to talk about trade between the two nations.

I was most interested to hear a speech by the new commerce and industry minister, Anand Sharma. The minister has only been in the job for three weeks and yet he spent last week in the USA talking to business groups there and here he is today in London talking to similar British groups.

The general debate, and Sharma’s speech, was not specifically themed around outsourcing or the tech industry, however the tech sector was mentioned a number of times – particularly when the discussion turned to work visas. Minister Sharma sounded somewhat frustrated when he talked about the recession-led protectionism that is flaring up in the USA – particularly over the granting of H-1B work visas. He stated that there are some critics who might want to look at the 250,000 or so jobs already created inside the USA by Indian technology firms.

It felt at times like the minister wanted to yell ‘I told you so’ to the assembled British business leaders. Because the Indian government had never given their banks such freedom as we did in London, their banking system has not collapsed in a similar manner. In fact, the minister was talking of GDP growth rates in India creeping back up to 7%, with strong predictions that the trend can soon get back up to 8% or 9%.

That’s astounding - if it happens as the politicians are predicting. What can’t be disputed is that a fifth of all the children in the entire world are Indian. Think what that means for the future of doing business with the region. In our sector we are already getting quite familiar with the India story, but you can bet there are other industry sectors out there that India will excel in before long. They had better start taking a look at what we have been up to in technology.

When I do talks about outsourcing, I often try to illustrate different points by using video or images. Let’s face it, someone talking to PowerPoint slides for an hour is about as interesting as a rail timetable, so I try to find ways to liven it up a bit.

I like using this video when reminding people that most people out there find outsourcing to be annoying, useless, or pointless.

It’s a funny little viral that has been sent all over the web in the past couple of years, but it does explain some of the issues around outsourcing in an amusing way. The useless high-priced American is replaced by an Indian, who is in turn replaced by a Chinese computer -  so it not only illustrates human call centres, but the industrialisation of customer services.

I think it’s funny and a useful way to remind managers that not everyone sees the point of their change programme. But I was talking to an MBA class a few months ago and I used this video and one of the students said it was racist and I shouldn’t be using materials like this.

Was he just a bit touchy or do you think it’s offensive?

I came late to the Gartner outsourcing summit yesterday. I knew I had to be at the conference all day on Tuesday because I was presenting, but Monday was going to be more of a networking day.

When I did arrive, I talked to a few people and then went to a session highlighting the outsourcing opportunities in Brazil.

Robert Janssen of Brasil IT gave an interesting presentation, of course full of all the usual information one would expect, but used an interesting analogy I’d like to repeat.

Robert said: “I was at my favourite pizza place in San Francisco the other day. The owner was smiling so I asked him what was so good today. He told me that he had just had his best day ever for pizza deliveries – even delivering more than the local pizza chains like Domino’s. I asked him, what ‘s his secret? How can he deliver more pizza from one store than Domino’s can across the Bay region? The pizza restaurant owner replied: ‘I only hire Brazilians to deliver my pizza.’”

Robert then went on to explain the reasons the pizza restaurant owner gave for his choice of delivery riders: “There are three reasons. Firstly, if they can ride bikes like they do in São Paulo then they can deliver fast anywhere. Second, they just get things done, whatever happens, and third, they are completely flexible. Whatever unforeseen event occurs can be dealt with – my riders come to me with solutions, not problems.”

It’s a nice little outline of some of the cultural advantages of Brazil. The usual presentations listing the number of college graduates and internet connections can get a little boring so kudos to Robert for livening it up.

What made the session even better though was that the global technology head of HSBC in Brazil, Jacques Depocas, was there and he talked at length about the experience HSBC has had in the country. This was supposed to be a closed session – no bloggers allowed – but I got special permission directly from Jacques to reproduce some of his comments.

He said: "So why did we set up our centre in Brazil? There were many reasons, but it started off because, when the decision was taken in 2005, the global head of the GLTs had previously worked in Brazil for three years and he knew that due to the maturity of the Brazilian IT industry he could find skill sets that were very hard to find in other regions. The time zone is favourable. There is a strong cultural similarity with Americans and Europeans. People think of their career in the long-term and there are good union relations in the industry, plus it's a very mature industry - about two million people work in IT in Brazil. There are other factors, such as political stability and good infrastructure, but the real difference is in the experience of the people. Brazilians often work through university, so they are getting valuable work experience much earlier than in most regions. If you look at my team, almost 25 per cent of my people have more than 10 years’ experience - that's very hard to find in some other areas."

That final point was supported in some of the other Gartner sessions today as a key differentiator. There are a lot of people out there more worried about the quality of their team than the cost reductions. And for those organisations it looks like Brazil has something to offer.

I was sitting in the Dolce hotel close to Brussels last night listening to BBC Radio 5 on the iPlayer. They were broadcasting a special programme focused on South Africa because it is exactly a year until the FIFA World Cup tournament – that’s football, not cricket. The Twenty20 World Cup final is next week in London.

But one of the commentators was reducing expectations on the technology that will be possible, claiming they can’t hope to meet the exceptionally well-organised World Cup in Germany in 2006. However, I thought that FIFA had outsourced the entire technology programme to Satyam.

Ah, Satyam - again. So has the World Cup technology been affected by the collapse of this Indian giant? Maybe someone from Tech Mahindra can give me a call to let me know because there were some serious doubts on the BBC last night…

Following on from my recent blog about the public sector in the UK, I’m going to expand on the theme and explore some more public sector questions in more depth.

This time, I’m interested in how the government views the suppliers that fulfil their IT contracts. Is there a group of suppliers more ‘favoured’ than others or just more experienced at playing the public sector bidding game? And when will we start seeing more contracts going to the Indian firms that are charging into the public sector marketplace?

When I started this discussion with Wipro, they almost took offence at me suggesting they were up-and-coming, rather than seasoned. Geoff Llewellyn , Head of Public Sector Business Europe at Wipro said: “Companies like Wipro are global. It’s just a logical move to leverage what we have done elsewhere in the world and to bring those skills into the UK public sector. We think that we can bring some new thinking. There are some well-established players, but we have a lot to bring to the party.”

He added: “We have a lot of public sector experience in other markets than can be brought to the table in the UK, even if we have not had a lot of experience here. Wipro is a grizzled and experienced campaigner and has worked with many private sector companies like gas and water – where those companies were public sector until recently, so we are not on completely unfamiliar ground at all.”

Llewellyn has a point. And what’s worth noting is that most of the big Indian suppliers have plenty of staff on the UK payroll too – using an Indian company doesn’t have to mean the deal involves offshoring.

When asked if the Indian suppliers stand a fighting chance, Stuart Ford, Head of Public Sector, Europe, at HCL Technologies said: “I must think so, or I wouldn’t be with HCL. I think things have slipped the other way now. The really big suppliers are out of favour. Senior civil servants are actively looking for some new players to enter the market. If you pick all the top five players, you can find a major screw-up at every one of them. “

Tata Consultancy Services has been a high profile winner of a major government contract, the technology required to deliver the Child Maintenance and Enforcement Commission – a replacement for the disastrous Child Support Agency. Brian Woodford, Public Sector Director at Tata Consultancy Services said: “There is a difference between what people think about the market emotionally, versus how procurement processes create winners of different suppliers… clearly the government wants to see a wider set of suppliers and engagement is really happening – we are proof.”

The view from inside government is that most managers are tired of the small pool of suppliers who keep popping up when contracts are tendered. Mo Ali, Former Head of Procurement for e-Government Services in the Cabinet Office, said: “There is no group of favoured suppliers. It just so happens that when we go out to bid, it tends to be the same suppliers who always apply. It’s not that they are favoured, and in fact there is usually some frustration and desire to get fresh blood, but many of the other companies have a lack of understanding of the bidding process.”

But there is a tendency to avoid risk, as observed by Dr Colin Ashurst of Durham Business School: “No one ever got fired for buying IBM. That’s a part of the problem here. The system itself is complex because of the scale and so smaller suppliers cannot afford the overheads of large bids.”

Addressing the initial point about the same old faces cropping up, Alan Downey, Head of Public Sector UK at KPMG said: “It’s not favouritism. It’s more related to experience of those companies. When you are talking about offshoring then it’s a much bigger risk. Theoretically it’s not a bad thing for a company to be headquartered in India, but politically it’s very sensitive. No department wants to be on the front page of The Sun for offshoring.” Downey stressed that the reality of security in India is good, but it’s still a sensitive subject in government.

He said: “I went to India recently and looked at some of the delivery on the ground there. I found that in most cases the security was better than the UK. The people were good. The private sector has already bought into this model because they see the benefits, but the government has this additional consideration of how it looks politically. They will always be more risk averse than a bank.”

Mark Brett, Member of the Management Group (Partner, Public Sector Advisory) at PA Consulting added: “I don’t agree that there is a favoured group of suppliers. There is a small group that were very successful at winning government business, but many of them are on the wane now. It’s never been seen as a favoured body from within the government. There is a view from the inside that feels that many of these companies are better at bidding than at delivery. Some are improving delivery and some are really struggling to deliver at present. “

Andrew Warren, Head of Public Sector Practice at Vertex, mentioned the NHS and Steria joint venture – where the finance and accounts for many primary care trusts have been offshored to Steria teams in India using a joint venture scheme to return value to the NHS: “I don’t believe that there is a favoured list. I do believe that there are some companies in this country that have had a lot more experience in the public sector than others. In the big transactional departments there is a strong desire to increase the quantity and quality of private sector supply. The government departments have targets for contestability that drive them to actually widen the group of suppliers they use, so I can’t believe they really exclude anyone.”

Warren adds: “If your premise is that you are going to offshore work, then that is a totally different conversation with the state. There is the NHS joint venture with Steria, but can you name another big offshoring example? I can’t speak for IT services, but the conversations I have had with people make me believe that there is no appetite at all to commission offshoring in BPO. There is some interest in working with suppliers that use offshore services in some way, so the offshoring is indirect. So there is an interest, but no appetite to be seen offshoring to far off locations – where people are really interested in is deploying people across the UK and taking advantage of services delivered from the Highlands of Scotland for example.”

Two clear issues emerge from these comments. There is no intentional favouritism, but it is certainly confirmed that more experienced suppliers know how to bid for contracts far better than new entrants. There is an attitude within government to help and encourage new suppliers though and I personally recall a conversation I had with government CIO John Suffolk in 2008 where he suggested that he is trying to make all government contract bids entirely open – even to the extent of all document submissions – so smaller suppliers could easily learn from the submissions of the big players.

Secondly, there is no political will at all for any form of offshoring of services. It is just too sensitive to be seen offshoring government services overseas. New entrants may be coming into the market, from countries such as India, but they will compete on a level playing field using local staff – not as low-cost offshore businesses.

Way back when the Indian technology industry was taking off, the companies managed to negotiate a raft of tax breaks that allowed the hi-tech sector to operate without the usual burdens placed on Indian business. All those benefits are due to end next year.

All the commentators in the sector knew that this was going to happen, but in the past couple of years whenever I have asked people in India about their fear of having to start paying considerably more tax, they have all said that the Indian tech sector is maturing and doesn’t need these special benefits anymore. Almost everyone in the industry, including the trade body NASSCOM, imagined that once the sector has matured enough then these additional benefits from the government would not be required.

Roll forward and what’s in the Times of India today? NASSCOM is calling for the tax breaks to be extended by around five years, because the tech companies are struggling due to the global economic slowdown.

So when will Indian tech grow up and pay the same taxes every other firm in India has to pay?

Here is something interested that happened to me today. Someone added me to their phone book on Skype. I wasn’t sure who the person was – other than the name meant it was obviously a tech firm – so I said hello on chat. It turned out to be a firm called GKS Technologies in India.

First, it’s a big surprise to me that anyone would just randomly trawl Skype looking for potential customers to call in locations that just might have some business – will they call everyone in London looking for some IT work? Then, wouldn’t the process of using unsolicited Skype calls like this alienate anyone who might even potentially give them some business? By switching to chat, it also highlighted some pretty dreadful presentation skills on their part.

You can guess what I think of GKS Technologies, but just so you can see what happened, here is the conversation:

Mark Kobayashi-Hillary
hello
hello?
you just added me

GKS Technologies
hi

Mark Kobayashi-Hillary
hello

GKS Technologies
hi mark
This Is Neha from Mumbai/India

Mark Kobayashi-Hillary
hello

GKS Technologies
This is Neha

Mark Kobayashi-Hillary
Hello Neha, what can I do?

GKS Technologies
Mark, we offer cost effective web site and software solutions from India, and was wondering if you may be interested in outsourcing your web /software development services to us
are you interested?

Mark Kobayashi-Hillary
I'm not sure where you got my details or who you think I am - have you looked at my web site?

GKS Technologies
It’s just an random search performed on Skype

Mark Kobayashi-Hillary
Based on what criteria - being in London? I'm just wondering how you found me - you added me to your Skype address book earlier. Was that because I am in the UK?

So, at this point Neha stopped talking to me. Then another Skype user picks up where she left off:

Software & Web Developing Company Based In India
Hi Mark

Mark Kobayashi-Hillary
Hello

Software & Web Developing Company Based In India
This is Gulab Nihalani here

Mark Kobayashi-Hillary
Hello Gulab

Software & Web Developing Company Based In India
Earlier Neha have had a chat with you on Skype

Mark Kobayashi-Hillary
I saw that yes

Software & Web Developing Company Based In India
Mark just to clarify it was purely a random search performed on Skype

Mark Kobayashi-Hillary
That's fine. I am just interested in how you found me though if it was random - you mean based on my location then?

Software & Web Developing Company Based In India
Yes, am sorry if you have been disturbed

The Financial Times published a very interesting piece of analysis based on their own research on offshoring from the UK yesterday.

The analysis suggests that offshoring has rapidly declined because of the recession. That’s not a surprise if you are regularly reading this blog. There is a tendency to assume companies will use offshoring more in a recession – as they need to cut costs fast – but it’s not always true, and the FT research indicates that offshoring from the UK is presently at miniscule levels.

The report said: “An FT analysis of job losses announced since the recession began last July suggests little more than 4,000 job cuts at 17 locations can be wholly or partly attributed to work being moved abroad. This figure is minuscule compared with the nationwide total of 700,000 redundancies over the past three quarters, according to data from the Office for National Statistics. Most of those were caused by lack of demand or failure to access credit.”

That’s a robust defence for those who have to defend offshoring decisions. The actual number of redundancies caused by offshoring is tiny, compared to companies going under and firing staff because they just can’t find finance – or they are just not goo at what they do.

The FT research indicates that it is the fear of investing a large chunk of operating capital up front in a change programme that is preventing most offshoring. The report also points out that the cost advantage is dwindling – it has become more expensive to hire offshore resource in locations such as India, and in many cases it has become cheaper in some parts of the UK.

I’d also add that the consumer backlash risk is also being taken far more seriously today. Even though a consumer-oriented company may logically feel they can offshore some functions, they might choose to not do it just because they want to be seen actively creating jobs in the local market. We live in an era where single-issue campaigns can be distributed very fast over social networks, so it is easier to target companies who ignore consumer concerns.

So, if offshoring is declining then what of the outsourcing market in general? I’ve been talking to people involved in public sector outsourcing – and that includes several of the Indian suppliers – about government sourcing. I’m going to posting several blogs over the next few days focused on those conversations…