Will offshore outsourcing kill UK data firms?

Jed Mooney, Managing Director of Datahold, examines the controversial claims made by EHS Brann Discovery Global Director Huw Davis that many UK database companies will no longer exist in 2009.

Recently the global director of EHS Brann Discovery and Data Euro RSCG 4D, Huw Davis, proclaimed that many database companies will cease trading by 2009.

That's a bold statement in anyone's book but it's his position as global director that means his views have to be taken extremely seriously.

The question is, is he right? Well, Davis obviously thinks so because soon after his prediction he abruptly resigned from Brann and emerged 7,000 miles away in Singapore, replete with a brand new data venture backed by Kitcatt Nohr.

Davis saw very clearly that East European and Asian database solutions (both data bureau and data analytics) had the potential to undercut the UK market by a huge margin.

His views have caused controversy in the UK data industry, not least because offshore outsourcing has occasionally had a mixed reputation.

This has been coloured by the call centre industry which, having ventured offshore en masse, is now returning to the UK led by the likes of Powergen, Esure and Norwich Union.

This perception is hardly fair because call centres involve front-end customer-facing staff.

Poor phone connections, lack of local knowledge, foreign accents and a perceived lack of empathy indeed make foreign call centres a risky option.

However, these problems become redundant with (non-customer facing) back-office functions such as payroll, accounting and data management, thereby making offshore outsourcing a hugely attractive option.

In addition, what many UK marketers don't realise is that offshore outsourcing does not involve moving data overseas.

That might sound illogical but technological developments such as virtual private networks mean that companies can retain the management of their data in the UK but outsource the processing and analytics abroad.

VPNs, after all, are what IT service providers have used for years and simply involve a third-party having access to a computer network from a remote location.

For the data industry, the advent of offshore outsourcing comes at a time when computer hardware and software costs have also fallen dramatically.

This has robbed many data bureaux of competitive advantage because the hardware and software that would once be out of reach of many companies is now available to all.

Most data bureaux are therefore competing against each other (and against clients bringing data management in-house) solely on 'management hours' or employment costs.

And that's the rub.

Offshore employment costs are a fraction of UK costs.

Moreover, the quantity and quality of staff is abundant.

The Philippines, for example, has the highest literacy rate in Asia and is the third-biggest English-speaking country in the world.

With 360,000 graduates emerging each year, the country is blessed with a huge groundswell of talent eager to work for wages that are less than a quarter of UK staff.

This is the reason why British Airways now handles all of its accounting in India, why the DVLC processes driver licensing in the Philippines and why Davis' new data venture is based in Asia.

It is also the reason why mid-sized data bureaux are now faced with an unpalatable truth - with the fall in hardware and software costs and the advent of offshore data management, they now have no competitive advantage.

Data management is now a commoditised business and, like any commodity, it is only those companies that are able to compete with the right combination of quality and price that will survive.

For that reason, Huw Davis is right and his strategy of moving to Singapore is based on sound commercial logic.

Indeed, one can expect the movement of data management offshore to evolve from a new trend to a stampede.

Back to top