Kelvin Chan: Outsourcing to UK still seen as good idea

Outsource2New Zealand may be gone, but some Kiwi software companies have not forgotten about the IT outsourcing market in Britain.

Black Coffee Software, one of five founding partners behind Outsource2New Zealand, decided to forge ahead with plans to expand in the UK even as the group initiative floundered.

"I think everyone would have benefited [from O2NZ], provided they worked together as a unit. Great in theory but not always achievable," said Alison Swaby, business development manager for Black Coffee in London. Swaby added the company decided on a different approach "based on experiences that came out of O2NZ".

When Black Coffee executives visited the UK last year, "it encouraged them to say 'we'll put the money down and say we'll go for it ourselves'. So far so good," said Swaby, who set up the company's office in London's Canary Wharf financial district last November.

At about the same time, the company won a $300,000 contract from Cambridge-based Wax Info, which specialises in electronic book libraries - its second UK contract.

Another O2NZ partner company, Synergy IT, also has an office in London.

The end of O2NZ is a curious blow to New Zealand's attempts to sell itself as a competitor in the tough world of global IT outsourcing.

The global market for offshore information technology services is around US$150 billion to $180 billion ($220 billion-$264 billion), according to a recent estimate by management consultancy McKinsey & Co.

While much of that is for huge, low-cost contracts such as operating a big company's entire IT department or data or call centres, there is still room for New Zealand to compete.

Experts said the country had myriad advantages - and one big disadvantage - in winning higher-end, specialised contracts, precisely the kind of work O2NZ was set up for.

Swaby and outsourcing experts said New Zealand had a definite edge in the UK because of strong cultural links and a good reputation.

"People worry about things like security these days, they worry about getting results for the right money," Swaby said.

"A couple of people have mentioned that New Zealand offers an environment of integrity and business ethics ... Kiwis [also] have a reputation for very high productivity."

Ajay Bhalla, an assistant professor at City University of London's Cass Business School, agreed New Zealand offered a good business environment.

"For British companies, New Zealand would always offer a great environment in terms of business environment, and the financial structure and infrastructure," said Bhalla, who teaches global outsourcing to MBA students.

"When we talk about business environment, we talk about political environment and security of intellectual property."

Another selling point for New Zealand, and the reason it first targeted the UK, is the close cultural links between the two countries.

Swaby said Brits usually appreciate working with Antipodeans. Many "either fell in love with the country while down there or worked with Kiwis before. There's an inherent feel-good experience to working with a Kiwi. There's a level of trust between the UK and New Zealand that is priceless," she said.

But it goes beyond just warm, fuzzy feelings, IT outsourcing experts say.

Peter Ryan, a Montreal-based outsourcing analyst at Datamonitor, who was based in London until six months ago, said cultural links definitely help when it comes to getting foreigners to understand how your business works.

"In London there are lot of New Zealanders who move to the UK and then move back. There's a tremendous affinity between the UK and New Zealand," he said.

Stephan Bullas, managing partner at Ecode, the European Consortium for Outsource Development, which assesses outsourcing locations for clients, said the fact that English was the native language of both countries also helped when it came to things as prosaic as instruction manuals.

"Where I think New Zealand can score amongst countries is, user documentation can be done in the natural language and business presentations can be done in the natural language," Bullas said.

Costs were also rising in places such as India and South Africa because safety was such a big concern that extra money had to be spent on things such as driving employees to and from work, Ryan said.

"One of things you find about places like South Africa is, can people get to work on time, without fear of assault?" he said.

"Getting to work in Auckland on public transit would be much safer than in Johannesburg. That feeds into cost."

On the downside, some saw New Zealand's distance from Europe and North America as a handicap.

"No matter how good a supplier company is, and this is particularly so in the IT industry, the client always needs to regularly visit," Bullas said.

To ask an executive to travel two or three times further to New Zealand than to India or Eastern Europe "really does make a big negative".

Still, New Zealand had a real shot at the global IT outsourcing market, especially if it concentrated on higher-value niche projects, Ryan said.

"If they can position themselves as a location of very high-end, high-value work, that's exactly the type of work they'll be able to win," he said.

"If, say, I need 500 people to work in the back office to do cheque clearing for a large bank, it's just not going to go to New Zealand," he said.

On the other hand, "if you need a dedicated team of 50 developers to work on a high-end project, yes, I think it would be an outstanding location."

But small companies far from the world's big business capitals don't have much of a chance of catching the attention of big companies. Something like O2NZ might actually be exactly what's needed.

"For small individual companies, it's too much of a marketing investment to get on the radar screen of big American or UK companies," said Simon Bell, director of global business policy council at A.T. Kearney - especially when they're competing against the likes of Infosys, which employs 46,000 software professionals.

Bell said he had been working on helping set up similar groups in other countries.

Bullas said he also recommended that countries in eastern Europe, many of which had joined the EU recently and had small populations and small numbers of IT graduates, should band together to form a trade group to tackle large contracts.

Bullas, who had not heard of O2NZ before, said: "Probably New Zealand needs to do the same thing. Right now they're small niche players at the other end of the world, they'll have no chance."

For the moment, Black Coffee is going it alone. Swaby, a locally hired Brit, essentially works alone in the London office, which has room for up to five staff, and more people may come over to work as required.

She said that New Zealand's distance could sometimes be an advantage when working with Wax Info. Because the countries are 11 hours apart, when one is asleep, the other is working.

"Wax said to us that they love the fact they can send all the problems at 5pm to New Zealand and at 9 o'clock the next morning they can come back with solutions."