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Overseas outsourcing may not be quite the menace it’s been feared to be. Indian service providers are setting up shop in London, and complex programming work looks set to stay put – for the moment.

“Indian companies are coming here and establishing their own organisations in the UK, staffed with locals in order to get that higher cultural affinity,” says Martyn Hart, chairman of the National Outsourcing Association (NOA). Both Infosys and Satyam have offices in London, for example.

Luke Archer, director at recruitment firm Hudson IT, agrees that local product knowledge is vital and this means high-level development work is set to stay in the UK.

“A lot of development has gone out to India, but there’s still a lot going on here, particularly in fixed income and equities where people in India won’t have the experience,” he says.

“We thought work would go down (due to offshoring), but if anything, we’ve seen an increase in development work,” Archer adds.

Indian firms may yet move up the complexity spectrum in future, however. A report by the research and consulting firm Celent, entitled ‘Indian IT Services Firms and Financial Core System Development’, says they're already eyeing more complex areas of banking as a way of ensuring continued healthy growth in the US$36bn Indian IT industry and fighting off competition from the traditional global providers such as IBM and Accenture.

“Over the past three or four years, IT service companies have moved up from lower-end maintenance work and have now graduated into core systems for banking and insurance,” says the report’s author, Sandeep Hebbar. Sounds ominous, we think.