Now that the Y2K has been and gone without any obvious major hitches, many insurance companies are quickly turning their attention to a new race against time. The race to compete in the global e-business economy.

But any idea that software engineers kept busy chasing the millennium bug would be able to transfer their efforts to harnessing the internet is not going to happen quickly. The skills required to web-enable existing business applications or get new internet projects off the ground are radically different from those needed for Y2K bug fixing.

So again, it seems the UK is faced with a new IT skills shortage. In particular, software vendors that have large installed bases in the insurance industry suddenly risk being left behind, along with their customers, because they simply can't get hold of experienced development engineers with the right skills, fast enough.

While HR departments ponder long-term solutions to the skills gap, it is rapid fixes that are needed. One increasingly popular solution is to tap into skills available offshore. The idea of putting core product development in the hands of a company thousands of miles away is a major hurdle. But for those able to overcome this fundamental perceptual barrier, the rewards can be considerable.

The first question is which country do you choose? India, Russia, Hungary, Malaysia, the Philippines and Mexico all have offshore industries offering substantial cost benefits. And a bit closer to home, countries such as Malta, are now promoting the so-called near-shore market. However, India, the pioneer of offshore development services is currently the clear leader with somewhere between 40 and 60% of the offshore market.

India has steadily built up a sophisticated higher education system that produces some 67,000 high-quality software engineers every year, according to India's National Association of Software and Services Companies (Nasscom) in its 1999 Strategic Review. The Hindu culture for self-improvement also means that many of those in work spend a lot of their own time learning new skills. As a result, India is well placed to meet the demand for new component-based architectures and internet development tools.

While the cost of labour in India is still considerably lower than in the UK, it is no longer the main deciding factor in choosing to outsource offshore. The immediate access to key skills is often more important to enable businesses to be up and running on new e-business projects within weeks. If cost-saving is the only factor, there are other cheaper places to go such as China and Eastern Europe.

Some of the world's most powerful IT companies such as Microsoft, IBM and Computer Associates have set up their own Indian-based facilities and 200 of the Fortune 500 companies have already outsourced work to India.

Most of the Indian IT industry is focused around areas such as Bangalore, Mumbai, Delhi, Madras and Hydrabad. Towards the end of last year, the market capitalisation of India's IT industry as a whole reached $24.3bn and became India's biggest quoted sector. The recent success of India's software development services industry has seen growth at a rate of 53.84% for the last five years and export revenues in 1999 reached some $4bn. There are now some 280,000 software engineers involved in the offshore industry, making it the second largest group of software professionals in the world after the US.

Removing the risk of going offshore
But outsourcing software development to India - or anywhere else for that matter – is a big step and needs careful planning, preparation and implementation. First and foremost, it is essential for both sides of the outsourcing contract to have the same goals, timescales and clear views about how the project will proceed.

One of the most significant concerns with offshore development has always been client control. A good offshore company will be able to demonstrate established and well-proven methodologies and quality procedures. Companies should be wary if these are not in place and must be sure that they address all of their concerns and requirements including project management, documentation, reporting, delivery schedules, commissioning and support.

The human element and the importance of face-to-face contact should not be underestimated.

Ideally, the offshore development company will have an UK-based team to interface directly throughout the project and help to train consultants and clients in the process of managing remote development. Many projects also involve project managers and engineers spending time on-site in the UK at the beginning, middle and end of the work. This not only makes for tighter integration between local and remote teams but also helps to create a closer relationship and high degree of trust.

Using the internet
The Internet has also already made a huge impact in the way in which projects are managed. Email is ideal for day-to-day interaction and logged communications while File Transfer Protocol provides a means to deliver source code and completed software. The increased demand for web-enabled, component-based software has not only led to more companies looking offshore to source missing skills, but this type of software lends itself ideally to remote development. For example, software programs can easily be split up into logical chunks of systems and applications development without loosing control of core proprietary engines. The software is delivered as a set of objects with a common interface so that wherever the code is generated it will be understood.

The web also allows clients to have daily access to progress reports. There is now very little difference between working with a company 7,000 miles away and working with a team in the same building. With the right approach by both sides, correct methodologies and relationships in place, there is really no limit to the size of development project that can be managed offshore.

So where do you start when you want to look at outsourcing software development? Offshore services companies in the UK have recently formed a new Offshore Forum within the Computer Services and Software Association (CSSA) to help address these issues and create guidelines for companies looking further afield for skills support. The Offshore Group's first document has been published and is available at the web site and the Group is currently working on a Code of Practice to which all CSSA Offshore Forum members will be signatories.