IDC Reports Spike in Offshore Outsourcing

Despite an expected spike in the amount of IT services outsourcing to offshore firms, the impact likely will be mitigated by solid services-industry growth in the United States, researcher IDC said in reporting the results of a recent survey.

While offshore hiring likely will spread across a wider range of IT services going forward, an economic upturn and resulting demand for skilled technology workers are likely to offset resulting job losses and might even result in a worker shortage, analysts told TechNewsWorld.

“It is recovery and economy,” IDC program manager Ned May said. “In this market segment, we’re going to see growth again. That growth will create jobs. Certain jobs will be lost, but other jobs will be in high demand.”

May said it was a skills shortage two to three years ago that fueled the current trend of offshore IT outsourcing — and there is potential for another shortage.

Outsourcing Up

The theme of the recent IDC supply-side survey, “Offshore Services: The Impact of Global Sourcing on U.S. IT Services Market,” is that current foreign outsourcing is mitigated by the level of positions lost overseas, U.S. companies profiting from the trend and — most importantly — domestic job growth that will match or supersede offshoring.

However, May said, future offshore outsourcing is likely to spread beyond today’s limited areas that include custom application development and call center help.

“We will be seeing it spread across all IT services segments,” May told TechNewsWorld. “We’re going to see a broadening of the impact in many different activities.”

After surveying IT services vendors, IDC reported that the offshore component in delivery of U.S. IT services may rise as much as 23 percent by 2007, up dramatically from 5 percent in 2003.

Crash or Countries?

May, who said the overall impact of offshore outsourcing is currently limited by its containment to a few activities, blamed the tech-bubble burst for most of the jobs lost in the last couple of years.

“That’s the good news,” he said. “The bad news going forward is that we’re going to see job growth offshore grow quicker than in the U.S.”

Yankee Group program manager Andy Efstathiou, however, said offshore hiring is impacting the industry now, as evidenced by the lack of redeployment of IT services. “Budgets are getting cut, and people are getting laid off,” he told TechNewsWorld. “It has decelerated, but it has not stopped in the U.S.”

U.S. Company Gains

IDC said another mitigating factor of the offshoring trend is the fact that much of the offshore spending will be captured by U.S. companies that are building up offshore delivery resources.

“All of these global players, at least most, are aggressively looking to grow their offshore outsourcing,” May said, referring to IBM, Accenture, EDS and BearingPoint.

Efstathiou agreed and said the companies are either “growing aggressively” or “in catch up mode” to meet higher demand for offshore outsourcing.

On the flip side, foreign firms are feverishly growing their U.S. presence to move up the value chain, which might more directly affect the U.S. job market, according to Efstathiou.

U.S. Growth Key

IDC indicated that the biggest mitigation of outsourcing overseas likely will come in economic recovery and “steady growth in a number of service activities on U.S. soil.”

Efstathiou, who indicated the public sector has served to offset the impacts of offshoring, said recovery will leave the offshore market incapable of reacting to U.S. job demand.

“There will be a redeployment of skills so those job losses will be reduced,” he said. “As that accelerates, the U.S market is so much larger than the Indian or offshore market as a whole that significant demands in the U.S. will have to be staffed domestically.”

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