IT workers bore brunt of offshoring over past decade: analysis

IT workers bore brunt of offshoring over past decade: analysis

Summary: New study calculates close to 2 million IT jobs will have disappeared from North American and European companies by 2016. However, IT has regenerative capabilities.


Information technology department jobs were the most likely to be sent offshore during the outsourcing waves of the past decade. However, the trend has peaked, and the jobs that are left at home are more likely to stay there.

That’s the word from The Hackett Group, which just released new research that measures the movement of service jobs from North America and Europe to emerging markets over a 15-year period that started in the year 2002. In total, the conclusions are startling: only about 4.5 million of the 8.2 million business services jobs (including IT, along with procurement, HR and finance) located in North America and Europe at the start of 2002 will still exist in 2016.

IT departments in larger companies bore the brunt of the offshoring and overall decline in business service jobs, the report finds. About 1.8 million IT-related jobs will have been lost during the 15-year time period.

However, The report’s authors, Michel Janssen, Erik Dorr and Martijn Geerling, observe that because the IT sector has regenerative capabilities, the net loss of jobs isn't as severe as it could be.

"Cutbacks aside, as companies embed technology into an expanding range of products, new IT jobs in their product development organizations are being created. Finally, the IT industry (hardware, software and telecommunication) itself continues to grow, creating additional demand for IT workers. As a result, the picture of the IT job market is not nearly as bleak as [it seems]. Instead, companies went from 'making' technology to 'buying' it, and from a sourcing model that changed from insourced to outsourced. This trend is irreversible; the rapid adoption of on-demand technology provisioning models such as software-as-a-service (Saas) is only accelerating the pace."

The Hackett Group report examines employment patterns among 4,500 major companies during the 2002-2016 period. The researchers calculate that between 2002 and 2016, 3.7 million of all business service jobs will have been eliminated through a combination of productivity improvements (3.2 million, or 39%) and offshoring (2.1 million/25%), partially offset by 1.6 million jobs (20%) created through economic growth. This represents a net decline of 45% over the 15-year period.

This also means a rapid shrinking of the amount of jobs being offshored. By 2016, the researchers estimate, number of potentially “offshorable” jobs will have been reduced to one million. “The number of business services jobs being offshored is rapidly declining because the majority of these jobs have been moved already,” they note. “In addition, the lack of sufficient economic growth to offset the impact of productivity improvements is also taking a large bite out of the number of offshorable jobs.”

Many new jobs being created through economic growth, they observe, are less transaction-oriented (such as data processing or order-taking) and thus do not lend themselves easily to offshoring. More of the new jobs being generated in the current information-intensive economy require management and analysis skills, which typically need to reside close to core operations.

It’s important to note that the Hackett Group study only takes into account employment patterns among the largest corporations. There is a surge in employment opportunities for both analysis and transaction-oriented jobs among a new breed of technology-enabled, lightweight business that is emerging, built around the Internet, mobile, cloud computing and big data. There may be fewer large companies with large workforces, and many more smaller entities served by only a few employees and networks of contractors.

At the same time, technologies are enabling a range of organizations — from services to manufacturing — to run more streamlined and automated, and thus may not require large offshore labor pools.

Still, The Hackett Group researchers predict that a major shift is now underway in labor markets: “A decade from now, the landscape will look fundamentally different, as demand by Western companies for traditional offshore capacity will have largely dried up.”

Net losses of IT jobs are charted on a year-by-year basis. Note the painful spike seen in 2009, when the most recent recession struck. Note also how the losses begin to trail off into lower levels starting next year:

  • 2002     -152,000
  • 2003     -127,000
  • 2004     -87,000
  • 2005     -105,000
  • 2006     -91,000
  • 2007     -106,000
  • 2008     -204,000
  • 2009     -334,000
  • 2010     -113,000
  • 2011     -99,000
  • 2012     -91,000
  • 2013    -68,000
  • 2014    -65,000
  • 2015    -60,000
  • 2016    -58,000

(Photo: Wikimedia Commons.)

(Portions of this article cross-posted at SmartPlanet Business Brains.)

Topics: Outsourcing, CXO, Enterprise Software, IT Employment

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  • I call BS

    This is just corporate propaganda. There is no good reason to assume IT jobs will come back to the US, and every good reason to assume the situation will just get worse. US students are - wisely - not training for STEM jobs, this has people concerned. Instead of doing the right thing, and eliminating the H1B, we just get the bogus "studies" and silly planted articles.
    • These jobs won't come back, poor MCSEs.

      But you can always go about creating new ones. The opportunities today in IT are the best I've ever seen (free OS, free development tools, massive scalability, cheap PAYG infrastructure, exploding new markets, ...).

      Goodbye to the MCSEs, their ignorance and obstructions. Embrace and enjoy today's freedoms.
      Richard Flude
      • Amazing

        It's amazing how you can spin this article as another reason to bash MS. This has nothing to do with which software vendor someone uses.
      • MCSE is old news, anyway?

        Isn't the new shiny cert from MS the MCITP in its various flavors?
    • They never said the jobs are coming back...

      But new technologies and innovations may create new and different opportunities on these shores.
  • Look what Hackett was saying in 2010

    Hackett is body shop, like Robert Half. Interestingly, this is what Hackett was advising corporations in January 2010:

    January 27, 2010, 6:19 AM PST

    > The Hackett Group is advising companies to not hire back U.S. and European IT workers who have been laid off; instead they recommend filling any needs overseas. (The IT positions they are referring to are those that such as support and systems administration.)
  • Good start

    Good study on offshoring.

    Since the H1B type visas are so controversial, perhaps a study on those as well?

    Some people claim that those visas cost Americans jobs and lower compensation. A study would be a good way to settle the argument.
    avraam jack dectis
    • There are numerous studies

      There are numerous studies on that very topic. If you want research you can trust in, just like in finance where it makes sense to separate lending institutions from investment institutions (and why the economy collapsed) it makes sense to separate your source of research from companies with conflicts of interest. They position themselves as a consulting firm, but it appears that they are simply a staffing firm.

      You can find a front group called NFAP that claims H-1b visas create jobs. Hopefully you can also figure out who funds that organization because they aren't a thinktank as advertised. Look for research by Ron Hira and Norm Matloff - who are in academia.

      IT has been infiltrated by so many industry groups pretending to be think-tanks it is disgusting. There is so much junk-science you really must question the motives behind every "study" that is published.
  • Plus pay reduction for the victims

    With all of that extra talent dumped in the street (yeah, that's what they did), it's logical to assume that few of these people ever got back to 'full pay and benefits'. Also, those that were fortunate enough to keep their jobs certainly didn't need a pay raise now and then, either. You can always replace them at less than half-price. Yes, we could go on for hours about this.