War, SARS, and intellectual property security concerns about offshore outsourcing have caused some users to put their offshore plans on hold, but none of these events will stop the long-term trend toward more offshore outsourcing. Based on a recent survey of IT executives, AMR Research expects the number of companies outsourcing applications management to offshore service providers to grow within 12 months by 50%, with 35% of all users to outsource some piece of IT to offshore resources. The cost benefits of offshore resources are too compelling for many companies to ignore in these times of slow IT budget growth. Most of the work being moved to offshore facilities is applications development and applications management, categories of work that can be done remotely. Very few people (less than 1% of users using offshore resources) will outsource physical systems to offshore facilities.
Despite concerns of U.S. jobs being lost to offshore resources, as manifested in legislation being proposed in New Jersey, Maryland, Pennsylvania, and Washington to restrict offshore outsourcing for government contracts, AMR Research does not expect the increase in offshore outsourcing to have a dramatic impact on the number of IT jobs in the United States. According to U.S. Bureau of Labor Statistics, more that 2.5 million IT support and software programming jobs exist in the United States. Today, the number of offshore IT jobs account for less than 3% of the U.S. total. The projected increase in the number of companies using offshore resources will result in perhaps 1% of U.S. IT jobs moving overseas. However, with more than one-third of companies planning to increase their IT budgets, AMR Research expects to see the growth in strategic IT jobs in the United States offsetting the loss of jobs resulting from moving nonstrategic work offshore.
Numerous legitimate concerns exist for moving work to an offshore service provider. Users need to develop effective project management skills that can successfully work with the offshore provider’s local resources. They also need to ensure that the tasks being outsourced can be implemented and understood by internal and outsourced resources. Outsourcing a poorly implemented process usually results in poorly implemented processes that are being executed 10,000 miles away. Users should approach offshore outsourcing not as a means to get rid of their messes, but rather as a means to cut costs on nonstrategic tasks.
AMR Research originally published this article on 19 August 2002.