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Offshore Outsourcing

Updated May 2004


Issue:

Over the last year or two, the issue of offshore outsourcing of IT jobs to countries like India burst into the mainstream media and became a front-and-center issue for the technology industry.

As companies focus on innovation, growth, and maintaining their competitive edge in this economic recovery, they are simultaneously making tough decisions about the allocation of resources. While some are choosing to keep their workforce local, others are utilizing the pool of tech talent outside the US. There is not unanimity within the industry about the comparative costs and benefits of outsourcing projects to workers in other countries. There is agreement that this is a politically and emotionally charged issue.

A March 2004 report issued by the Information Technology Association of America (and conducted by Global Insight) indicated that offshore outsourcing is expected to grow from $10 billion in 2003 to $31 billion in 2008. The report indicates that 104,000 jobs, as of 2003, were displaced by offshore outsourcing; however, 193,900 new jobs were created in that same time period, for a net increase of approximately 90,000 new (IT and non-IT) jobs. The report also states that major economic benefits accrue to the US as a result of offshore outsourcing; these benefits include lower inflation and interest rates, as well as, increased productivity and real wages. The lower costs are expected to increase the demand for US exports.

Other experts are not as optimistic about the economic impact. According to Forrester Research, at least 3.3 million more US jobs are expected to be lost to offshore outsourcing through 2015. Gartner has estimated that one out of 10 technology jobs in the United States is expected to go overseas by next year. "What is different about the adoption of offshore services, compared with prior economic trends, is the lightning speed at which offshore services have become a mainstream reality that will not disappear once the Western economies recover," analysts Michele Cantara and Alex Soejarto of Gartner's Dataquest subsidiary wrote in a recent report.

Governmental Activity:

Legislation has been filed in more than 30 states - including Massachusetts -- that would effectively prohibit state agencies from outsourcing work to offshore entities.

At a 2003 Congressional hearing on the issue, a representative of the AFL-CIO complained that "Technology companies are laying off American workers from high- paying desirable jobs while they add thousands of jobs overseas." At the same hearing, a Bush Administration official acknowledged that "Many observers are pessimistic about the impact of offshore IT service work at a time when American IT workers are having more difficulty finding employment, creating personal hardships and increasing demands on our safety nets."

Software Council Position:

The ITAA has published a set of "Global Outsourcing Principles" which we have built upon and modified to create the Council's position.
  • The US IT industry is and must remain pre-eminent in world markets; necessitating a strong emphasis on innovation and R&D for our future prosperity.
  • The future success of the IT industry will depend on the knowledge and skills of our workforce; therefore, a continued emphasis on education and training is critical.
  • IT is a global industry; therefore, our companies must retain the flexibility to align operations and make workforce sourcing decisions as necessary to meet customer needs.
  • IT customers are demanding higher value added products and services at improved cost; therefore, companies must have the flexibility to build the best products and services at the most competitive prices.
  • Continued support of free trade is vital to the growth of IT markets; therefore, we should work to ensure open markets and the enforcement of international treaties.
  • It is important to foster policies that are both conducive to increasing jobs here and encouraging foreign direct investment, and attracting international company jobs that leverage our unique resources and environment.
  • The US IT industry wants to preserve the legitimate security interests of our country and realizes that certain safeguards (such as security clearances) may be necessary for the performance of classified government work.

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