IT outsourcing fears overblown: IDC

By siliconindia staff writer   |   Monday, 24 November 2003, 08:00 Hrs
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HOUSTON: IT jobs will continue to migrate overseas at a faster pace due to lower costs, but much of the work will still be captured by US providers as they beef up their operations abroad.

While the mainstream media has seized upon the threat of offshore sourcing to US jobs, a new report from the IDC finds that such a dramatic shift may not necessarily translate into a doomed outlook for US IT services jobs or US-based services firms.

Market research firm IDC on Thursday predicted that offshore activities of the US Information Technology industry are set to rise dramatically over the next four years, but the rise may not affect US jobs adversely as some industry observers feared.

After surveying IT vendors, IDC concludes that US services firms will continue to use offshore resources due to lower costs while the majority of US workers at risk will leverage their current expertise into new skills that will remain in demand.

The research firm predicts that Offshore spending component of the US technology services market will rise to 10 per cent of the total spending, or $16.3 billion, in 2003. IDC also expects offshore spending to more than quadruple to $46 billion, or 23 per cent of the total, by 2007.

IT outsourcing to locations such as India, China and Russia has been criticised in the United States because of fears about the potential loss of technology jobs, but IDC analysts say the debate is misplaced.

Several facts have been lost in the debate about offshore sourcing, much of the spending to date has focused on only a few activities, which limit the impact of offshore on the broader market," Ned May, programme manager of worldwide services research at IDC said in a statement.

"Another is that much of the offshore spending will be captured by locally based vendors, who are currently building up their own offshore delivery resources. But the most important fact being overlooked is that, while there will be a migration of some jobs overseas, it will be coupled with steady growth in a number of service activities on US soil," he said.

To obtain an estimate of the impact that offshore sourcing may have, IDC applied a supply-side survey to the US IT services market from two perspectives: 'Macro Markets,' which are representative of how IT services contracts are bought and sold, and activity groups, which are based on the underlying tasks that are performed.

IDC believes that all three Macro Markets (project-oriented services, outsourcing, and support/training) will be impacted about equally by offshore sourcing, though additional market factors will cause project-oriented services to experience a net decline.

When examined by activity group, however, IDC found the impact to be focused on maintenance, support, implementation, and operations, while planning and IT education and training will remain relatively resilient against the offshore trend.

The activities that will migrate offshore are those that can be viewed as requiring low skill since process and repeatability are key underpinnings of the work. Innovation and deep business expertise will continue to be delivered predominantly from onshore," added May.

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