US concerns grow over offshore outsourcing
For immediate release, 21 August 2003. The current backlash in the US against the outsourcing of IT jobs to the Indian sub-continent detracts from the real reasons behind the success of offshore services, according to Ovum, the analyst and consulting company.
IT firms across the USA are enthusiastically embracing the concept, but there is growing concern, among sector workers particularly, that the current trend is one simply based on reduced manpower costs. The argument they see is simple: their jobs have been moved to backwater economies, where the locals will work for a much lower wage packet.
The reality hides much deeper issues, according to Alan Pelz-Sharpe, VP North America with Ovum. “India is deeply committed to the long term success of hosting offshore operations,” he says. “And as technology work moves there, it is likely to stay and grow.”
The Indian operations doing the work formerly undertaken by US teams, not only do the work more cheaply, but they are often more productive, and work to high standards. The cost and quality benefits of offshore outsourcing have been well proven, with many offshore operations working to more rigorous quality methodologies than is common in US operations.
So for Software and Service companies the arguments to support offshore outsourcing can be equally simplistic, compelling and go beyond quick cost savings. The question of exactly why offshore–outsourcing gained traction so quickly have to be looked at. Top of that agenda should be:
- High wage demands for skills that may no longer merit a premium
And on the other side of the fence:
- The loss of intellectual assets to offshore operations
- The impact outsourcing has on morale and general productivity
- The cost (real and political) to the US economy
The General Accounting Office (GAO) in Washington has announced plans to investigate the impact of government offshore-outsourcing on the economy. “This could be the first of many investigations and a deeper look at what is driving the offshore move, says Pelz-Sharpe.
“Implications will have a wider reach than the tech sector alone as proposals have already been floated to offer tax breaks to companies who keep their staff on US soil, and to penalise those who outsource offshore.”
“In a recession, with high unemployment rates – such a visible and high profile loss of jobs is going to become a major issue for Washington to address,” says Pelz-Sharpe.
“Yet developing efficient, low-cost offshore delivery models, is one of the ways US companies can remain competitive in the global marketplace. So the job loss issue should be balanced long-term by a competitiveness (and hence GDP) gain upside. That of course is no immediate comfort to a software engineer faced with losing her job.”
“Difficult questions which no-one likes to acknowledge will have to be faced. Until they are, the future of Tech in India is looking rosy,” he concludes.
Related Research
The Offshore Services Report, authored by Phil Codling, is available now from Holway@Ovum. For sales information, please contact Ovum at www.ovum.com, or call +44 (0) 20 7551 9021.
About Ovum
Ovum, the analyst and consulting company, is the largest European headquartered advisor on telecoms, software and IT services.
Resolutely independent, Ovum advises large corporates, IT and software vendors, IT service providers, telecoms operators, regulators, service providers and equipment suppliers. It analyses the commercial impact of technology and market changes and has a real strength in advising on the developments where telecoms, software and IT services interact.
Ovum takes a global perspective on leading-edge developments from our offices in Europe, North America and Asia Pacific. Its experts spot the short-term issues that will have an immediate impact on markets and organisations and advise on the longer-term 'visionary' aspects which form the basis of strategic planning.
More information on Ovum, its customers and its independence is available at www.ovum.com
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