US offshoring increasing at faster pace

As US businesses continue to stretch their capital-expenditure budgets, the pace at which they use offshore service providers is...

As US businesses continue to stretch their capital-expenditure budgets, the pace at which they use offshore service providers is picking up, according to a report by Forrester Research.

Forrester predicted that the number of US services jobs moving offshore by the end of 2005 will be 830,000, a 40% rise on its original forecast of 588,000 published 18 months ago. The types of services included in this number include both IT and non-IT jobs.

"User interest in offshore services continues to rise, particularly on the IT side," said Karyl Levinson, director of Forrester corporate communications.

"Companies are looking to stretch their flat or declining IT budgets and looking at offshore as a way of doing more with less, or the same amount."

The types of IT jobs that go offshore are directly related to computer technology, such as applications coding and management, to those that depend heavily on IT, such as call centre, loan processing, back-office accounting and other business process outsourcing (BPO) jobs.

In the "computer" category, 181,000 jobs will be moved offshore by the end of 2005, compared with 102,000 in 2003. This number will rise to 542,000 by 2015, said the report.

Life sciences jobs being moved offshore will rise from 300 in 2003, to 4,000 in 2005 and 39,000 in 2015. In the "office" category, 146,000 jobs were moved offshore in 2003, a number expected to climb to 410,000 in 2005 and 1.6 million in 2015.

However, not all IT-related jobs are in the computer category, noted Forrester vice-president John McCarthy.

Jobs in art and design and architecture included IT-related research and development. Many tasks in the "office" category are related to BPO, he added.

Despite the updated forecast, there has been a spate of press reports about outsourcing deals gone bad, and articles about companies pulling back from offshore outsourcing, or "offshoring".

"The articles on pullbacks have really been overstated," said Forrester vice-president Stephanie Moore.

"There have been problems but really these have been glitches or hiccups," she said, adding that "problems are more related to internal lack of preparation. Some companies are not preparing themselves internally to manage the complex relationship with offshore suppliers".

Adding fuel to the offshore services fire is the fact that offshore suppliers and US-based services providers have added to non-US facilities and services offerings.

Leading Indian suppliers such as Satyam Computer Services, Wipro and Infosys Technologies, have grown in terms of revenue and employees during the past year and a half, which allows them to add to their portfolio of offerings.

Meanwhile, US suppliers such as IBM, PeopleSoft and Accenturehave added to non-US operations not only in India, but in China and the Philippines, over the past 18 months.

The other major factor in the growth of offshore services is that offshoring has become a requirement  of BPO.

"BPO growth will inevitably propel the number [of jobs moving offshore] in terms of offshore growth," said Forrester vice-president Bill Martorelli. "Offshore is booming and in the context of BPO [it is] highly inseparable."

The Forrester report forecast that the total number of services jobs moving offshore in 2015 is now 3.4 million, compared with 3.3 million made 18 months ago.

Forrester's methodology for its forecast was based on: trips to India by analysts; offshore "best practices" interviews with more than 100 companies; a baseline number update from the 2002 US Bureau of Labor Statistics; 300 supplier briefings and research with third-party sources.

Marc Ferranti writes for IDG News Service

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