Enterprise Insights

Blog archive

Offshoring Will Hit IT Hard, Hackett Group Predicts

Although there are signs of economic growth in business services (including IT, finance, procurement, and human resources) in the U.S. and Europe, “globalization” and competitive pressures will continue to drive jobs to offshore providers. By 2016, 2.3 million jobs in those four sectors will have moved offshore -- of which nearly 1.1 million are IT jobs.

The Hackett Group says that although economic growth between 2002 and projected into 2016 is 20 percent above its 2001 level, IT jobs will decline 54 percent in the same 15-year period, the worst of any of the four business functions. By comparison, finance will lose 42 percent of its jobs, procurement functions will decline by 36 percent, and HR will decline by 33 percent.

The study, Job Losses from Offshoring and Productivity Improvements Far Outpace Gains from Economic Growth, looks at employment at North American and European companies with over $1 billion in revenue in 2010 -- a total of 4,700 enterprises. It notes that business-services jobs have been shifting from developed economies to offshore providers since 2002. Its projections of job cuts between 2013 and 2016 show a gradual decrease (in absolute numbers), and for IT staff it’ll still be tough going.

The report also points out that “as companies embed technology into an expanding range of products, new IT jobs in their product development organizations are being created. Finally, the IT industry (hardware, software and telecommunication) itself continues to grow, creating additional demand for IT workers.” Unfortunately, the demand may be fulfilled in “low-cost geographies.”

Today, 26 percent of “IT (Knowledge-Centric)” jobs (including “infrastructure development, application development and implementation, planning and strategy, and function management”) are located in these “geographies.” In 2-3 years, Hackett believes that will grow to 37 percent. For IT operations, the figures are 36 percent today and 50 percent within 3 years.

There may be hope for IT employment longer term. The Hackett Group chief research officer Michel Janssen says that although the jobs outlook for the next decade isn’t bright, “... after the offshoring spike driven by the Great Recession in 2009, the well is clearly beginning to dry up. A decade from now the landscape will have fundamentally changed, and the flow of business services jobs to India and other low-cost countries will have ceased.”

Enterprises looking to cut costs still will still have “opportunities for improving efficiency,” Janssen says; they can examine “automation and end-to-end process improvements to streamline how business services are provided.”

The full report is available for free download here (short registration required).

-- James E. Powell

Posted by Jim Powell on 03/27/2012 at 11:37 AM


Comments

Tue, Apr 3, 2012 John Canberra Australia

Re: “Taxing organisations that use off-shore resources” those that can do so will go totally off-shore and then your country will have to import the products, and those that don’t go offshore will not be able to compete against the cheaper imports and so will go broke. #### Taxing the imports can be seen as a solution, but it contravenes trade agreements with other countries (if you tax their products then they will tax yours and the efficiencies of global trade will cease). Also, uneven trade can only last so long before the debtor goes broke (or invades a country steals their resources – sound familiar?). #### T-Rex – don’t worry – when the economy of the USA collapses then the US dollar will be so worthless that any country will be able to afford your products (however your manufacturing industry will be so out-of-date that it probably won’t be able to produce anything and so your people will probably have to resort to sorting the rubbish of other countries for recycling, like current third-world countries are doing with your rubbish).

Tue, Apr 3, 2012

This is awsome! After 25 years working in the basement and in cubicles, my job is moving off-shore? I always wanted to live by the ocean. :-)

Tue, Apr 3, 2012 DBNewbie PA, USA

I always wondered who will purchase the goods and services offered by companies as they lay off the people "locally" and these former employees can no longer get "higher paying" employment? I read recently that Japan is now also suffering from a loss of leadership in the electronics industry (similar to what happened to the USA) as the technology moves to other Asian countries.

Tue, Apr 3, 2012 LongTimer MidWest

I'm tired of all the doomsday predicters. We can offshore writers, editors, pundits, and everything else yet these doomsdayers are still here predicting this nonsense. Offshore them!!! And just as soon as the economy completely collaspes for lack of monetary exchange then AND only then will our elected village idiots get the message.

Tue, Apr 3, 2012 t-rex

Eventually we wont need non essential products at all cause we can't afford to buy them and that will dry up pretty much the rest of the country. When the majority of folks can't afford to buy any extras or do things with their families where will that put us? Way to go to the politicians who thought a global economy would fix things and be good for America. We buy their stuff yet they don't want ours or can't afford ours. What's wrong with that picture?

Tue, Apr 3, 2012

With all the complaints about the deficit in this country how about establishing a tax on off shore jobs. If you ousource jobs we tax the corporations the difference in the salaries. If they wish to move their operations to a different country they must pay annual dues to continue to operate here or be allowed to get government contracts. If they wish to keep money out of the tax pool then their rights to do business in this country should be removed.

Tue, Apr 3, 2012

Don't worry - rep ryan says if we cut the income tax rates of the ceo's it'll get better!

Thu, Mar 29, 2012 John Canberra Australia

Don’t worry – it is just the wealth of the world redistributing itself. Work migrates to the cheapest location capable of doing it. Where the work can be performed by telecommuting then it goes to the absolutely cheapest location. Where the work can only be done locally then it stays where it is (but can still be done by imported labour if the cost structure is suitable). Unfortunately most of the work that can only be done locally is low-tech work (and so low-wage), so it is the high-tech (and high-wage) jobs that can go somewhere else. Now most large organisations have shareholders (mainly a few rich people), and are required by law to maximise profit for those shareholders (the rich people make the laws, so the laws are made to ensure the rich people get richer). So those organisations have no choice but to cut costs by going to the cheapest source of labour (although the executives make the decisions so they exclude themselves from this process – sort of a protected species (sorry Carlos)). This transfer of wealth will keep going until the majority of the wealth has moved off-shore and your country has become essentially a third-world country, and the place the work went to has become a first world country. Of course the rich people (generally the executives) will move to this other country and just keep going whilst your country becomes a slum and so a potential source of low-cost labour and the process may eventually reverse (after about 10 generations assuming the world doesn’t destroy itself in the meantime), and the associated collapse of infrastructure meaning that cities cannot get food or water will unfortunately lead to mass starvation (sort of like some other countries at the moment, and the current first-world doesn’t care). This might occur more rapidly in the USA if China calls-in the trillions owed by the USA. Regardless, first-world countries (including Australia) will suffer financial failure and meltdown.

Thu, Mar 29, 2012

Let's start outsourcing medical services (including physicians) and legal services (including lawyers). Then, watch the outsourcing dry up!!!!

Thu, Mar 29, 2012 Carlos

Now if only the upper management jobs would be outsourced to India. Anyways, we never see our CEO. Never met him, spoke to him or anything. I'm thinking he can be replaced by one overseas and no one would know the difference. I'm sure that would save more money than a few IT guys.

Add your Comment

Your Name:(optional)
Your Email:(optional)
Your Location:(optional)
Comment:
Please type the letters/numbers you see above