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