Offshore Sourcing Impact on U.S. IT Services Likely Mixed

With IT "offshoring" set to quadruple by 2007, U.S. services activities will see steady growth, IDC predicts

With IT "offshoring" set to quadruple by 2007, U.S. services activities will see steady growth, IDC predicts

Framingham, MA  November 25, 2003  The offshore component in the delivery of U.S. information technology (IT) services could increase more than fourfold in the next four years, but that might not translate into a doomed outlook for U.S. IT services jobs or U.S.-based services firms, according to a new report from research firm IDC.

An IDC survey of leading IT services vendors revealed that the "offshoring" of U.S. IT services may rise to as much as 23 percent by 2007, up dramatically from 5 percent in 2003, the research firm reported in its study "Offshore Services: The Impact of Global Sourcing on the U.S. IT Services Market."

But while the mainstream press has seized upon the threat of offshore sourcing to U.S. jobs, IDC asserts that U.S. services firms will continue to use offshore resources to lower costs while the majority of U.S. workers at risk will leverage their current expertise into new skills that will remain in demand.

"Several facts have been lost in the debate about offshore sourcing," said Ned May, program manager of IDC's worldwide services research. "One is that much of the spending to date has focused on only a few activities, which limits the impact of offshore on the broader market. 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 U.S. soil."

To obtain an estimate of the impact that offshore sourcing may have, IDC applied a supply-side survey to the U.S. 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 affected 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 and 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 predominantly those that can be viewed as requiring low skill since process and repeatability are key underpinnings of the work," added May. "Innovation and deep business expertise will continue to be delivered predominantly from onshore."

The IDC study utilized the supply-side survey and IDC's own demand-side spending model to extrapolate the potential impact that offshore sourcing could have on the U.S. IT services market over the next four years. IDC recently launched its global offshore services research program, which covers offshore topics and which is slated to produce forecast data pertaining to offshore services in the first half of 2004.