U.S. IT Jobs Take a Hit: One In Four Going Offshore

Economic recession in the U.S. is not slowing the move to offshore IT jobs, if anything it's fueling it, according to a survey by the Hackett Group. Offshore outsourcing has long been touted as a way to cut costs for staffing.

Large companies are accelerating their use of offshore outsourcing and as many as a quarter of IT jobs at Global 1000 firms may be moved offshore by 2010, according to The Hackett Group, a Miami-based consulting firm whose clients include many multinational firms.

According to its research, these large firms—companies with revenues of at least US$5 billion—will move about 350,000 corporate jobs offshore over the next two years. Over half of those jobs will be in IT, with the remainder in finance, human resources and procurement.

The data "is a confirmation of a mega-trend" similar to what happened in the manufacturing sector several decades ago, said Michel Janssen, Hackett's chief research officer. And while 25% of the IT jobs may head overseas in the next two years, over the longer term that figure could hit 60%. In some firms, it could reach 80%.

An earlier study that looked at the impact of offshore outsourcing on IT, based on data collected from 10,000 people, estimated that as many 8% of all IT workers have been affected by offshore outsourcing.

The Hackett Group surveyed 200 firms in October, 40% of which have headquarters in the U.S. with a similar percentage in Europe. The IT headcount in each of these companies is about 1,600.

This big shift in jobs to low-cost offshore locations may be accelerating, in part, because companies are more experienced—and comfortable—with offshoring and have developed standardized practices, according to Erik Dorr, Hackett's senior IT research director. The survey was completed in October and he is uncertain how economic conditions influenced responses.

"What is clear, though is they are certainly not slowing (offshoring) as a result of economic crisis," said Dorr. "If anything, they are going to be more aggressive."

The typical company is currently realizing about $16 million in annual savings from offshoring, with more than half of that in IT cost savings. That savings will grow to $30 million by 2010 as offshoring increases—a figure that still only represents a third of what these firms could eventually save.

Despite the growth in offshoring, the overall economy has seen a net gain of IT jobs in recent years; Whether that trend will hold, given the current downturn, is unclear, said Dorr.

The study did find that in finance and IT, about 50% of all companies surveyed are freezing hiring, cutting staff or doing both.

Janssen said that in today's world companies have to use global delivery models if they want to grow and create new jobs.

"If you are sourcing all of your labor from high cost countries, you are not going to be in business—period," said Janssen.

This story, "U.S. IT Jobs Take a Hit: One In Four Going Offshore" was originally published by Computerworld .

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