by CIO Staff

Offshore Outsourcing Primer

Apr 01, 20022 mins
IT Strategy

Why go offshore? Since the mid-’90s, major U.S. companies have been sending significant portions of their application development work offshore?primarily to vendors in India, but also to emerging IT services companies in China, Eastern Europe (including Russia), Ireland, Israel and the Philippines. The lure: good work done cheap. A programmer who earns as much as $63,000 per year in the United States is paid as little as $4,750 overseas. Companies can easily realize labor cost savings of 30 percent to 50 percent through offshore outsourcing and still get the same?if not better?quality of service.

Where offshore? Developed and developing countries throughout Europe and Asia offer some IT outsourcing services, but most are hampered to some degree by language, infrastructure or regulatory barriers. The first and by far biggest offshore marketplace is India, whose English-speaking technocrats have built the IT services business into a $4 billion industry. Infosys, NIIT, Satyam, TCS and Wipro are among the biggest Indian IT vendors, each now with a significant U.S. presence.

What’s the offshore outlook? Stephanie Moore, a vice president with Giga Information Group in Cambridge, Mass., says a 23 percent growth in offshore outsourcing is expected this year. Forrester Research Analyst Christine Spivey Overby, who recently surveyed 45 IT executives at companies having $1 billion or more in annual revenues, found that 44 percent outsource offshore today, with the remaining two-thirds of them expecting to go offshore by 2003. Squeezed to get more bang from their tight IT budgets, CIOs are beginning to look at “near-shore” options in Mexico, Canada and on American Indian reservations.