Offshoring Will Kill 1.5 Million IT Jobs by 2017

Approximately 1.5 million IT jobs — about half of the number that existed in North America and Europe in 2002 — will have been eliminated by 2017, according to new research from The Hacket Group. The mass job loss will be attributable to the combined impact of offshoring, technology-driven productivity improvements and a low-growth business environment.

The research factors new job creation into the figures. Over that 15-year period, Hackett says 620,000 new IT jobs will have been produced while 1.2 million will be eliminated due to productivity gains and 950,000 will have moved offshore.

The eradication of IT roles will actually slow over the next couple of years — Hackett predicts 63,000 net jobs will be lost this year — due to predictions of an uptick in economic growth.

Roles in application maintenance and development along with infrastructure support have been the hardest hit, says Eric Dorr, senior research director with the Hackett Group, and its unlikely those positions will ever move back onshore.

“While there will still be new jobs and a lot of IT work taking place, those jobs that moved offshore are not coming back,” Dorr says. “That’s a relatively rare phenomenon.”

Companies Need Global Business Services — and More Onshore IT Talent

A major factor in the continued embrace of offshoring has been the expanded use of global business services, a shared services approach to supporting an integrated suite of back-office business services including IT, finance, and human resources.

Many companies have found they count on global business services operations to drive cost and productivity improvements year after year, according to The Hackett Group, saving an average of 20 percent in the first year and 6 percent in subsequent years. “Global business services are here to say,” says Dorr. “No question.”

Meanwhile IT leaders are facing talent shortages onshore. “The real limitation in a company’s ability to implement technology is talent,” Dorr says. “And there is only so much talent to go around.” Currently IT organizations are facing shortfalls in the areas of big data analytics, according to Dorr.

In the several years that The Hackett Group has been researching and modeling the state of IT employment in the west, the most surprising development has been increasing automationg and productivity gains companies have achieved.

“Two years ago, everyone was talking about offshoring. But at the end of the day, a company would prefer to eliminate a job [altogether rather than moving it offshore,” says Dorr. “With increased economic uncertainty and rising wage levels offshore, we’ve seen a shift toward more automation — companies just trying to eliminate the work.”

Ultimately, the Hackett model represents a more mature and global market for IT talent, according to Dorr. “One thing we starting talking about last year was the there are only so many jobs can move offshore. At some point that dries up,” says Dorr.

“That doesn’t mean globalization is coming to an end — quite the opposite, we’re entering the next stage of globalization. Companies are creating a far more rational and globally integrated model of where to source labor based on availability, qualifications and cost. A few years from now it will be more of a truly globalized economy,” Dorr says.

Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.