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IT offshoring savings declined for past 5 years

Stephanie Overby | Jan. 31, 2011
The average savings achieved by IT offshoring has declined for the past five years, even as companies expanded their offshore initiatives, Duke University's sixth annual corporate offshoring study found.

When it comes to IT services offshoring, only five percent of companies are really phenomenal.

CIO.com: The perceived connection between offshoring and domestic job loss has driven a great deal of anti-offshoring sentiment in the U.S. particularly given the current levels of unemployment in America. Yet just 34 percent of your respondents said offshoring had resulted in local layoffs.

Lewin: The more telling finding is the ratio of offshore employment to domestic employees. For most industries, it's a small ratio. But for software development, the ratio is very high. To me, this is a worrying signal. At time when unemployment is high, companies report that access to talent is the reason they are offshoring.

There are at least two factors at play. Small, entrepreneurial firms are far more likely to offshore innovation services than large companies. They need engineers. In some cases, the skills they need—like VSLI [very-large-scale integration] design—no longer exist in the U.S. In other cases, the venture capitalists ask the new firm, 'What is your innovation outsourcing strategy?' So even though the talent might exist in the U.S., the VCs believe that for speed to market, cost, or some other reason, the start-up firm ought to find a way to get the work done abroad. And they find that the passion and commitment to get work done offshore is higher than hiring someone in-house or on a part-time basis.

Secondly, there is a structural shift going on in the employment of technical talent. Companies are learning to substitute full-time positions with hiring engineers, programmers, and technical personnel on-demand for a particular project. That decreases the desirability of the profession to young people.

Another problem is that American companies no longer invest in keeping up the skills of their technical personnel. Unlike other countries who understand the importance of keeping up the technical skills of their people, they'd rather let them go. So unless the affected employees invest in themselves, at some point in their careers they become not employable.

We used to have a proud tradition of companies investing in maintaining their human capital. Some of the things I see are crazy. We have an example of a major technology company in this country, that rather than hire new people to replace those who are retiring, are engaging an Indian engineering company to in source their engineers do the work. When those people leave, where does that intellectual property go? Back to India in the brains of those people. Such practices only solve a short-term problem.

 

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