Strategic CIO // IT Strategy
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5/17/2004
04:07 PM
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Offshore Outsourcers Said To Seek Risk Balance

An updated report by Forrester Research says big conpanies are looking for ways to balance the risks of having IT work performed overseas.

As U.S. businesses increasingly turn to offshore outsourcing, many large companies are looking for different ways to balance the risk of having IT work performed in overseas operations, according to details from an outsourcing report.

In updating its "Offshore Outsourcing Projections," market researcher Forrester Research essentially stuck to its earlier projections that 3.3 million jobs will move overseas in the next 11 years; on Monday, Forrester upped the figure slightly to 3.4 million.

Companies worried about control are opening their own "captive operations" in India, for instance. "There are 28 captive operations with no letup in sight," said Forrester analyst Bill Martorelli, who noted that companies such as American Express, General Electric, and IBM have established their own operations in India. But that approach isn't perfect--and Martorelli noted that British Airways had sold off an outsourcing operation in India.

With India as the clear leader in countries developing outsourcing facilities, John McCarthy, a Forrester VP, noted that some companies are looking to balance their geopolitical risk. Forrester researchers said China is growing as an outsourcing destination, although growth there is somewhat hampered by language barriers and concerns over intellectual-property protection. Another development is that Western European IT users are increasingly looking to East Europe to outsource projects.

The Forrester researchers, who've visited India recently, said they doubted last week's elections that brought about a wholesale change in the nation's national government, will have much impact on outsourcing there. They noted that much of the outsourcing drive in India has been driven by "a factor of 17 improvement" in telecommunications capacity brought about by telecom deregulation. The deregulation was promoted by the outgoing Indian government.

McCarthy said 76% of U.S. services jobs moved offshore were from multinational companies. At the same time, 63% of the 1,000 largest American companies are still "bystanders" and don't use offshore outsourcing.

McCarthy said a big part of offshore outsourcing's growth can be attributed to expansion of software applications development and maintenance. In addition, applications continue to move to more sophisticated work than say, call centers. Back-office accounting operations for the insurance and banking industries are also growing.

Forrester is predicting an "emotional" mark of 1 million U.S. service jobs moved offshore will be passed in 2006. McCarthy noted that IBM and Accenture alone will add 15,000 offshore jobs by the end of next year.

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