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The End Of Offshore Outsourcing?

CMP Information Week
InformationWeek Daily - Thursday, Nov 15, 2007


Editor's Note

The End Of Offshore Outsourcing?

Is the allure of work done overseas fading? Or is it as viable as ever? I can't reconcile conflicting reports.

I got an e-mail today from a PR person suggesting a few "Hot IT Topics For 2008." The e-mail was an inducement to talk with analysts at a consulting firm by the name of Lab49, which the PR person was representing. One of the "hot" IT topics suggested for discussion was this:

The end of offshoring: As costs rise in offshore locations and firms are seeing projects fail, much of the gusto for offshore is fading.

* New thing is rightsourcing, using high-quality onsite resources where possible.

I don't know about that "rightsourcing" thing, but the strongly stated thesis of the pitch made me scratch my head. My colleague Mary Hayes Weier recently wrote a feature story about the viability of offshore outsourcing 10 years after it first made an impact on domestic businesses, and in that article she made this point:

Two-thirds of companies on the InformationWeek 500 list of business technology innovators say they do offshore IT outsourcing, up from 43% in 2004. Consulting firm NeoIT estimates that 75% of the world's 2,000 largest companies are engaged in offshore outsourcing, with 20% of their IT budgets spent on offshore contracts; it predicts that could rise to as much as 40% of budgets in the coming years.

That sounds pretty viable to me.

However, the results of the most recent survey by the Society for Information Management of 130 CIOs and top IT execs would seem to contradict the thesis that offshore outsourcing is on the rise, and suggest that maybe "The end of offshore outsourcing" is a hot topic after all. Almost 60% of the SIM survey respondents said that less than 10% of their 2007 IT budgets had been allocated for outsourcing of any kind, and 73% said that no amount of their 2007 budgets -- 0% -- had been allocated for offshore outsourcing.

Unfortunately, there was no mention of budget resources allocated to "rightsourcing."

Last's year survey, according to SIM, pegged the average amount of 2006 IT budgets spent on offshore outsourcing at 4.23%; this year the average is 1.1%.

That's the opposite direction from viable.

I can't reconcile those results, at least not without further research. I need to speak with the consultants at Lab49, as well as those at NeoIT. Maybe I could hook up a conference call with those analysts, some people from SIM, and a few CIOs who either are or are not allocating X percent of funds from their IT budgets for offshore outsourcing.

And maybe somebody could explain that "rightsourcing" thing then, too.

Feel free to leave your comments on the CIO Uncensored blog.

John Soat
jsoat@cmp.com
www.informationweek.com

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