5 Reasons Outsourcing Is Here To Stay

The tech services industry is in the midst of a downturn, but outsourcing isn't going anywhere—it offers too many benefits.

Paul McDougall, Editor At Large, InformationWeek

December 14, 2012

4 Min Read

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Outsourcing sales fell 33% to hit a nine-year low in the third quarter, according Ovum. Meanwhile, General Motors is moving IT operations back in house, Apple will start making some Macs in the U.S., and outsourcers were painted as economic Benedict Arnolds during the election.

Is this the beginning of the end of outsourcing as a staple business practice? Short answer: Not by a long shot. Here are a few reasons why.

1. Cost Savings

Labor and related costs are rising in India and other popular outsourcing destinations, including Eastern Europe and Brazil. But it is still considerably cheaper to have work done offshore than domestically. Industry data culled by Staff.com showed that while senior programmers in the U.S. can make more than $90,000, a similar position in India might pay as little as $14,000.

2. Skills Gap

While the national unemployment rate stands at 7.7%, the unemployment rate for tech workers is less than 4% -- below what the federal government defines as full employment. Microsoft currently has 3,400 open engineering positions it says it's having difficulty filling. Consumers Energy in Michigan has turned to outsourcer HCL Technologies for tech help. "It's tough to get good talent right now," CIO Mamatha Chamarthi told me earlier this year.

[ It will take years to close the big data skills gap. In the meantime, Big Data And Analytics Expertise: Beg, Borrow Or Steal? ]

You'll hear the same story from most tech execs. Finding workers with specialized skills in hot areas like mobility, the cloud and big data analysis is difficult. Until the supply increases, businesses will turn to outsourcers to fill the gap.

3. Visa Shortages

It's not just workers that are in short supply. The annual allotment of 65,000 H-1B visas available to foreign workers is generally exhausted within the first few weeks of availability each year. After that, a business that wants to bring in, say, a talented SAP expert from Bangalore needs to wait for the next fiscal year to roll around.

Companies are getting around this by placing the work offshore. Microsoft has opened a development center in Vancouver, Canada and uses it, among other things, as a sort of holding station for Asian recruits who can't get U.S. immigration papers. If the help can't come to the work, the work will go where the help is.

4. Global A Go-Go

Even without the cost savings, many companies would still hire offshore workers, as the practice offers a number of benefits beyond the bottom line. Having staff located around the world, whether at a captive center or a third-party site, allows the company to operate 24x7. Call center workers on a day shift in India or the Philippines can handle evening or overnight operations for U.S. customers, for instance.

Offshore operations also help companies understand and reach new markets. Insights gained from having a development center in, say, Brazil, could be invaluable for a business that ultimately wants to sell into that country. Ditto for the many other high-growth, emerging markets around the world.

5. The Cloud

Is the cloud outsourcing? Of course it is. Hosted services like Amazon's EC2, Microsoft's Azure, Oracle Cloud or IBM SmartCloud allow CIOs to hand off routine operations like hardware maintenance and network monitoring to third parties. That, in turn, lets them get by with fewer in-house employees, or they can redeploy staff members to more strategic projects, such as supporting new business initiatives. That was the most-frequently cited benefit among respondents to InformationWeek's 2012 State of IT Outsourcing survey.

So while outsourcing is going through a tough spell, it's far too early to say the industry is headed for a permanent contraction. The IT business tends to be cyclical, and outsourcing is no different.

About the Author(s)

Paul McDougall

Editor At Large, InformationWeek

Paul McDougall is a former editor for InformationWeek.

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