Nearly Half Of U.S. Tech Companies Outsource Offshore

Currency risks and uncertainty about the political and business climate overseas are the top worries of technology industry CFOs regarding their companies' international operations and outsourcing, according to a report released today.

The telephone survey of 100 chief financial officers at U.S. technology companies with annual revenue of $100 million to $15 billion, conducted by accounting and consulting firm BDO Seidman LLP, also found that nearly half (49%) of those business offshore some manufacturing or services outside the U.S.

Nearly eight in ten -- or 79% -- of the CFOs also said their companies have business operations outside the U.S. "Outsourcing [offshore] is a lot more prevalent than a lot of people imagine," said Lee Duran, partner in BDO Seidman's technology practice, in an interview with InformationWeek. "Nearly half of companies are doing this, that's a lot of focus on offshore outsourcing."

Silicon Valley tech firms are even more likely to offshore than the average U.S. technology company; 64% of tech companies in Silicon Valley said they source services or production of products outside the U.S. Of U.S. technology companies that outsource business functions offshore, 74% are offshoring manufacturing; 51% are offshoring programming and IT services, including internal services and those offered to external customers; 49% are offshoring research and development; 45% are offshoring distribution; and 35% have outsourced call centers outside the U.S.

Still, those international business activities don't come without worry. Twenty-six percent of the CFOs said concerns about currency was the top risk to growth in their international business in 2008. Those worries include uncertainty about the exchange rate of U.S. dollar, and whether overseas sales will continue to be strong against the weak U.S. dollar, said Duran.

The next biggest worry CFOs have is uncertainty about the political and business climates -- both offshore and in the U.S, which was named as the top worry of 25% of the CFOs polled.

That uncertainty includes worries about how offshoring is perceived by companies' customers and the public; privacy laws to protect against identity theft and other security breaches; as well as the outcome of the upcoming U.S. Presidential elections and related changes in U.S. trade policies, said Duran.

But those aren't the only things CFOs are losing sleep over. Seventeen percent said they were most worried about training international employees; 14% said they were concerned about risks to intellectual property; and 12% were most troubled by international business tax regulations.

The most popular destination for offshore outsourcing among U.S. tech firms is India (60%), followed by Southeast Asia (50%); China (46%); Western Europe (21%); and Latin America (19%).

"Companies aren't considering only at the cheapest places, but are looking at location for other reasons, like being closer to their customer bases," says Duran. "Some companies are begun outsourcing to Mexico because they want to be in the same time zones as their U.S. customers," he said.