Report: 2005 A Record Year For Outsourcing

Workers loathe it, politicians rail against it, and one TV newsman vilifies it almost nightly. Despite it all, companies are outsourcing work at record levels, according to new data released Wednesday.

The number of outsourcing contracts--through which businesses hand off routine IT and back-office work to a third party, often operating from a low-wage foreign country--increased 9% in 2005 to 293. It's the most deals seen in a single year, according to consulting firm Technology Partners International, which published the data.

But while the number of deals is up, businesses are actually spending less on outsourcing. That's because an increasing amount of the work is performed in India or other places where labor is cheap. Indian service providers grabbed 6% of all outsourcing contracts worth more than $50 million in 2005, compared with 2% the previous year, TPI reports.

Meanwhile, big U.S. outsourcers like IBM and EDS are opening their own facilities offshore to stay competitive. Also driving down contract values is the growing tendency among businesses to parcel out work in smaller chunks and for a shorter duration. The total value of contracts let in 2005 dropped 5% to $75 billion, says TPI.

Outsourcing is controversial because critics say American workers pay the price for businesses' desire to use labor in countries with questionable employment practices. Democratic presidential challenger John Kerry famously called executives who outsource "Benedict Arnold CEOs." CNN anchor Lou Dobbs often devotes entire programs to the issue under the banner "Exporting America." To date, however, most legislative efforts aimed at curtailing offshore outsourcing have failed to pass Congress or state legislatures.

Not all work that's outsourced is bound for foreign shores. The vast majority is still performed domestically, despite popular perceptions. In fact, outsourcers are beefing up their workforces in the United States. According to the Labor Department, payrolls among IT services firms grew by nearly 32,000 workers in 2005, a 2.7% gain for the year.