International Update: The Who, Where, and Why of Outsourcing

The public outcry over outsourcing—especially offshore—masks what’s really happening in corporate workplaces, reports a survey from the Enterprise Strategies newsletter group (http://www.esj.com). Well, we knew that. But what we didn’t know, and what this report makes clear, is the extent of that misunderstanding. And by providing statistics on who’s outsourcing what and where, the survey proficiently fills another gap in the general public’s knowledge.

Let’s take the biggest misperception first. All our jobs are not going overseas, or even outside our building. Of the 744 companies that ES surveyed, only 33.4% currently outsource some or all of their applications, services, or operations. Of that group, 70.2% send work to domestic service providers; only 21.5% go offshore, and 2.8% use so-called near-shore locations such as Canada and Mexico. Among companies that have completed RFPs, almost 80 percent plan to outsource domestically.

Also, it’s only the corporate heavyweights that go offshore on any significant scale. The ES study found that companies with $500 million or more in annual revenue are much more likely than smaller firms to send jobs overseas.

Another common perception, that of outsourcing as purely a cost-cutting measure, is borne out, but only partially. Of the total sample, 51.1% of the respondents rate price as the first or second most important factor in selecting a provider, but 44.8% identify proven competency. Notes the ES report: “The simple upshot, the director of IT infrastructure for a global investment management firm told us, is that outsourcing decisions should never be made on the basis of cost savings alone. Instead, this person argues, organizations must give particular weight to the ‘alignment of the [outsourcing] organization’s price and model’ with their own needs.”

For the moment, not every IT guy is in India, although it may seem that way. “Most IT jobs are staying here,” ES says. “In fact, even in skill areas in which offshore providers are widely assumed to have built-in advantages, the majority of IT jobs are staying put.” Of those that do travel overseas, application development heads the list, followed by Web site development/management, help desk support, network and data center operations, and customer support. A courageous 5.1% of the ES survey respondents, anticipating the future by many years, outsource their entire IT organization. Nearly 80 percent of these adventurous types use domestic providers—at least for now.

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