All Politics is Local
While lots of companies are actively pursuing offshoring, we found that few were willing to talk publicly about it. As the debate about offshoring's impact on domestic job losses has swelled, companies who had previously talked openly about their strategies began to clam up, thinking better of becoming the poster children for offshoringparticularly while the U.S. unemployment rate hovers stubbornly around 5.6 percent. In February, just after the Bush Administration predicted that the nation's economic recovery would bring an average of 300,000 new jobs each month in 2004, federal officials instead recorded only 21,000. And most of these jobs were government positions.
Meanwhile, the Bureau of Labor Statistics reports that fewer than 800,000 service-sector jobs have been sent overseasless than 1 percent of the 140 million jobs in the U.S. economy. But those numbers, say observers, are growing rapidly. Forrester Research forecasts that between now and 2015, 3.3 million service-sector and IT jobs, a total of $136 billion in wages, will go overseas. And Gartner forecasts that 25 percent of traditional IT jobs will be located in emerging markets by 2008indeed, roughly one in ten such jobs is already performed offshore, or will be by the end of this year, according to Gartner. Forrester's analysts believe the sectors with the most offshore activity will be IT and financial services. Speaking at the World Economic Forum in January, Nandan Nilekani, CEO of Infosys Technologies Ltd., an outsourcing firm based in Bangalore, India, noted that data will define what moves overseas. "Everything you can send down a wire is up for grabs," he said.
Despite the political fallout, however, the siren song of competition continues to lead CIOs down the offshoring path. "Outsourcing is an inevitable movement," says Jim Honerkamp, former CIO of building-services company Clopay Corp. in Mason, Ohio, and now an outsourcing consultant in Cincinnati. "Every CIO out there is faced with the same challenge I was faced with: Do more for less. There's no way to do it without leveraging these overseas capabilities. A lot of companies, Clopay included, do not like to advertise that they do a lot of [offshoring]. But you know that if a company isn't already doing it, they're going to be doing it. It's not just an economic decision. You have to have a good process, and a good partner. If you have all that in place, the economics are overpowering."
Yet it's a decision no company makes lightly. According to Forrester, more than 60 percent of the largest companies in the U.S. are "bystanders," with no offshore outsourcing relationships. Another 25 percent to 30 percent of Fortune 1,000 firms are considered "experimenters"companies with multiple, small offshore relationships intended to augment internal IT staff or act only as lowcost contractors. Fewer than 10 percent of America's largest companies are either "committeds," employing offshore suppliers for more complex maintenance and development, or "full exploiters," outsourcing the bulk of their IT processesand budgetsto offshore suppliers.
And there are those in the outsourcing industry who argue that without offshoring, the U.S. economy would be in even worse shape than it currently is. "We're helping companies to stay competitive," insists Bill Gargano, senior vice president of sales and marketing for EPAM Systems Inc., an IT outsourcing firm based in Lawrenceville, N.J. "If they can get the same or increased value at half the cost, [shareholders] would be screaming if they didn't try. You would fault them for not being prudent, not managing the business better."