The Hindu : Business : Benefits of global sourcing of IT services

Online edition of India's National Newspaper
Sunday, Apr 18, 2004

Business

Business

Benefits of global sourcing of IT services

By Shanthi Kannan

CHENNAI, APRIL 17. Spending for global sourcing of computer software and services is expected to grow at a compounded annual rate of almost 26 per cent, increasing from $10 billion in 2003 to $31 billion in 2008. During the same period, total savings from the use of offshore resources are estimated to grow from $6.7 billion to $20.9 billion.

The estimated spending represent 2.3 per cent and 6.2 per cent of total IT software and services spending by the U.S. corporations in 2003 and 2008, respectively, according to a recent survey done on the economic impact of offshore IT software and services outsouring. Global Insight on behalf of the Information Technology Association of America (ITAA) undertook the survey.

The survey reveals that cost savings and use of offshore resources lower inflation, increase productivity, and lower interest rates. This boosts business and consumer spending and increases economic activity.

The benefits of global sourcing contribute significantly to real gross domestic product in the U.S., adding $33.6 billion in 2003. By 2008, real GDP is expected to be $124.2 billion, higher than it will be in an environment in which offshore IT software and services outsourcing does not occur.

The survey finds that while global IT software and service outsourcing displaces some IT workers, total employment in the U.S. increases as the benefits ripple through the economy. The incremental economic activity that follows offshore IT outsourcing created over 90,000 net new jobs in 2003 and is expected to create 317,000 net new jobs in 2008.

The impact of global sourcing on employment varies by industry sector.

The major industry groups that are expected to gain a significant number of incremental jobs over the next five years include education and health services, transportation and utilities, construction, wholesale trade, financial services, professional and business services, and manufacturing.

Workers are expected to enjoy a bump up in real wages. Offshore IT software and services outsourcing actually increases average real wages of U.S. workers.

The demand for U.S. exports is expected to increase due to relatively lower prices of U.S. produced goods and services and higher incomes in the offshore outsourcing destinations.

The U.S. has a large and rapidly growing trade surplus in services. The expected increase in offshore IT software and services outsourcing will not reverse this trend.

The study says that offshore IT software and services outsourcing has a positive, cumulative effect on job creation throughout the U.S. economy. In fact, the economic benefits of offshore ITO creates many more jobs than are displaced.

While offshore outsourcing has and will continue to displace workers in the IT software and services profession, the positive gains to the economy, as a whole, will stimulate job creation throughout the economy.

Although "lower cost" is the most commonly cited reason for offshore outsourcing, intense global competition in an environment of slower growth and low inflation demands constant vigilance over costs. Due to the low costs and high quality, using offshore resources in selected countries makes good economic sense.

Beyond the cost incentive, global sourcing provides several other practical benefits including the ability of multinational organisations to efficiently stage 24x7 operations; the opportunity to customise products and services to meet local needs; and the means of geographically deploying workers and facilities to succeed in globally dispersed, highly competitive markets.

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