Overview of the Offshore Mega-trend

Offshore outsourcing refers to the practice of sending a service job overseas for execution. The most common type of offshore outsourcing is that of software application development and maintenance, whilst other types of outsourcing including inbound/outbound call centers and claims processing are growing. While manufacturing has been outsourced to globally competitive locations for over 20 years, the trend of outsourcing services is a relatively new one and has been growing over the last decade due to the growth of internet, improved global communications capabilities and supply-demand imbalances in programming talent. Outsourced services are executed in multiple models including onsite (at the customer premises), offsite (within the country, but away from the customer premises), nearshore (in a neighboring country like Canada/Mexico/Carribean) and offshore. More often than not a single vendor offers a mix of these models to cater to the needs of the customers. The speed with which offshore is growing has created a 'backlash' effect in the US and in Europe with displaced programmers voicing protest on this phenomenon. Most experts conclude that while the backlash can slow down the pace of outsourcing or can affect outsourcing decisions in the government sector, the offshore outsourcing trend is here to stay.

Growth of Offshore

Offshore outsourcing, which began in a small way in late 1980s, has grown fast to acquire significant dimensions as an industry. Though consolidated figures are not easily available, a good way to estimate the growth in the industry is to look at the growth of software services exports from India, the leader in offshore outsourcing. The figure below from NASSCOM shows the growth of the Indian offshore outsourcing services business:

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Another way of getting an idea of the growth of offshore outsourcing is to look at the anecdotal evidence of the growth as available through trade journals and websites:

• Consulting company McKinsey estimates that by 2010, the U.S. IT industry will save $390 billion through offshore outsourcing of software development.
• India's IT sector exported $10 billion worth of goods and services last year, and projects it will reach $21 billion to $24 billion in 2008.
• Forrester Research estimates that in the next 12 years, 3.3 million IT jobs will leave the United States and go overseas
• Gartner reported that by the end of next year, one out of every 10 jobs with U.S.-based information technology vendors and service providers will be exported. By 2004, according to the 2002 Gartner report, more than 80 percent of corporate boards of directors will have considered offshore outsourcing, while 40 percent of corporations will have finished an outsourcing pilot program or be actively involved in outsourcing technology services.
• Gartner Inc. announced that the offshore outsourcing horse will ride off with one in 20 IT jobs by the end of 2004. The percentage is even more salient in the software industry. According to research firm Sand Hill Group, more than 80% of software companies are (or will be by this time next year) offshoring code-writing duties or implementation work. Sand Hill surveyed executives from 51 software companies to get its figures.