Offshoring Will Climb Through 2016

Companies in the U.S. and Europe are set to shift an additional 750,000 jobs in IT, finance and other business services to low-cost regions by 2016, according to The Hackett Group.

Outsource signHowever, the report says the overall trend toward offshoring should slow beginning next year, and could cease by 2022 as corporations simply run out of business service jobs that are appropriate to send to lower-cost markets. The eventual drop in offshoring will challenge Western corporations looking to cut their costs, the report said.

Hackett Group Chief Research Officer Michel Janssen noted offshoring will continue to hit the U.S. and Europe hard in the short term. “After the offshoring spike driven by the Great Recession in 2009, the well is clearly beginning to dry up,” he said. “A decade from now the landscape will have fundamentally changed, and the flow of business services jobs to India and other low-cost countries will have ceased.”

The Hackett Group analyzed available data on 4,700 companies with annual revenues of more than $1 billion with headquarters in the U.S. and Europe. By 2016, a total of 2.3 million jobs in finance, IT, procurement and HR will have moved offshore, it predicted. The total represents about one third of all jobs in these areas.

India is the most popular destination for offshoring, with about 40 percent of positions in IT, finance and key business services sent there.

20 Responses to “Offshoring Will Climb Through 2016”

  1. Actually, we are seeing the opposite. Many companies have realized how offshoring has harmed their business and have been able to quantify how poor the service they receive is. We are seeing a lot of almost frantic “near-shoring” and repatriating of functions.

  2. Unca Alby

    It is my firm belief based on experience that many companies will eventually come back to hiring US employees as they begin to discover that outsourcing cuts their labor costs in half, but for that money they are getting a third the productivity. Unfortunately, many will go bankrupt before learning how to work this arithmetic.

  3. Sorry, not buying it. Many companies are realizing, with the Great Recession, that the cost of moving jobs offshore isn’t really saving a lot of money. I see that trend continuing and the number of jobs being offshored reducing, not increasing. Keep in mind, too, that India’s economy is teetering on the brink of collapse. Wages are going up there, too.

  4. Rolling Stone

    A larger-scale trend of cutting cost accelerated off shoring. CEO or VP Finance won’t care about long-term prospect of their companies, but only short-term profit (a result of lower cost) and then bonus and stock performance.

  5. Seeing Things

    No wonder. The short-term results of off-shoring – immediate reduced costs and bonuses to the MBAs who worked the deal do become apparent after the deal is complete – the overload on remaining on-shore resources, the lack of effective oversight, the inability to provide good quality results – and show up as long-term issues that do NOT help the bottom line. Eventually those MBAs will have to roll up their sleeves and develop the skills to actually grow business instead of cutting down the parts that support the business and that should mean bringing a lot of that work back in-house.

  6. Curt Spanburgh

    I’ve just seen a FB post of a very technical person who had a windows 8 issue and called support.
    It was a three day farce.

    Now I just got off a Lync meeting and one of the speakers was Asian but he spoke very well.
    On the other hand, being able to communicate is a prereq to assisting someone in a technical matter.
    So, If I perceive that the person that is speaking and trying to do a job that he cannot, I start speaking in my other language.
    Oddly enough , the support person whom I cannot understand and cannot understand me, then says “Sorry, but I cannot understand you, I’m ending the call”.

    It’s not just offshore that is a problem. I was dealing with U.S. folks, and I used the word Osmosis on a conference call and one VP asked “What Carrier is that?”. There was a long pause and then someone explained the term to him, which he had never used or understood..
    I guess that’s why they stapled the CDs in a tech book through the CD to make sure it did not fall out or allow people to grab the CD out of the book in the store.
    Quality control?

  7. Just cutting costs by using off-shore resources needs to be evaluated based upon its full impact to the business not just one little component. As an example, the company I use to work for attempted to outsource technical support for the engineering design group. So they saved money on support, but now they had $100/hour design engineers waiting 4-24 hours to have technical issues resolved that use to be resolved onsite within an hour or two. Since the person who made the decision to save money in support had no involvement in engineering, they didn’t see the increased costs in engineering. It took more than 2 years to scrap the offsite support when it was shown to be the root cause of a few critical deadlines being missed.

  8. Susan Ryan

    Re the statement “After the offshoring spike driven by the Great Recession in 2009,” I believe that it’s the popular misconception that offshoring was driven by “the Great Recession,” when in fact it actually caused it. Offshoring began to have a real impact on IT jobs early 2000’s and THEN, by 2009, it was felt so strongly that it helped collapse everything.

  9. Richman73

    It’s been followed by extensive inshoring (bringing workers in from India and elsewhere) to corporate offices here in the USA. More collateral damage: it’s deflated the hourly pay rate here to be in sync with what they’re paying to offshore workers, not to mention the idea that “contingent worker” has become the new norm: no benefits, no vacation, etc.

  10. I was hired to be the on site field tech by an off shore network support company in India. I would have never believed that a 30 minute problem could take two weeks to solve. It happened regularly though. The India techs appeared to be working from a troubleshooting guide. Steps 1 through 5 always fix this symptom. When steps 1 through 5 did not fix the problem, repeat steps 1 through 5. It was funny at first to try to convince the network tech that changing the network patch cable on a VoIP phone would not fix a static noise problem. It was common to replace the same patch cable three of four times before they gave up. The known problem was in a remote call center. Of course I was on the receiving end of user irritation.

    Another typical issue was replacement of a redundant supervisor module in a Cisco chassis switch. I told the tech at the start of the process that both supervisor modules had to be running the same version OS to work together. After four hours, they decided to reschedule the module swap while they researched the implications of changing the new supervisor module OS version. A week later, a network engineer from the US company scheduled a change, came online, uploaded a matching OS to the new module and successfully configured the redundant module. 30 minutes start to finish. That is exactly what I told the India tech to do at the start of the first change.

    Thankfully, the US company terminated the support agreement for not delivering results. Unfortunately, I was on the wrong side of that situation. Under the hood, things are a lot worse than the public or consumers of the outsourced service ever see.

  11. Well I am not sure that offshoring always reduces quality. There are skilled and unskilled peoples every where in the world and even US is not exception of that. Rather there are examples where a quality deliverables has been made from offshore at a reduced cost and within a stringent deadline (with almost no defect during User Acceptance test which was executed for around 2-3 months) this particularly true for IT deliverables.

  12. “Well I am not sure that offshoring always reduces quality…”

    No change in process should ever affect quality in any way except to improve it. If it is to be useful, offshoring should NEVER affect the quality of the final product.

    “almost no defect…”

    Would you be OK with jumping with a parachute that had “almost no defect”? Probably not.

    As far as reduced costs, I know, based on my experience for the last 10 years, this is an accounting fiction. I have seen code that was produced with offshore resources. Despite some fairly rigorous specs the low level design was poor, the code itself was “brittle” and the documentation was either non-existent or so poorly written as to be confusing or misleading. The net effect was that we spent a lot more money cleaning up the project than we saved in offshoring. Unfortunately, by that time the folks who had dreamed up the offshoring had moved on to a new, unsuspecting group where they were once again selling the wonders of offshoring.

    The folks who advocate offshoring almost invariably have no clue as to the process they are sending out. They have a very myopic view of the company, its products and customers. They concentrate on the bottom line in their projections, but never look at the final result because it usually doesn’t support their original premise.