IDC: Offshore outsourcing increasing from U.S.

U.S. companies will spend over US$17.6 billion on offshore outsourcing in 2005, more than triple the current spending amount, according to a study released Wednesday.

Companies based in the U.S. spent only $5.5 billion on offshore outsourcing last year, but will increasingly need to look overseas for IT talent in the future, rather than using offshore workers to save money, the report from analyst firm International Data Corp. (IDC) said.

“Cost is still a primary reason for companies going overseas, but I think that access to IT talent is becoming more and more important,” said the report’s author, Cynthia Doyle, research manager for IDC’s IT and Offshore Outsourcing Strategies program. “The reason used to be entirely based on cost,” she added.

Electronic commerce and Web-based application development will be the fastest-growing offshore outsourcing segment, with spending rising to $5.6 billion in those areas alone, more than the total amount spent on the entire market last year, the report, called “High-Technology Sector Opportunities in Offshore Outsourcing,” said.

“In terms of IT services, application development is the biggest market,” Doyle said. “It’s primarily mainframe-based application development, with some enterprise platform development as well.”

However, it is now even cost-effective for U.S. companies to outsource their call centers overseas as well, she noted.

“It’s economical because of satellite technology, and the employees make much less money than if they were in the U.S.,” she said. By hiring people to work different hours, it is practical for companies to outsource their entire call centers, Doyle added.

India, with its solid infrastructure, widespread fluency in English and vast pool of IT talent, is best placed to control the largest portion of the offshore outsourcing funds, IDC said. Other countries, such as Canada, Mexico, Eastern Europe, Ireland and South Africa still have the potential to develop into major players.

“Clearly for India, this market is a driver of their economy,” Doyle said. “They see the opportunity they have, and they want to maintain their dominance in this field.”

IDC is a subsidiary of International Data Group Inc., the parent company of IDG News Service.

IDC Corp., in Framingham, Mass., can be reached at