Did outsourcing your business' IT functions just get riskier? Obama's pledge to tax companies that move jobs overseas, the economic downturn, and the tragic terrorist plot in Mumbai might indicate it has.
The global economic downturn. President Obama’s opposition to moving U.S. jobs overseas. Recent terrorism in Mumbai, India, a leading off-shoring center.
Together, they beg the question: did off-shoring your business’ IT functions just get riskier? If you’re outsourcing overseas, should you pull back? If you were thinking of it, is this a good time to get started?
Experts’ answers may surprise you.
Outsourcing and off-shoring are actually likely to increase in a poor economy, notes Frances Karamouzis, vice president of research with Stamford, Conn.-based Gartner Research. “People do turn to outsourcing when times are bad, because it’s a quick way to significantly cut costs,” she says. Companies having to lay off employees continue to need work done and outsourcing remains a cheap option, she says.
Off-shoring to grow modestly
The lion’s share of outsourcing continues to go to businesses within U.S. shores, she points out. But even off-shoring is likely to grow next year by a modest 6 percent, she says, even though the amount of consulting work to be outsourced will shrink given that mergers and acquisitions are downsizing the economy as a whole.
Dana Shiffer, a research analyst with Boston-based AMR Research, says that larger companies, which are much more likely to look offshore to meet their IT needs, “are not changing any of their plans” in a poor economy.
What effect might President Obama have? Karamouzis asserts that Obama “hasn’t had a significant discussion” about what he might do to restrict off-shoring. She believes his campaign-trail comments were aimed at preserving U.S.-based manufacturing jobs, not white-collar positions. What’s more, she says, efforts to keep IT projects or jobs from going offshore is unrealistic, because “every economic analysis shows that we don’t have enough engineers and scientists [in the U.S.] to sustain the demand… even with 100,000 new graduates in these fields, there would still be unfilled demand.”
Shiffer adds that she doesn’t expect any Obama policies to be punitive against companies that do take work offshore. Rather, she says, Obama appears to have “an incentive mindset” that might give tax breaks to companies that create or keep jobs stateside.
Meanwhile, experts agree that India’s popularity as an offshore IT center is losing its luster. Shiffer notes that the Mumbai tragedy has added to the existing problem of wage inflation in IT centers such as Bangalore. Many companies were already looking to other locations in Asia and Latin America for cheaper sources of skilled IT labor, and this is likely to accelerate that, says Shiffer.
Karamouzis agrees that events in Mumbai may send companies looking to China or Mexico for their offshore IT needs. Companies already in India, she says, are bolting down operations by looking more carefully at their security and disaster recovery policies, and limiting travel there.
So, in light of everything, are smaller businesses likely to jump into the off-shoring fray at this stage?
No, says Shiffer. “What happened in Mumbai makes it all look scary, even though there was no disruption in service,” she says. Besides, she says, outsourcing of any kind “is a shock to the system. Smaller companies don’t really do it unless they have to.”