Off-shoring of IT talent has always been a controversial, if not caustic, issue. Companies need to stay competitive and are constantly looking for ways to get work done for less so that financial resources can be directed elsewhere. US workers find it nearly impossible to compete with the lower wages earned by their counterparts overseas. It’s a difficult and sensitive situation that has evolved over the years with a variety of people arguing both sides of the issue.
But what is the current state of IT outsourcing?
Is it still a problem? Are companies still utilizing it? What about the government? Have they gotten involved? In this two part post, we will attempt to tackle these question by offering a thorough and thoughtful analysis of the current state of IT off-shoring.
What is off-shoring?
Off-shoring is a type of outsourcing that involves moving certain business functions to another country. Within the realm of IT in the United States, these countries usually involve one or more of the following countries: India, China, Russia, Ireland, and the Philippines.
Reasons for off-shoring
Saving money is the major reason for off-shoring IT functions. Wages for IT workers overseas are typically much lower than here in the US. Money saved in one area of a business can be used in another. It is a strategic decision. One that is made in an effort to increase a company’s competitiveness.
The other significant reason for off-shoring IT talent and functions is difficulty in finding qualified candidates in the US. It’s true, there is an extreme shortage of IT talent in the US. We’ve discussed the topic many times on Staffing 360:
The President even spoke of the shortage during a recent Hangout on Google+. And in the State of the Union, the President said he hears “from many business leaders who want to hire in the United States but can’t find workers with the right skills. Growing industries in science and technology have twice as many openings as we have workers who can do the job. Think about that — openings at a time when millions of Americans are looking for work.” Off-shoring is one way that companies are dealing with this shortage of IT workers.
Current Off-shoring issues
For all its promise, off-shoring does have issues that are currently having an impact on its growth.
Wages for IT workers in places like India and China are on the rise, making off-shoring less attractive. This increase in salaries will only continue, reducing the effectiveness of one of the major advantages of off-shoring. An analyst at Forrester Research stated that there are a number of ever increasing challenges with off-shoring, including wage increases.
Many companies have reported less than ideal output from off-shored projects. That’s not to say all outsourced projects are of low quality, but it is a problem. Dell’s call center fiasco from as few years back is a good example of this. Substandard work increases total costs and negates the wage savings if work must be redone or project timelines are extended.
High turnover rates at off-shoring companies are a major issue. With the large amount of business, the competition for IT workers in these countries is high, resulting in workers jumping from company to company much more frequently than their US counterparts. The lack of continuity for any given project adds another layer of complexity.
A study conducted by the University of Michigan Ross School of Business in 2011 found that onshore IT services were 2.9 times more productive than offshore IT services. Much of the productivity gains were attributed to the ability to work with customers in the same time zone, as well as an improved understanding of how process is implemented.