The Impact of Offshore Outsourcing on IT Workers in Developed Countries
Examining the global implications of outsourcing for IT workers.
ffshore outsourcing has been featured in recent headlines and is said to create scores of challenges, controversies, and worries for businesses, government agencies, and IT workers in developed countries like Germany, the U.K., and the U.S., among others. Referring to a company contracting out its IT operations to a company in a foreign country, offshore outsourcing is being viewed by management as an attractive operational alternative and as an opportunity to control costs. Although the offshore model has existed since the late 1980s , it has been gathering momentum recently. The International Association of Outsourcing Professionals announced the 2006 Global Outsourcing 100 firms that had experienced a 15% growth in 2005 and with 1.03 million employees generated $68.9 billion in rev-
COMMUNICATIONS OF THE ACM February 2007/Vol. 50, No. 2
enues . These firms provide a wide variety of services, ranging from information technology and business processes to asset management and logistics.
routine tasks, into a utility-like service that can be provided and managed from anywhere at anytime. When communication networks like the Internet are ubiquitous, reliable, and operating at almost zero OFFSHORE OUTSOURCING: A TWO-DIMENSIONAL latency, it makes little difference if IT services are DECISION provided down the hallway, across town, or half Figure 1: The Two-Dimensional IT Sourcing In other Although much of the literature suggests that mov- across the globe. Decision,words, with the assistance Examples, a of appropriate ing toward an offshore outsourcing arrangement isand Labor Effects. project management techniques, single decision, the evaluations to outsource and to companies now can outsource various projects either go offshore are actually made separately. As such, locally or globally. management may choose Profit motivation has Onshore Offshore one of the four operaalso driven firms to offtional models specified in shore outsourcing. Due Multinational Operations Figure 1. to the recent sluggish (Job Transfer and Loss) Among the four busieconomic climate, • Astek Limited (France) Traditional Internal ness models identified in many companies have • GE (U.S.) IT Department Figure 1, the onshore turned to offshore • IBM (U.S.) insourcing model represourcing to keep their • SAP AG (Germany) • Silja Line (Finland) sents the traditional IT costs in line. Compa• Tata (India) department where the nies benefit from this Offshore Outsourcing Domestic Outsourcing internal IT staff is responoffshore proposition (Job Loss) (Job Transfer) sible for creating, providbecause vendors in • British Airways (U.K.) • British Aerospace (U.K.) ing, and maintaining developing economies • British Petroleum (U.K.) • BMW (Germany) information system serusually cost one-third • General Dynamics (U.S.) • DaimlerChrysler AG • Kodak (U.S.) (Germany) vices. The onshore outless than domestic ven• Proctor & Gamble (U.S.) • Delta Airlines (U.S.) sourcing model involves dors and even less when • Sainsbury (U.K.) • Xerox (U.S.) both domestic clients and compared with in• SAP AG (Germany) domestic vendors. This house operations . model has by far made up Additionally, as offshore most of the outsourcing Figure 1. The two-dimensional vendors gain experience, their service quality IT sourcing decision, contracts. The offshore improves, and they learn radically new ways to meet examples, and labor effects. David fig 1 (2/07) requirements. In fact, it is perceived that insourcers typically are customer multinational companies offshore outsourcing vendors can add significant like GE, IBM, and SAP that have the means to set up value to their clients’ supply chains. Domestic firms regional branch centers to exploit lower cost and that are capable of...