How Many Years Does the U.S. IT Industry Have Left?

A report about outsourcing trends provides a disquieting picture for U.S.-based IT services providers.
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First, let’s look at the good news for U.S.-based IT services providers.

The Global Services Location Index, published by international consulting firm A. T. Kearney, ranks countries in terms of their attractiveness as IT services providers. For each country, the Index ranks three components: cost, people skills and business environment.

If you look only at the “skills” list, the U.S. sits squarely on top. The Kearney numbers indicate that if a customer’s biggest concern is skill level of a country’s IT professionals, that customer should source their tech projects in America.

Note that this report divides the “skills” sector into four sub-components:

united states tech industry, outsourcing

(Source: A.T. Kearney Global Services Location Index 2007)

Yet while the U.S. scores highest in the skills list, customers, of course, chose IT providers only partially based on skill level. Cost is often more important, so it’s no surprise that India, the global outsourcing magnet, grabs No. 1 in Keaney’s 2007 Index. Based on combined factors of cost, skills and business environment, India's hold on No. 1 is commanding:

india, china, outsourcing

So far, neither of the two preceding charts rock the boat. They simply confirm the common wisdom about global outsourcing trends. Yet a close comparison between the 2005 and 2007 Kearney Index is likely to cause heartburn among U.S.-based IT firms.

First, the aggregate ranking of the U.S. (skills, cost and environment) fell from 11th to 19th. More important, the U.S. lost ground versus India in its strong suit, people skills.

In 2005, the U.S. earned a people skill score of 2.7, a score it earned again in 2007. Yet in India, between 2005 and 2007 the people skill score increased from 2.1 to 2.3. If this trend of Indian tech skills gaining ground over their U.S. counterpart continues, it will only be a number of years before customers are outsourcing to India not just for lower cost, but for greater IT expertise. Were that to happen, a dark cloud would settle over the American tech industry.

And that’s the direction things seem to be heading. India and China, as well as some lesser players, “are increasingly getting talent profiles that look almost as good as the U.S.,” says Simon Bell, a director with Kearney’s Global Business Policy Council, which helps clients with issues related to globalization. Bell notes that, while these international up-and-comers are far behind the U.S. in terms of economic and political stability, their business environments are steadily increasing.

“So, put all that together, it isn’t a pretty picture for virtually any activity that can be performed remotely, as far as the US and [Western] Europe is concerned,” he says.

“In the next few years, India will have [not only] the population and size, but also the emphasis on education. They’ll actually be able to beat us on skills, not just on wages.”

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