Gartner: 1/4 of U.S. IT Jobs Offshored by 2010

Six years from now, one quarter of traditional U.S. IT jobs will be done offshore, in

countries like India and China, according to new predictions from researchers at one of the

top industry analyst firms.

Today, an estimated 5 percent or fewer of U.S. IT jobs have been offshored, according to

Diane Morello, vice president in research at Gartner, Inc. By 2010, 25 percent will be

situated in emerging countries.

But Morello adds that not all of those jobs being done overseas will mean that American

workers were laid off. She says that a good percentage of American IT workers will be laid

off as their jobs are shipped to countries like India, the Philippines, Malaysia and China.

But some of those jobs will be created by U.S. companies opening IT operations in those

countries, bypassing the middle man of outsourcing companies and, at times, avoiding

layoffs here by starting new IT programs there.

”This has certainly already started,” says Morello. ”Not all of that 25 percent will

represent jobs moving from one place to another. Some will grow in those areas and fuel and

feed businesses there… We’re talking about a company like Bank of America that might set

up operations somewhere else, or Reuters that has set up IT operations in Thailand. It’s a

global expansion.”

Gartner first announced its predicts at an IT conference in Barcelona, Spain last week. Ian

Marriott, a Gartner vice president, told the European crowd that this estimate is not just

for the United States, but includes many developed countries.

”Global sourcing is becoming a mainstream delivery model,” Marriott told conference

attendees. ”The potential cost advantages are so persuasive that companies that don’t

consider it, seriously risk doing their shareholders a disservice. Businesses will also be

put at risk due to loss of competitive advantage and inability to focus on growth through

innovation.”

India, according to Gartner, remains the offshoring leader, taking in more jobs formerly

held by Americans and Europeans than any other country. China and Russia are emerging as

strong contenders, though. China is seen a potential outsourcing giant with a huge

population of educated workers who earn a significantly lower wage than their counterparts

here in the states.

Offshoring Becomes a Speeding Train

While Gartner’s offshoring predictions are high, they’re not alone in believing that

offshoring is quickly picking up steam.

Forrester Research, a leading Massachusetts-based analyst firm, recently predicted that

$136 billion in wages, or 3.3 million jobs, will move offshore in the next 15 years.

And this week, Deloitte Research announced predictions that by 2008, 275,000 jobs in the

telecom industry will be offshored. That number accounts for five percent of the industry’s

5.5 million member labor force.

The Deloitte report also states that of the telecom companies already offshoring or

planning on offshoring, they cite a 20% to 30% reduction in IT costs within four years,

higher quality tech support and accelerated time-to-market for advanced data services and

applications.

”For most companies, it’s not a question of whether to off-shore, but what functions to

off-shore, and how,” says Phil Asmundson, deputy managing director of Deloittes

Technology, Media and Telecommunications in the U.S.

Obviously, those cost savings are attributed to the dramatic difference in wages between

the U.S. and many European countries and emerging countries like India and the Philippines.

Kevin Schwartz, a senior vice president of business operations at E5 Systems Inc., a

Waltham, Mass.-based IT outsourcing company, says the salary differences are staggering.

An entry-level programmer right out of college in the United States can expect to earn

between $50,000 and $60,000 a year. In China, the salary for that same type of worker would

be $5,000 to $6,000. In India, she would earn $8,000 to $10,000.

”Will one-quarter of IT jobs be offshore in six years? I’d say it’s possible,” says

Schwartz. ”Is it probable? At today’s clip, I’d say yes. I lean that way because China is

in its infancy for It outsourcing, so more jobs will move there. And India continues to be

a huge player. We’re looking at a giant pool of qualified IT people… you’re not giving up

anything for that lower price.”

Go to the next page for one analyst who calls Gartner’s predictions ‘alarmism’.

Schwartz says he too is seeing an increasing number of companies looking to set up their

own IT operations in other countries. He explains that a company might ask them to get IT

operations started for them in an emerging country — all with the understanding that once

it’s up and running, the company will take over operations. That way businesses can avoid

the expense and management intricacies of working with an outsourcer, but still get the

cost benefits of having work done offshore.

But John Challenger, CEO of Challenger, Gray & Christmas, a Chicago-based outplacement

company, says Gartner’s predictions are running high and smack of alarmism.

”It sounds awfully high to me,” says Challenger. ”Too many IT jobs will be created in

small and medium-sized businesses. That alone, will keep these jobs localized… This all

sounds alarmist.”

Challenger even argues that the U.S. IT labor force is not in dire straights.

”Are there troubles? Is the workforce being globalized? Yes,” says Challenger. ”Will

that put downward pressure on wages? Maybe. That’s a more realistic concern than to think

that such a huge chunk of IT jobs will disappear in short order.

”Is there demand for IT workers? Absolutely,” he adds. ”That continues to go on in all

kinds of companies.”

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