Using offshore resources in selected countries for IT services makes good economic sense. Beyond the cost incentive, global sourcing provides several other practical benefits, including the ability to stage 24×7 operations efficiently, the opportunity to customize products and services to meet local needs, and the means of geographically deploying workers and facilities to succeed in globally dispersed, highly competitive markets.
For a report prepared on behalf of the Information Technology Association of America (ITAA), Global Insight Inc. conducted research, analysis, and model simulations. Among its principal findings:
- Spending for global sourcing of computer software and services is expected to grow at a compound annual rate of almost 26 percent, increasing from approximately $10 billion in 2003 to $31 billion in 2008. During that period, total savings from the use of offshore resources are estimated to grow from $6.7 billion to $20.9 billion. The estimated spending represents 2.3 percent and 6.2 percent of total IT software and services spending by U.S. corporations in 2003 and 2008, respectively.
- Cost savings and use of offshore resources lower inflation, increase productivity, and lower interest rates
- While global IT software and service outsourcing displaces some IT workers, total employment in the United States increases as the benefits ripple through the economy. The incremental economic activity that follows offshore IT outsourcing created more than 90,000 net new jobs in 2003 and is expected to create 317,000 net new jobs in 2008.
- In the software and services area, the economy will create 516,000 jobs over the next five years in an environment with global sourcing, but only 490,000 without it. Of these 516,000 new jobs, 272,000 will go offshore and 244,000 will remain onshore. Thus, the U.S. IT workforce will continue to grow.
The U.S. economy has much to gain from global sourcing and an environment of free trade, open markets, and robust competition. The economic benefits include job creation, higher real wages, higher real GDP growth, contained inflation, expanded exports, and others enjoyed throughout the economy.
Given the benefits that accompany offshore IT spending by the U.S., it would be unwise for policymakers to give way to political pressures and adopt protectionist legislation. To retain preeminence in global markets and respond to the growing needs for IT professionals in the United States, businesses, government, schools, and workers must recognize the competitive realities of global markets and respond to the challenges by improving competitive performance:
- Continue full and fair enforcement of U.S. trade laws as a high priority. The U.S. government should investigate taking action against countries that are violating international agreements by using tariff or non-tariff barriers to harm global trade. The U.S. should encourage other countries to remove barriers to U.S. exports and open their service markets to foreign competition.
- Consider offering assistance to service workers similar to that offered manufacturing workers in a variety of forms, including skills training.
- Review current law and legislation to assure everything possible is being done to support and enhance the United States educational system, at all levels from the earliest schooling to advanced post-graduate studies.
- Review current law and legislation to assure everything possible is done to foster a business climate that encourages risk and rewards entrepreneurial effort.
- Build a public policy agenda that addresses the legitimate concerns of Americans, while achieving for their benefit the greatest economic growth through enhanced trade, beneficial immigration, and increased employment.
Excerpted from The Impact of Offshore IT Software and Services on the U.S. Economy and the IT Industry, a report prepared by Global Insight Inc. on behalf of the Information Technology Association of America (ITAA). The full executive summary is available online at http://www.ita.org.