The movement of US services jobs offshore will accelerate faster than originally projected, according to new research from Forrester Research, Inc. (Nasdaq: FORR). At a press conference held at GigaWorld IT Forum, Forrester revealed that the number of US services jobs moving offshore by the end of 2005 will grow to 830,000 compared with its original projection of 588,000 — an increase of 40 percent.
Forrester’s well-cited projection of 3.3 million US services jobs moving offshore by 2015 will increase slightly to 3.4 million. The small increase in the long-term forecast is due to changes made in the base-level numbers updated in 2002 by the US Bureau of Labor Statistics. By the end of 2003, 315,000 jobs had been shifted offshore, representing less than 1 percent of the jobs in the affected categories. This number will grow to 1.6 percent by the end of 2005.
Publicized savings and pressure from senior management to define an offshore strategy have caused CIOs to consider offshoring as a viable option. Forrester finds several additional factors driving the short-term increase, including:
- Existing offshore clients ramp up. While 5 percent of Fortune 1,000 firms are full exploiters of offshoring (using it whenever possible), it is the firms that have experimented with small projects that will become more committed, fueling most of the growth. These firms will increase spending during their migration offshore as they put processes in place to manage the remote IT and business operations.
- New services from top-tier offshore vendors. Leading Indian suppliers, such as Satyam, Wipro, and Infosys, are expanding their services beyond application maintenance into business process outsourcing (BPO), packaged application implementation, and remote monitoring and administration of infrastructure, allowing them to capture a greater percentage of IT services’ spend.
- Expanded offshore capabilities from US-based vendors. Customer and competitive pressure have caused services and technology vendors like IBM and Accenture to expand operations in India, China, and the Philippines. These two companies alone plan to add close to 9,000 jobs in India by the end of 2005.
- Offshore has become a BPO requirement. Access to low-cost offshore labor, a primary driver for IT, has become one for BPO as well. Prospects are demanding an offshore component for BPO from even onshore vendors, which led to IBM’s recent acquisition of Daksh in India.
- Firms setting up captive operations. Many firms are trying to achieve offshore cost savings themselves with “captive” operations in places like India. Sending back-office jobs like accounting and claims processing offshore will yield near-term savings — without the need for a third party or waiting for vendors to ramp up skills.
- New verticals enter second wave. Following the IT-intensive industries already dabbling in offshoring, verticals like electronics and manufacturing that spend a high percentage of IT revenue will be the next to make the move.
In addition, the research addresses which new locations, including China, Vietnam, and North Africa, will emerge as destinations, as well as the broadening of job categories beyond IT and call centers into the offshore mix.
Forrester developed the methodology used to resize the number of services jobs going offshore by relying on a balanced set of inputs, including surveys with both user companies and business and IT leaders, four trips to India to meet with offshore companies, and vendor briefings. Forrester updated the baseline job data based on US Department of Labor, Bureau of Statistics, data on “National Occupational Employment and Wage Estimates.” Forrester re-assessed the growth curves for the four offshore rankings and added year-by-year granularity for 2003 through 2008. Forrester then re-evaluated the “offshoreability” of each job category based on: The nature of the work — is it knowledge- or transaction-intensive? mdash; to what degree the process is automated; whether the skills are available offshore; and what third-party offshore investments in skills are needed to do the work. Finally, the projects went through an internal peer review.
The report, “Near-Term Growth Of Offshore Accelerating,” is available at www.forrester.com. The press conference can be accessed by dialing:
+1 877/407-3141 in the US and Canada
+1 201/689-7803 outside the US
A replay is available by dialing:
+1 877/660-6853 in the US and Canada
+1 201/612-7415 outside the US
Account No.: 2147
Conference No.: 104880
Forrester’ class=”newpage” target=”_blank”s GigaWorld IT Forum is taking place May 17-20, 2004, at the JW Marriott Orlando Grande Lakes in Orlando, Fla. More than 120 sessions will address a wide range of topics to help IT and business executives understand future business and technology trends to make informed IT decisions. More information is available at www.forrester.com/Events/Overview/0,5158,578,00.html