IT, Services, Outsourcing

Growing outsourcing trend seen shifting to IT services

21 Jun 2004 | (Survey)

Outsourcing is a global "mega-trend" in the technology industry that will only increase in the future, with revenues linked to IT services likely to see the biggest gains by the end of the decade, according to market researcher Gartner Dataquest.

Still, it's uncertain if this will hurt the U.S. and European job market, as other factors may weigh more heavily on the volatile cycle of job loss and creation, according to Gartner analyst Craig Baty. Baty spoke here during the CommunicAsia 2004, Southeast Asia's largest telecom show.

During the next few years, the IT services market in the Asia Pacific and Japan markets is likely to outpace that of telecom services, which has been one of the hotter sector.

Last year, telecom services totaled $117 billion, while IT services rang up $104 billion in revenue, according to Gartner.

Although IT services is one of the highest profile areas for off-shoring, the markets for hardware and software development services have long been the basis of the off-shoring trend.

Taiwanese companies like Taiwan Semiconductor Manufacturing Co., Quanta Computer and Honhai have long provided Asia-based contract manufacturing services for the hardware industry, while a host of Indian and now Chinese companies are vying for the software development market. Chip design jobs are also starting to migrate overseas.

The emotion surrounding outsourcing will continue, Baty said, especially when the vendors are based in Asian countries.

Interestingly, countries like Australia have quietly been handling offshore services for years.

"If it's in Australia, then it's all right. We have kangaroos and helped the U.S. fight the Axis of Evil," Baty said. "But if it's in India, then it's something different. The race card is alive and well in the West."

That assertion is certainly debatable. On a micro-level, anecdotal evidence suggests that many out-of-work engineers, for instance, are more concerned about their next paycheck. On a macro-level, concerns seem to focus on the U.S. competitiveness in science and technology, and government sponsorship of related programs.

Nevertheless, the general backlash is clear, and Baty warned that it belies some key developments that may moderate trends in outsourcing.

"Fifty percent of CIOs globally have said their outsourcing experience was hell," Baty said. Within a few years, he added, as the outsourcing industry matures, it's possible that more than 60 percent of the vendors will fail.

Baty also noted that Washington believes less than 5 percent of jobs lost in the IT industry can be attributed to outsourcing.

"That's probably conservative," he said, citing figures from researcher Global Insight that found 2.8 percent of jobs were lost. "More jobs were probably lost through poor planning, bad [human resources] management or job mismatch," he said.

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