Higher Skill Jobs at Risk for Offshoring

By Rick Gregory
for the IT Training Community

A recent study by Career Builder and the Wharton School found that higher skill jobs are becoming more at risk for offshoring. IT jobs that companies in the survey were planning to offshore include programmers (32%), software developers (32%) and systems analysts (16%). Sixty-nine percent of employers believed that higher skill, and thus higher pay, jobs were at equal or greater risk of being offshored than low-skill jobs.

Other jobs at risk for offshoring include customer service, sales managers, graphic designers, HR personnel, general managers and marketing personnel.

Outsourcing consultant EquaTerra's "Service Provider Pulse Survey 2Q08" found that IT Outsourcing represented the majority of outsourcing contracts, at 51% of the total. The top three IT segments that are being outsourced are ADM, infrastructure/operations, and desktop services. They predict that outsourcing will grow 8% over 2007 levels this year.

The Career Builder study, "Jobs Beyond Borders," surveyed over 3,000 hiring managers and HR professionals, and over 6,700 workers in the U.S. Thirteen percent of employers reported outsourcing work to foreign vendors in 2007 and an equal number said they would do so in 2008. Seven percent of employers offshored job functions in 2007 while nine percent plan to offshore job functions in 2008.

The Wharton research detected a systematic pattern in the types of positions that are likely candidates for offshoring. It indicates that services that can be delivered electronically and don't require much face to face interaction are at higher risk of being displaced.

Impact on Workers

Although admitting that U.S. workers have lost jobs as a result of offshoring, companies argue that offshoring ultimately benefits the American workforce. Twenty-eight percent
of employers who sent jobs offshore said it enabled them to create a greater number of better jobs in the U.S.

However, of all workers displaced by offshoring, only 7 percent reported that they benefited from a promotion or higher compensation. Seventy-one percent were let go and twenty-one percent received a lateral reassignment. Of those who were let go, 81 percent went to another company that was not aggressively outsourcing.

Why Offshoring?

Among the companies that offshore, half said offshoring was necessary to compete in a global economy and 15 percent of them predicted that over 20 percent of their jobs will eventually migrate overseas. That represents the upper end of the range of offshored jobs, however. Thirty-nine percent of companies project that fewer than 10 percent of their jobs will ultimately go offshore and 44 percent estimate that fewer than 5 percent will.

Sixty-four percent of respondents to the Career Builder survey said the primary motivator for offshoring was cost savings. For IT offshoring, the average firm reported saving over $20,000 per head. Fifteen percent of employers estimate savings at over $50,000 per head.

Among the other respondents, 27 percent said availability of skills was the primary reason for offshoring. A recent IDC study, "Networking Skills in North America," estimates that there will be a steady 60,000 worker gap in networking professionals from 2007 - 2011 and suggested that enterprises will accelerate outsourcing and global sourcing as a strategy to address the shortage.

Nineteen percent of companies in the Jobs Beyond Borders survey cited plans for expansion in a particular market as the primary reason for offshoring. The Wharton research indicated that these companies would likely move sales and support positions overseas to better serve their customers.

Researchers in a Duke University study titled "Where the Engineers Are" interviewed executives from companies including IBM, Microsoft and Oracle who said their companies were responding to big opportunities in rapidly growing markets like India and China. They expected to move R&D operations closer to those growth markets and that the units would be serving worldwide needs.

Where do the jobs go?

Most IT offshoring goes to India and China. India is by far the largest player with 44% of the market. However, that may not continue indefinitely. Although NASSCOM projects annual growth in the Indian IT services sector at 25% per year, Sramana Mitra writing in Forbes predicts Indian offshore business will decline. The advantage for offshoring to India, formerly at least 1:6, is now down to 1:3, and with average wage increases in India's IT sector of over 15% per year, the advantage will continue to shrink.

That won't stop offshoring, but it will mean a shift to other low cost markets like China and Eastern Europe. Other top offshoring destinations include:

• China 24%
• Mexico 12%
• Canada 9%
• Germany 8%
• Philippines 7%
• UK 7%