The latest US statistics show that employment growth in IT is stronger than ever, in spite of the trend offshore through outsourcing, as in CSC's decision this week to axe 1,800 jobs and relocate to India. How is this so ? Paul McDougall of Information Week offers this explanation,

"Outsourcing proponents have long argued it's a win-win for both businesses and workers. Businesses cut costs by sending routine work offshore. Some of the money saved is then invested into more advanced projects that require higher skills, kicking off a new cycle of hiring".

"This may be what we're seeing now. The Hudson survey notes that the skills most in demand--Web services, .Net, and Java programming--are those most applicable to the buildout of cutting-edge service-oriented architectures".

For Paul McDougall's analysis in full follow the link here

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A report from international consulting firm TPI, and published in Consultant News.com has confirmed that the trend towards outsourcing from offshore operators is continuing to grow throughout 2006.

Indian IT service providers are the main beneficiaries of this trend, increasing their market share to new heights. In part this reflects a maturing of the industry in India, and a consolidation of its relationships with US and European-based customers over time. Indian companies such as Infosys and Wipro are now earning a reputation as sources of remote IT infrastructure development, on top of their ’ traditional areas of strength in applications development and maintenance (ADM) or finance and accounting (F&A)'.

Offshoring is still dominated by the 'Big Six of outsourcing – Accenture, ACS, CSC, EDS, HP and IBM', with Indian companies still only a minor force in comparison. Nevertheless, they are continuing to make inroads into the market.

For a fuller discussion of the TPI report, follow the link here .

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For IT contractors the boom in outsourcing has been a double-edged sword. On the one hand it has generated vast new opportunities for picking up new clients and work, while on the other it has opened the industry up to new competitors, including those with much lower labour costs.

While the jury is still out on this, it does seem that the rise of outsourcing, including the trend offshore to India and other growing IT centres, has not had the destructive impact on IT contracting in the developed nations that some feared. Instead there has been a period of upheaval within the industry as the various players concentrate their attention on what it is they do best, on the unique value proposition they can offer their clients.

For companies considering outsourcing as an option, it is vital that they understand both the challenges involved and the real costs of the process. Many of these costs are hidden, and can lead to entire projects being abandoned once their initial expectations have been dashed.

One of the main reasons for outsourcing failures, as Paul McDougall explores in this article that appeared in Information Week, has been a serious under-estimation of the value their in-house IT departments provide. Too often the error has only become apparent after contracting companies have picked up the work, and submitted their first bills. By then, of course, the damage has been done.

For Paul McDougall's discussion of this issue in full, follow the link here .

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As part of our series on outsourcing, we look here at this 2004 report from the Mckinsey Global Institute titled 'Exploding the Myths about Offshoring', which puts forward the classical free trade position from a US-based perspective.

The report accepts that, 'what is good for the economy as a whole may not be good for individuals', but rests its case on these figures. 'For every dollar of corporate spending that is outsourced to a low-wage nation, the spending economy captures more than three-quarters of the benefit and gains as much as $1.14 in return. Far from being a zero-sum game, offshoring is instead a story of mutual economic gain'.

According to McKinsey's, only 33c of every dollar spent offshore stays in India. The other 67c returns to the USA through corporate savings, returned exports, and repatriated profits. These are then passed on to the consumer through price cuts, and used to generate jobs through new investment, making up the 14c of additional wealth that results from the process.

For the full report, follow the link here.  Other perspectives will be presented on Get Somebody Now in due course. If you have a comment of your own to add, then go to our feedback page and write in.

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The impact of outsourcing on IT contractors globally has been a hot topic within the industry ever since the Indian IT sector first began its meteoric rise. In a series of pieces, Get Somebody Now will explore this issue from a range of perspectives. We begin here with this interview from Business Week, in which IBM's head of outsourcing for Asia-Pacific identifies some of the changing trends in outsourcing practices across the region.

Randy Walker's main contribution is to highlight a shift in customer expectations away from simply focusing on cost. "Its a different level of skills and talent. Everyone expects cost savings, but they don't want cheap, they want value'.

This in turn reflects a certain maturing on the part of the Indian IT sector, which is now sending out experienced operators at a management level to help out in other industry growth spots around Asia, such as the Philippines.

Randy also discusses a growing move away from call centres to business process outsourcing (BPO) and ultimately, automation. For the full interview, follow the link here .

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IT contractors and consultants based in Australia or New Zealand will be interested in this survey published by the Press Trust of India. It appears that the threat from outsourcing is not so clear cut as companies find out the hard way that relocating IT functions and projects purely on the basis of lower labour costs can backfire. 

The survey results from Diamond Cluster International open with this summary, 'The IT outsourcing boom seems to be over worldwide, including in India, as companies learn to be more strategic and selective but it's still too soon to call it the death knell, according to a new study'.

Of special note is the following comment. 'Canada is making headway as a haven for outsourcers. US-based buyers apparently believe that the higher cost of outsourcing to Canada is worth the gains in proximity, language and culture'.

It appears that IT companies in India are facing a double squeeze, from China where labour costs are even lower, and from IT professionals in developed nations who benefit from being on the spot, and who deliver a unique quality of service. The implications for IT contractors are clear enough, if they play to their strengths they can compete with anyone, anywhere.