Outsourcing

New study says that offshoring is freeing up more money for new IT investments


Info-Tech Research Group has released the results of its study on U.S. IT spending. The Canadian researchers expects that IT departments will increase spending from $840 billion in 2006 to $884 billion in 2007, a rise of 5.24%. By 2010, Info-Tech expects spending to reach $1.033 trillion.

Key points

A few key takeaways from the study:

  • Business services, financial services, government, and manufacturing will be the four biggest sectors driving IT spending increases.
  • IT storage equipment and software will experience the strongest demand.
  • Of the $1.033 trillion in 2010, $625 billion will be spent on operations and $408 billion will be used for new acquisitions (purchases).
  • Many big companies are using offshoring to reduce operational costs and using the cost savings to invest more heavily in new purchases.

The offshoring effect

"The adoption of offshore outsourcing by large enterprises within U.S. industrial sectors has had a major impact on how their IT budgets will be allocated going forward," said Michael O'Neil, managing director, Info-Tech Research Group Indaba Division. "Clearly large enterprises can now focus on acquiring advanced technologies to enhance their bottom line productivity and profitability due to operational savings from outsourcing. Again, this is good news for high-tech equipment and solutions providers marketing to large U.S. firms."

Your take

Offshoring has been a dirty word in IT because it is often thought of in the context of programming and help desk jobs being lost in the U.S. and moved to India. However, this study says that offshoring is saving operational money that many enterprises are using to invest in new technologies. That is likely to create new, higher-level IT jobs in the process. How does this affect your opinion of offshoring? Have you seen any real world examples of this happening? Join the discussion.

About

Jason Hiner is the Global Editor in Chief of TechRepublic and Global Long Form Editor of ZDNet. He is an award-winning journalist who writes about the people, products, and ideas that are revolutionizing the ways we live and work in the 21st century.

6 comments
jasonhiner
jasonhiner

That's what a new study from Info-Tech Research says, as I blogged about: http://blogs.techrepublic.com.com/hiner/?p=498 How does this affect your opinion of offshoring? Have you seen any real world examples of this happening?

The Scummy One
The Scummy One

monies being freed up for new technologies. I have seen cutbacks and cancelled projects, and higher company revenues (including larger bonuses for execs). What I have not seen so far is ANY benefit for the outsourcing that has been going on, well except for execs getting richer, and Wall Street demanding more...

Dr Dij
Dr Dij

that this frees up money that MIGHT be invested in new US tech. So for every 100 jobs they offshore, there MIGHT be 3 new ones created. And as the company grows those too can be offshored.

bernalillo
bernalillo

This isn't exactly new. I have worked for several companies that experimented with offshoring. In a few instances it was a success, but in many cases it was a flop. What defined the flop? We'll, if you are loosing customers or spending to much for poor results or spending more to address the shortcomings of the off-shored division than eventually something has to give. In one case the cronically bad descisions of management that could only interpret hard numbers caused the whole company to fail. In another company they mearly failed the failing project and brought the function back to where it could be handled properly. In that company a "successful" move stayed until a better idea was proposed. Personally I think the pendulum can only swing so far before irrational exuberance turns around. Of course it wouild help if the US's trade policies were better thought out.

Whatserface
Whatserface

Many of the software vendors my IT dept works with have sent their support to India. Our experience has been that we pay more for "better" technology, but the support we get from their overseas support centers stinks. The companies are hurting their reputations and we are looking for vendors that have developers and support in the U.S. I usually end up having to find a resolution or workaround myself rather than waiting for India to care enough to be responsive or learn enough to be helpful. The offshoring has just been bad business all the way around for us.

SlappyMcnasty
SlappyMcnasty

I live the need for higher level positions needing to be filled onshore while lower level goes offshore. The rub is: where does the experience for these positions come from when the practical experience is going either offshore or local contractors? Related to this is what is considered low level is changing, I see the quality of job going offshore increasing, in other words more responsibility with more experience required. Third point, I think the glory days of offshoring are starting to fade. My current large company and my previous large company both have opened offshore sites in India over the past couple of years. Availability of resources is rapidly diminishing, salaries are rapidly increasing and the quality of resources is dwindling. India is graduating more and more technology people, but they are in it for the money not for the love of tech. From where I sit, the bloom is not off the rose, but it is fading. Kind of off topic, but I enjoy a good rant.

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