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Ed Frauenheim

Staff Writer, CNET

How big a deal is offshore outsourcing? Depends who you ask.

Research firm Gartner published a study Monday saying “offshore outsourcing isn’t as widespread as people think,” with lower-cost locales accounting for less than 3 percent of money spent on global information technology services this year.

Gartner projects that figure to grow but remain a relatively small fraction of total spending. By 2008, spending on IT services delivered through “global sourcing” will reach about 7 percent of a $728 billion total market–or roughly $50 billion.

A more bullish view came Thursday from NeoIT, a consulting firm that advises clients about offshore projects. NeoIT “foresees a big year for offshore outsourcing growth in 2005” and predicts that more than “80 percent of the Global 2,000 will have an offshore presence by the end of the year.”

Although the studies do not necessarily contradict one another, their differing tones reflect a broader set of conflicting opinions about the hot-button topic. Comprehensive information about the scale and impact of offshoring has been lacking, but Congress recently passed a bill that would set aside $2 million to study the issue.

Defenders of sending high-skilled work to countries such as India and the Philippines say it ultimately benefits the U.S. economy and its workers. Critics claim that the practice eliminates well-paying jobs and threatens the nation’s long-term technological leadership.

Although wages can be much lower outside the United States and Europe, the overall effectiveness of shipping work abroad has come under scrutiny.

“Over 40 percent of offshore initiatives will not yield anticipated savings, scale or risk diversification,” NeoIT said in its predictions for 2005. “The key reason for these disappointments will not be due to supplier capability but buyer preparation and management.”

Despite predicting a large proportion of deal duds, NeoIT said it “sees increasing acceptance for offshoring as a foregone conclusion for multinational corporations that must keep pace with global competition, global supply and global delivery models.”

Although much attention has been put on the way offshore projects can eliminate U.S. jobs, Gartner’s report indicated that tech professionals should be more concerned with the growing automation of computer systems. “Utility computing will have (a) greater job impact than offshore outsourcing,” the report said.