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This essay explains the concept of offshoring its implications , growth and impacts.

I have tried to show why countries like India and China are the most favoured for offshoring
with some statistics. The people have misperception of lack of jobs in IS which is also having
a negative impact on the educational institutes. There is also an effort to show the impact of
offshoring on the global economy .

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 means running business functions in another country to reduce costs,
understand new markets, to overcome the lack of talented employees in home country
and/or to overcome the local government regulations. Major offshore customers are found in
USA and Europe, mainly in the UK and some in co untries like Germany and France,
whereas the service providers are predominantly found in India and China (Gonzalez R., et
al, 2006). Companies outsource their IT services related to IT infrastructure, IT department
or both. There is a risk of IT projects going out of budget or out of control if they are not
controlled or managed properly especially if the project is huge hence, it is important for a
service provider to understand the customer¶s expectations and needs and work on them
efficiently. To make a successful outsourcing project it is essential for t he employees of the
service provider to understand the business of the client and try to envelope themselves in
the culture of their partner. Apart from the employees the contract also has an influence on
the success of the outsourcing project , the contracts should be made flexible so that
changes could be made anytime and also the contacts should be a two -way i.e. the
relationship should be maintained from both the client and the provider to run a project
seamlessly (Alexander B., 2007) .

After Kodak outsourced it¶s IT functions in 1989 worth nearly $250 million to IBM many
companies outsourced their IT functions like British Aerospace, British Petroleum, Chase
Manhattan Bank, Continental Airlines, Continental Bank, DuPont, Enron, First City, General
Dynamics, McDonnell Douglas and Xerox these were some of the major IT o utsourcing
deals signed in the past. There were some expected outcomes of these projects like
reduced IT costs, better service, access to new technology, and skills to concentrate on the
in-house staff but there is scepticism about the future consequences. The senior vice
president of Internati onal Data Corporation says that ³Early outsourcees are becoming
discontent with their fixed-price deals,which they feel don't reflect today's costs At the same
time, they've discovered that information technol ogy has become more strategic to their
firm²now that they've turned it over to someone else´.(Gantz,1994, p.41).The growth of the
IT outsourcing market in the mid 1990s till 2000 was remarkable, IDC estimated the
outsourcing market for 1995 at $76 billion and by t he year 2000 will go beyond $121 billion.
The survey of the Outsourcing Institute of 1200 companies pointed out that the outsourcing

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contracts contributed one -twelfth of the total IT dollars spent in 1995 .(Lacity M.C.,et al,1998)
and (Rao M.T.,2004).

Source: NASSCOM (Sep µ07)

In an annual survey of global 1 000 companies by A.T.Kearney¶s it was declared that India
and China are both fierce competitors in offshoring industry which is compelling United
States to make them as favourite s for foreign direct investment (FDI). If India is known for its
IT and BPO industry, China has been the leading manufacturer and assembler for United
States for a number of years. But when it comes to select a destination for IT , BPO services
and research and development most of the executives prefer India for its knowledge and
talent in terms of employees.

The NIEs (Newly Industrialized Economies) of East and Southeast Asia concentrated on
providing cheap labour but also focus to invest on their physical infrastructure reduce the tax
rates to attract companies to make investments and easily managed workforce. By 2005,
China became a major supplier of manufactured products. (Henley J.S.,2004) and (Kaplinsky
R.,2001).Whereas, India lagged behind China in manufacturing exports because India
started to liberalise its economy after 1991, in fact the merchandise rate of India was 15%
less than China in 2003 but still India¶s IT and BPO sector was still threatening the white-
collar jobs in the United States and United Kingdom. (Henley J., 2007)

Here are some of the latest estimates (June, 2009) of the Indian IT -BPO sector by
NASSCOM (National Association of Software and Services Companies), a trade body and
chamber of commerce for Indian IT and BPO industry:

g The total IT-BPO industry in India to reach $71.7 billion in FY2009.

g Software and Services export revenue to reach $47 billion a growth of about 17%.

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 g Direct employment to reach 2.23 million and indirect employ ment at 8 million.
g India¶s basic advantages are the talent and cost, with 3.5 million graduates and
postgraduates are added annually it is a big pool of talent and workforce which no
other country has to offer.
g IT services contributing to 57% of the total software and services exports which are
estimated at $26.9 billion, growth of 16.5%.
g The total revenue generated by the Indian IT services, outsourcing is contributing
22.3% with an estimate at $11.3 billion in FY2009.
g The BPO exports revenue to grow 18% at around $13 billion in FY2009.

With the considerable growth of offshore outsourcing there is a threat to the loss of wide
range of jobs in the western nations , the IT workers in the United States are jittery about
their career prospects. Cost savings is the primary reason for companies to offshore. But
there are some risks involved in outsourced projects which may increase the costs due to
managerial oversight. There are companies like JP Morgan Chase that pull back their
outsourced services because their projects failed to materialize, according to a 2005 report
by Deloitte Consulting two -third of the companies that backsource their services, but still the
developing nations continue to improve their ability to provide secure and reliable services
and products.According to the study done by Scheibe K.P., et al, 2006 the skills that the U.S.
IT workers require with competition and challenges they face are communication skills,
business skills and technical skills .According to McKinsey Group¶s recent study t he business
activities that are most likely to remain onshore have the following characteristics : need for
customer contact, need for local knowledge and composite interaction .The greater the
business functions require proximity the least chances of them b eing offshored. Employees
having good communication skills, good knowledge of the business opportunities locally and
the technical capability to apply technology to business have good career prospects in this
growing global economy. Furthermore, soft skills are also important to under stand the local
culture and being multilingual helps to interact with offshore clients. Nowadays, companies
not only want the technical and communication skills in the employees they hire but also the
problem solving skills, ski lls to model the business practices especially in the services
industry.Scheibe K.P.,et al has proposed three-level architecture with the help of the
definition for Knowledge,Skills and Abilities by the U.S. Office of Personnel Management viz.
called the KSA architecture.According to this architecture the most important attribute is the
abilities, ability to understand a problem,will to work beyond expectations, dedication to
complete a task, honesty and reliability and to engage yourself to understand the problem
and provide an appropriate solution. The second level of this architecture involves the

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communication, technical and business skills which are quantified skills and can be learned
and applied. The topmost level of the KSA architecture represents the knowledge of the
employee that he/she can bring to a task;it is a skill to integrate the technical knowledge with
the domain knowledge by showing innovation, effective management and integration. Hence
the employees in the United States and others need to concentrate on the three levels of the
KSA architecture to remain competitive though it is not a complete solution for their survival
in the industry. (Scheibe K.P.,et al, 2006).

As the IT professional s are concerned about their career prospects because of the
perception that most of the IT jobs are being offshored there is also a crisis among the
number of shrinking student enrolments in the IS programmes. According to Noble,2007
³Parents and young people have the impression that all IT jobs are going offshore,but only
2% US IT workforce is being offshored currently«. With fewer young people entering IT and
baby boomers reaching retirement age, there's a net shortfall«. Through necessity we may
need to offshore jobs." Ives¶s (2005) study shows that the decline of IS gradu ates from 2000
till 2005 has been 50% to 85% with an average drop of 66% which compelled many US
universities to shut their IS programmes. But this perception of decline in IS jobs is mistaken
as the recent employment data suggest that IS jobs would be among the ten fastest between
2004-2014 and is at an all time high at 3.72 million,with the unemployment rate in the
industry at 2.5% little below than 2.3% in 2001. The business press reported that 50% of IS
jobs are offshored in 2003 but th e important thing to know is what type of IS jobs are being
offshored. According to Nicholson and Sahay,2001 information processing and information
services are suitable for offshoring but much of the IS work demands contextual knowledge
and hence needs to done on-site.Many IS works requires proximity like software
development where it is essential to understand the specifications with the customer on -site,
same applies for business modeling hence this kind of work cannot be offshored.

(Hirschheim R.,et al)The following section shows suggestions to the IS discipline and its
main stakeholders like 1.IS faculty,2. academic IS associations and schools ,3. corporations
and 4.Governments and governmental authorities .
g IS faculty ± IS faculty needs to correct the p ublic perception that IS is not good or
safe career to choose because of lack of jobs, change the IS curriculum and
capitalize on its first mover academic knowledge of IS offshoring.

Firstly, the faculty of different schools should persuade the prospectus students that
there aren¶t lack of IS jobs.Spread the information that there is scope and number of
jobs available in the industry.They can invite people from the industry and past

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 graduates as guest lecturers on campus to speak about their career,all the se can act
as a marketing strategy and encourage more enrolments for IS programmes in the
universities.Secondly, faculty should change the curriculum for IS programmes which
would attract students towards the course, make them understand how the
technology works rather just what the technology is. Students should be given an
opportunity to also understand the requirements of customer -facing skills.Thirdly, the
IS programmes should include generic offshoring courses to make students
understand the concept of offshoring and challenges involved in it.

g Academic IS Association and Schools ± The academic associations should endorse

the IS curriculums like the Association for Information Systems(AIS) which has been
promoting courses and sponsoring competitions that reflect global, social and
technical trends in the areas of software development innovations and offshore
outsourcing.AIS should spread information through its website, mailing lists and
include articles in the Journal of the Association for Information S ystems and in the
CIAS.AIS should also encourage its members to add more articles related to IS.
Schools should also encourage their students to read these articles.Some of the
universities like University of Arizona,MIT,Indiana University and the Universi ty of
Brandenburg have already implemented outsourcing courses in their curriculum so
that the students can understand the concept of offshoring and the issues related to
it.

g Corporations ± ³In 2003, according to the US Department of Homeland Security,

there were 217,340 H -1B visas granted for foreign specialty workers. Of these, more
than 38% were for computer-related jobs´ [WTO, 2005]. If countries decline in given
these visas then companies would suffer as they won¶t get employees onshore an d
offshore. Corporations should spread the awareness of the availability of IS jobs
through media,should encourage more internships and also help the universities in
retaining and attracting the bright students. The corporations can also send their IS
personnel to the universities for special lectures to make students realise of the
opportunities available to them in information systems.

g Governments and Governmental Authorities ± The governments of the western

nations cannot do much to prevent offshore as the IS skill s and technologies are
considered global. But the governments needs to take some proactive measures to
enhance the resources for tertiary education to produce the kind of IS graduates
needed in their respective nations. Perhaps governments should consider o f giving

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 scholarships to IS students . IS is a field which relies on experience and expertise and
when combined with communication technology it is difficult to stop its services to be
offshored. In IS, government does not authorise any institution to hold a monopoly of
knowledge and control any sanctions.It is not sure that by making IS work
professional it will stop developed nations to stop offshoring,perhaps they should
train Indian IT specialists in their countries and thus increase enrolments but it mi ght
also increase the labor cost which encourages companies to offshoring. (Hirschheim
R.,et al).

After seeing the impacts of offshoring on the job market and education it is important to see
how does it affect the global economy. Offshoring is a strategy that will shift the balance of
market power among companies,employees and countries. According to Agrawal and
Farrell(2003) ³companies move their business services offshore because they can make
more money ± which means that wealth is created for the United States as well as for the
country receiving the jobs ´ and ³For every dollar of spending on business services that
moves offshore,US companies save 58 cents, mainly in wages and these lower costs
constitute by far the greatest source of value creation for the US economy´.Another source
of wealth is the demand of US goods in developing nations from where offshoring raises
incomes.The profits from BPOs are earned by the American shareholders who have 90% of
the company¶s stock.

The claim that displaced workers can upgrade to high -skilled jobs is incorrect because they
fail to understand that even high-skilled jobs are at risk.´The core driver of the latest form of
offshore sourcing is the increasing organizational and technologic al capacity of companies,
particularly multinational corporations, to separate and coordinate a network of contractors
performing an intricate set of activities ´.It is observed that.The economic incentives for
offshoring has been compensating by the industry clusters like the electronics and software
in northern California as these clusters are work with the web of relationships, institutions,
suppliers and a pool of workers. Offshoring does not allow these clusters to work mutually
and keep them devoid of workers.Offshoring enables companies to transport specific tasks
to remote locations without compromising on their wide productivity .´The new offshoring
does not affect any sector in particular; rather it affects specific value chain tasks ´.Offshore
is more about shifting relations of power than gaining efficiency it reduces the bargaining
power of the employees in relation to their employers. A selected group of sophisticated
suppliers might benefit but many companies in the developing countries will suffer their
market power.Offshore also has some impacts on developing countries ,the middle classes

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are benefiting the most in developing countries but still the impact of offshoring is
contingent.Firms in developing countries have the opportunity to join the ran ks of the first-tier
suppliers which are tightly coordinated with some of the world -class companies.Even though
there is massive boom in the offshoring in the developing countries it is only beneficial to a
specific group of people,these countries still fa ce poverty,unemployment,inflation and
minimal government services. (Levy D.L.,2005)

Hence, while there is a rapid growth in offshoring there is a perception of loss of jobs which
is not true, in fact very selective jobs are being offshored and most of the high-skilled jobs
are still onshore. If the IS professionals have the skills to integrate their technical knowledge
with communication skills they have bright future prospects as the job market will be at its
high till 2014. But because of this misperceptio n there is decline in IS enrolments in
universities which compels the companies to offshore as there is lack of talent and expertise
onshore hence universities,government and corporations should spread the information
about the availaibility of jobs and IS careers.Even though the developing countries are
expected to gain advantage through offshoring still they face the challenges of
unemployment,poverty.

References :

Alexander B., (2007),Intimate outsourcing: making IT outsourcing work (online) available at

http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=51862

Farrell, D. and Agra wal, V.(2003)³Offshoring and beyond´, The McKinsey Quarterly,
Vol.4,pp.24±35.

Gantz, J.(April 18, 1994)µOutsourcing: The Scan May Be on You,¶ Computerworid ‘ Vol.28
No.16,pp.41.

Gonzalez R., Gasco J. and Llopis J.(2006),µ Information systems offshore outsourcing ± A
descriptive analysis¶,Industrial Management and Data Systems,Vol.106,No.9, pp.1233 -1248.

Henley J.S.,(2004),µChasing the Dragon: Accounting for the under -performance of India by
comparison with China in attracting FDI¶,Journal of International Development,Vol.16,No.8,
pp.1039-1952.

Henley J., (2007),µOutsourcing the provision of Software and IT -Enabled services to India¶,
Int. Studies of Management and Organization,V ol.36, No.4, pp.111 -131.

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Hirschheim R., Loebbecke C., Newman M. and Velor J.,³Offshoring and its implications for
the information systems discipline: Where perception meets reality´,Communications of the
Association for Information Systems .

Ives, B. (2005)"Unpublished Survey among Senior Faculty of Leading IS Schools in the US

on the State of IS Majors at their Various Universities".

Kaplinsky, R. (2001),µIs Globalization All It Is Cracked Up to Be?¶, Review of International

Political Economy,Vol {8,No.1.,pp.45±65.

Lacity M.C.,Willcocks L.P.(September, 1998),³An Empirical Investigation of IT Sourcing

Practices:Lessons from Experience¶,MIS Quaterly,pp.363 -408.

Levy D.L.(2005),´Offshoring in the new global political economy´,Journal of Management

Studies,Vol.42,No.3,pp.686 -693.

Nicholson B. and Sahay S.(2001)"Some Political and Cultural Issues in the Globalization of
Software Development: Case Experience from Britain and Indian",Information and
Organization,Vol.11,No.1,pp.25 -43.

Noble, J. (2007)"Hi gh Five: Offshore Outlook",Information Week, April 9, p. 17.

Rao M.T.(2004),µKey issues for global IT sourcing: Country and Individual factors¶,
Information Systems Management,pp.16 -21(online) available at
http://mites.amrita.edu/mits/courses/information -security/ites-
_ia_project/Rao_2004_Key%20Issues%20in%20Global%20 IT%20Sourcing.pdf

Scheibe K.P.,Mennecke B.E. and Zobel C.W.,(2006),µCreating offshore -Ready IT

professionals: A global perspective and strong collaborative skills are needed¶,Journal of
Labor Research,Vol.27,No.3,pp.275 -290.

WTO (2005)"Offshoring Service s: Recent Developments and Prospects",WTO Thematic

Essays III-C.

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Websites:
http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=52773
http://www.nasscom.in/Nasscom/templates/NormalPage.aspx?id=54612

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