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Report: Offshore IT outsourcing helps economy

Your Special Friend

2004-11-25, 3:56 am

Report: Offshore IT outsourcing helps economyBy Ed Frauenheim CNET
News.com March 30, 2004, 6:00 AM PT

In the latest salvo in a debate over sending tech work overseas, a
report sponsored by an industry group concludes that the practice is
good for the U.S. economy and its workers.

Offshore outsourcing of software and information technology services
tasks not only is boosting the U.S. gross domestic product but also
helping to generate U.S. jobs, including positions in the IT sector,
according to the report. Released Tuesday, it was prepared by research
firm Global Insight and sponsored by the Information Technology
Association of America trade group.

ITAA's members include tech giants IBM, Electronic Data Systems and
Accenture. These companies are among those that are locating
operations in lower-wage countries such as India.

"While offshore IT software and services outsourcing has displaced and
will continue to displace workers in IT software and services
occupations, increased economic activity creates a wide range of new
jobs--both IT and non-IT," the report states. "As the benefits
compound over time, the U.S. economy operates more efficiently,
achieves a higher level of output, creates more than twice the number
of jobs than are displaced, and increases the average real wage."

The study comes as the practice of farming out high-skilled work to
low-wage countries has become a hot-button issue and part of the U.S.
presidential campaign. So-called offshoring also is pitting companies
against workers. Technology professionals group IEEE-USA recently
published a position paper with a dramatically different conclusion
from that of the ITAA study. IEEE-USA said the outsourcing of
high-wage jobs to low-wage countries poses a serious, long-term
challenge to the United States' technological leadership, economic
vitality and military security.

According to the new ITAA-sponsored report, 2.3 percent of total IT
software and services spending by U.S. corporations in 2003 was
devoted to offshore outsourcing activities. That figure will rise to
6.2 percent in 2008, the study says. During that same time period,
total savings from offshoring are expected to climb from $6.7 billion
to $20.9 billion.

The cost savings and use of offshore resources "lower inflation,
increase productivity, and lower interest rates. This boosts business
and consumer spending and increases economic activity," the report
states.

The study says the benefits of offshore IT outsourcing added $33.6
billion to real gross domestic product in the United States last year.
By 2008, real GDP is expected to be $124.2 billion higher than it
would be in an environment in which offshore IT software and services
outsourcing does not happen, according to the report.

The "incremental economic activity" from offshore IT outsourcing
created more than 90,000 net new jobs in 2003, and is expected to
create 317,000 net new jobs in 2008, according to the report.

Shipping software and IT services work abroad leads to higher real
wages for U.S. workers through lower inflation and higher
productivity, according to the study. Real wages were 0.13 percent
higher in 2003 and are expected to be 0.44 percent higher in 2008, the
study states.

leslie

2004-11-25, 3:56 am

Your Special Friend (ysf001@hotmail.com) wrote:
: Report: Offshore IT outsourcing helps economyBy Ed Frauenheim CNET
: News.com March 30, 2004, 6:00 AM PT
:
: In the latest salvo in a debate over sending tech work overseas, a
: report sponsored by an industry group concludes that the practice is
: good for the U.S. economy and its workers.
:

Frank Hayes, Computerworld's senior news columnist, has exposes ITAA's
offshoring propaganda

http://makeashorterlink.com/?N238116F7
ITAA's Job Dream - Computerworld

The original link wrapped to 2 lines:

http://www.computerworld.com/career.../careers/labor/
story/0,10801,91892,00.html
ITAA's Job Dream - Computerworld

"APRIL 05, 2004 (COMPUTERWORLD) - Here's a comforting bedtime story:
Offshoring won't just save companies money. It will also create jobs.
And reduce inflation. And grow the economy. Those are the top-line
conclusions of a new report from the Information Technology
Association of America, the IT vendors' lobbying group.

Just don't read very far past that top line -- at least, not if you
want to get any sleep tonight.

See, the report says those new jobs won't be IT jobs. And that reduced
inflation will come in part from lower pay -- "wage compression," as
it's charmingly dubbed by the report's principal author, Global
Insight Inc. chief economist Nariman Behravesh.

And that economic growth depends on the willingness of the foreign
employees who get our offshored jobs to spend their paychecks on
U.S.-made exports.

Don't take my word for it. It's all in the report, brought to you by
the people who, just a few years ago, were saying that the U.S.
desperately needed to increase its IT workforce. Yes, really. Since
early 2000, the ITAA has predicted the creation of more than 4 million
new U.S. IT jobs -- 1.8 million of which would go begging because
there just wouldn't be enough IT people to fill them.

How many new U.S. IT jobs have actually been created since 2000?
According to the ITAA's own annual jobs report, maybe 400,000.

But wait -- according to this new report, since the dot-com bubble
burst in 2000, a total of 372,000 software and IT services jobs have
been lost in the U.S. (Only 104,000 were lost to offshoring; the rest
went because of the recession, productivity gains and an end to what
the report calls "overhiring.")

The new report also predicts that "in the software and services area,
the economy will create 516,000 jobs over the next five years in an
environment with global sourcing but only 490,000 without it. Of these
516,000 new jobs, 272,000 will go offshore and 244,000 will remain
onshore. Thus the U.S. IT workforce will continue to grow."

continued>>

http://makeashorterlink.com/?I298326F7
ITAA's Job Dream - Computerworld

The original link wrapped to 2 lines:

http://www.computerworld.com/career.../careers/labor/
story/0,10801,91892p2,00.html
ITAA's Job Dream - Computerworld

Page 2 of 2

So, let's do the math: Without offshoring, the U.S. gets 490,000 new
IT jobs in the next five years, a net increase since 2000 of 118,000
U.S. IT jobs. With offshoring, the U.S. gets 244,000 new IT jobs -- a
net loss since 2000 of 128,000 U.S. IT jobs. Some growth, eh?

Yes, there will be new jobs -- in education, health services,
transportation, utilities and construction, all areas where the work
can't easily be shipped overseas. They just won't be jobs in IT.

At least that's what the ITAA's offshoring report says. Is it true?
Well, remember that this report is driven by politics every bit as
much as the ITAA's wildly optimistic job-growth estimates of a few
years ago.

Back then, the ITAA was lobbying for more H-1B visas, and its jobs
survey miraculously showed a spectacular increase in the number of
U.S. IT job openings about to be created. Now the ITAA is lobbying
against restrictions on offshoring. And, amazingly, its new report
concludes that offshoring will do everything but whiten teeth and
freshen breath.

So if you're a techie, you may be able to sleep a little easier. After
all, you already know what you need to do in order to dodge the
offshoring bullet: build up your business skills, increase your face
time with users and generally become the kind of IT person whose job
can't easily be shipped overseas.

And if you're an IT manager or CIO? Then it's not so easy. See, some
people will take this report seriously. Like your best techies, who
may decide to bail out of a shrinking IT job market. Or the brightest
students, who may conclude that IT is a dead end and opt for business
or law or medicine instead.

That could leave you with the loss of your best people and not enough
new kids coming in to replace them -- a staffing nightmare, courtesy
of the ITAA's fumbled efforts to hype the benefits of offshoring.

Pleasant dreams.

Frank Hayes, Computerworld's senior news columnist, has covered IT for
more than 20 years. Contact him at frank_hayes@computerworld.com."

--Jerry Leslie
Note: leslie@jrlvax.houston.rr.com is invalid for email

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