An amalgam of forces, including technology, new work processes and business models, are leading to an expansion in offshoring of software, according to a report by the Association for Computing Machinery. The widespread availability of high-speed telecommunications and the standardization of software platforms and business-software applications is one of the primary drivers of the trend. New work processes, including the digitization of work and the re-organization of work processes — so that routine or commodity components can be outsourced — is another driver. Others include new business models that include offshoring as a strategy for cost savings, improved technical education and lowering of trade barriers.
The report, “Globalization and Offshoring of Software,” has been written by ACM’s Job Migration Task Force. Its findings are based on a review of existing reports and data and interviews with experts on globalization and offshoring. The report is available at http://www.acm.org/globalizationreport.
The key findings of the report include:
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Globalization of, and offshoring within, the software industry are deeply connected, and both will continue to grow. Key enablers of this growth are information technology, the evolution of work and business processes, education and national policies
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Both anecdotal evidence and economic theory indicate that offshoring between developed and developing countries can, as a whole, benefit both, but competition is indeed intensifying
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While offshoring will increase, determining the specifics of this increase are difficult given the current quantity, quality and objectivity of data available. Skepticism is warranted regarding claims about the number of jobs to be offshored and the projected growth of software industries in developing nations
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Standardized jobs are more easily moved from developed to developing countries than are higher-skill jobs. These standardized jobs were the initial focus of offshoring. Today, global competition in higher-end skills such as research is increasing. These trends have implications for individuals, companies and countries
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Offshoring magnifies existing risks and creates new and often poorly understood or addressed threats to national security, business property and processes and individuals’ privacy. While it is unlikely that these risks will deter the growth of offshoring, businesses and nations should employ strategies to mitigate them
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To stay competitive in a global IT environment and industry, countries must adopt policies that foster innovation. To this end, policies that improve a country’s ability to attract, educate and retain the best IT talent are critical. Educational policy and investment is at the core.
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India, the report notes, is creating wealth through its high-tech development centers, while the U.S.A. is benefiting by having U.S.-based corporations achieve cost savings through offshoring, and reinvesting some of those savings into job-creating enterprises. According to the Bureau of Labor Statistics, more IT jobs exist in the U.S.A. today, than at the peak of the dot-com boom.
The annual job loss in the U.S.A. attributable to offshoring is 2%–3% of the IT workforce, the report states. But this figure is insignificant in comparison with the overall job loss and creation figures. Estimates for the amount of work being sent offshore are evident by the expected growth rate of 20%–30% for offshoring industries in India and China.
The nature of jobs being sent offshore is changing from low-wage, commodity-type jobs to higher skill jobs such as research. The report studied four types of firms in high-wage nations: Packaged-software firms, software-service firms, entrepreneurial startup firms and firms outside the IT sector. The report concluded that the amount and diversity of work being offshored is increasing.
Offshoring, despite its allure, also carries risks, including intellectual-property theft, supply-chain failure and legal hassles. Companies need to be attuned to these risks and take steps to mitigate them, such as minimizing access to databases by offshore operations and encrypting data transmissions.
