Offshoring: A Look Behind the Rhetoric

By Allen Bernard

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IT outsourcing is all about saving money. That is the bottom line (no pun intended). Beyond that, however, it is not the simple issue some politicians and pundits wants us to think it is.

But this political football is going to be around for a while. So maybe its time to get used to it.

Along with the presidential election this year, there are 11 governorships up for grabs and, in 2005, there will be 36 governors looking to keep their jobs. Offshoring, especially in the public sector, is a political lightning-rod, so most probably will try to use it to their advantage one way or another, said John Goggin, MetaGroup's vice president and director of government strategies at this week's METAmorphasis conference in San Diego.

And, although nothing has passed yet, some 21 states have introduced 39 separate pieces of legislation limiting government's ability to offshore IT jobs. Instead, state politicians are content to bounce the issue over to their rivals in the House or Senate.

"The global supply chain is too complex to write legislation about this today," said Goggin. In other words, don't expect any major pieces of legislation to pass any time soon.

And despite all the hype and the headlines, offshoring, while increasing, is not as widespread as politicians would have us believe. According to Meta's Dean Davison, vice president and service director for Technology Research Services, research indicates only 8 percent of the Fortune 1000 offshore 10 percent to 30 percent of development work. And only 4 percent offshore up to 50 percent of development work.

And while IT offshoring introduces the uncomfortable concept that white-collar work is now a commodity, 95 percent of the work offshored today is basic development work, not business processes or services. Although this is increasing as well, albeit at a much slower pace.

"Cost savings is always the driver that takes things offshore," said Davison. "It's all about the money."

No matter where the work is done, there are numerous geopolitical factors to consider: the Iraq war and its ramifications for Americans and American companies, SARS and other potential pandemic diseases, political instability, intellectual property issues ... the list is long and can be as imaginative as you want, said Goggin. So, as much as the politicians want to simplify the issue to get votes or the talking heads to push their agendas, offshoring is a complex issue that requires serious thought and a lot of risk/benefit analysis regardless of the bottom line.