What Will a Recession Mean for IT Outsourcing?

Analysts don't think a recession is likely to slow the pace at which U.S. IT jobs are going overseas.


If the news stories are any indication, the U.S. economy has a rough road ahead of it in 2008.

Due to the rippling effects of the credit crisis, mounting trade deficit, soaring oil prices and sobering employment numbers, the United States is expected to be tightening belts in the coming months.

Observers have mixed views about what this might mean for outsourcing. Some argue that a depressed U.S. economic climate will make the cost savings of offshoring less dramatic, which could save jobs that were otherwise at risk of being sent.

Offshore outsourcing has long been seen by business leaders as a way that CIOs could save a few quick pennies. However, this line of reasoning has grown less popular in recent years because many organizations were burned by mounting costs and project delays when they shopped based on price alone.

"Our current economic condition is almost marked by the declining dollar, which makes offshoring less attractive. CIOs need to be very cautious before trying to save money by offshoring," Forrester analyst Alex Cullen told eWEEK in January.

Others, however, feel that a squeeze on IT spending will have the opposite effect. In a May 4 report, Forrester Research argued that the current economic pressures will only increase demands to quickly accrue cost savings by ramping up outsourcing relationships.

"There's been no roll-off in the demand for outsourcing providers. CIOs will have to look at cost savings, but we're advising them not to take shortcuts," Forrester analyst and report author Paul Roehrig told eWEEK.

In addition to the drive to cut costs, other issues will only augment the pressure to continue outsourcing, the first being an IT skills gap in the United States, where demand for tech skills is outpacing the supply. The Bureau of Labor Statistics reported in January that computer software engineer was one of the computer-related roles that were expected to add the most jobs between 2006 and 2016. Meanwhile, a new report from the Computer Research Association found that the number of people receiving computer science degrees has plummeted since 2000.

All this creates opportunity for tech professionals who want to put their careers in the best position as companies continue to outsource projects.

"If you work in a highly commoditized, easily outsourced line of business where the work can easily be done elsewhere for less, your job is not safe," Roehrig said. "But the real trick of outsourcing is how well you manage it, and the jobs that help manage outsourcing deals are going to be even more in demand."

A second factor that could contribute to an increase in offshoring as the U.S. economy heads into a down cycle is the growing maturity of the offshoring market, as service providers and their clients have gotten smarter since their early relationships. A third and related factor is the improvements in productivity that have resulted from increased efficiency.

"Really what is happening is that the definition of offshoring is changing. The erosion of the wage arbitrage equation is changing the market dynamic. The Indian-based service providers know this very well, so they're presenting business gains as well," Roehrig said.